Rational Advisor

Investing in a rational way these days means experiencing an almost perfect storm.

Within the investment world, bonds have returned near nothing, and higher risk investments have come into vogue. Low P/E name have become high beta (means cheap stocks are seen as risky), and very pricy stocks are regarded as safe havens with low betas and bad news is good news!. It’s a very strange environment, reminding me of the “Seinfeld” episode ‘The Opposites” in which George decides to do everything opposite, like approach (and successfully!) an attractive woman with the line “Hi, my name is George, I am bald, short, unemployed and live with my parents”.

I truly believe that this perfromance we are seeing is not “real” and our investment strategy is the correct approach. On quantitative basis our portfoliso are as attractive as they have been for some time. I am more confident about the future performance than I have been, once we return to a more normal market.

The larger market environment still is characterized by too much tolerance for risk. Market professionals have extremely short-term, time-frames at this juncture. The most salient manifestation of this is market professionals demand for ever-more US fed rate cuts. I would liken these folks to crack addicts who worry about today, we’ll deal with next week when it comes. Of course, the withdrawal will be higher inflation. The US Fed is monetizing their structural issues, and will only make the day of ultimate reckoning that much more painful. As Ben Stein write in 9/23/07 “New York Times” “… Wall Street desperately wanted a rate cut…Wall Street is run by young people who panic easily at the first sign of frustration, like overtired infants. They wanted to be reassured that Mommy cared about them and would give them her breast, in this case monetary ease”.

People GET A GRIP! While we are frustrated by the recent issues and performance, we try to retain our equilibrium, and focus on what is right, not what is easy. There is a reason we have Bonds, because we do not know when the next crash will come. There is a reason we retain the managers that we have, because they have steered through many crashes and have a good record of management.

We appreciate the confidence you have in us at a time like this when our near term performance is weak. We remain highly confident of our discipline and the attractiveness of our investment approach

Rational

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