That's me on the left, by the way.
Stocks and Bondage was the title of the Princeton Triangle Club’s 1981 musical revue—staged in the fall of my freshman year—which presciently marked the beginning of the longest bull market in US history. I thought it was a great show, and consider it a fitting title for this quarterly letter. I believe we are at the end of an era Read the full newsletter here.
Central banks have trapped themselves in a Catch-22. By encouraging the buildup of unproductive debt, they have created the very deflation they sought to avoid with easy monetary policies. Inflation cannot be marshalled to reduce debts in the midst of a liquidity trap; it will only arrive once debts have been written down. Moreover, by seeking to drive risk in the financial system toward zero, they have progressively reduced the potential for real investment returns. Risk can be reassigned, but not eliminated, and there is no return without risk. If the United States follows in the footsteps of Europe and Japan in supporting zombie companies and unproductive investments, the prospects for public market investors are not auspicious. Even when the pandemic is behind us, its consequences for financial markets will reverberate for years. Read the full newsletter here.
In our latest quarterly letter, Paladin Advisors suggests a way to thrive in a world of unpredictable and disruptive change. In the spirit of the Stoics, we explain why an anti-fragile mindset can be helpful in dealing with the challenges of difficult markets, difficult people and/or undesirable trends. Rather than thinking in terms of prediction, one should instead think of planning. Our decisions reflect tentative plans for engaging with the world as we see it unfolding over time. It can be useful to imagine, and to ask ourselves, “What could go wrong?”
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What is it about houses? We expect those humble walls of timber and sheetrock to be our safe havens, status symbols, star investments, ATMs and retirement kitties – all at once. Is it really possible for a home to live up to so many contrary expectations? Probably not. If houses, ties us in knots, it’s not really our fault. They’re ‘passion projects’ that sit at the intersection of daydreams and cold, calculated retirement planning.
We constantly field questions on housing in relation to whether it makes sense to buy a home, when to purchase a home, whether to pre-pay mortgages, and how homes fit into the bigger picture of retirement planning. In our Q1 letter, we address some of these questions, provide interesting counterpoints to home-ownership mania and outline why we believe the housing market is due for a slow-down in the foreseeable future. Read the full newsletter here.
A continuation of the Federal Reserve’s easy-money policies cannot prevent recession in an economy that is fully loaded with debt. There is no evidence that business capital spending responds to changes in interest rates, and most US households cannot afford to borrow much more. The central bank has abused its “exorbitant privilege” of issuing money to drive up asset prices, worsening a wealth divide that is becoming politically contentious. Leaders in the policy, academic and financial communities are beginning to question the wisdom of continuing with a monetary strategy that is at best ineffective, and at worst counterproductive. We fear a loss of Fed credibility that could spiral into a crisis of confidence when the Emperor is seen to be naked. Read the full report here.
It’s well-understood in our industry that value stocks – those with relatively low valuations – have persistently trailed the market over the past 10 years. However, it might surprise you that the recent returns of the value category are in line with its own historic average. Value’s relative struggles have arisen due to the performance of high-flying growth stocks, particularly large cap growth stocks that have acquired and maintained dominance in their respective industries. In ascertaining the relative outlook for value stocks, it is necessary to examine the conditions that facilitated these unusually-persistent competitive advantages. It is only by doing so that we can answer the question: is there value in value investing, or is it a trap? Download the full document here.
In our latest quarterly letter to clients, we take a close look at the origins and implications of the rapid growth in Sustainable Investing. These are strategies that incorporate non-financial criteria – e.g., ethical or environmental considerations – into investment selection decisions. SI strategies range from simple “do no harm” approaches (negative screening of morally offensive companies or industries) to the more hands-on and aspirational Impact Investing, in which investors target and fund specific environmental and social causes.
We think that, when thoughtfully-practiced, sustainable investing is becoming synonymous with smart investing. For long-term investors, the tradeoff between sustainability and return is now more apparent than real. Expanding one’s horizons to account for the likelihood that externalities will eventually ricochet back to the systems that produced them changes the investing equation in fundamental ways. Already, the costs of a deteriorating environment and society are becoming impossible for our natural systems to absorb quietly, and increasingly difficult for vested corporate and political interests to deny.
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Many of our clients have accumulated significant assets over a lifetime of hard work and good fortune. More assets than they will need to see them through a secure retirement-even on our conservative economic assumptions. More than they’d like to leave to their children, who they hope will chart a self-reliant course through life. For many, it is an embarrassment of riches. As we discuss with clients the question of “what it’s all for”-the money, the work, the meaning of their lives-the question of charitable giving frequently arises.
More often than not, our clients are unsure whether, when, and how to share what they’ve earned, outside the confines of established family relationships. They express that it’s easier to figure out how to earn money, than how to give it away. Our Q3 letter seeks to address that uncertainty by suggesting a framework within which to establish charitable giving priorities and consider one’s options. We do so by addressing a set of rhetorical questions-and offering some possible answers.
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