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  • Writer's pictureTed Rasa, Portfolio Mgr

Great Taste... Less Filling.

February 20, 2019

This week's journal focuses on two subjects and is a bit chart heavy. (1) risk exposure and returns comparisons, (2) negative interest rates.

I consider myself a manager of risk first, and a purveyor of returns second.

In this long-standing bull market, it is important to understand the absence of loss does not necessarily mean the portfolio was constructed safely.

The risk not taken within an equity portfolio is hidden from view. So I wanted to illustrate how our active management has performed when normalized against our benchmark, the S&P 500 index.

I want to make it clear, we are not running from risk. Given the right place, instance, and price, we take our chances.


Reported Performance

Our Equity Portfolio Vs. the S&P 500.

The S&P 500 index is allocated 100% to stocks. (risky assets)

Our performance is better but understated by risk taken.


Normalized performance VS benchmark
Normalized Performance

If the S&P 500 were to follow our exposure to stocks.

We averaged a 20% cash position in 6 years.

We are currently holding ~40% in cash today.

Our stocks performed 33% better than the S&P 500.


Active Management adding value

We achieved higher returns with less exposure to risky assets (stocks).

Less risk, more return.

This is what we strive to achieve when allocating capital for ourselves and our clients.


Chart(s) of the Week

Imagine paying someone to borrow your money?

Common sense does not seem to prevail, does it? Well, that is what the central banks across the world have decided to do in order to smooth out cycles in their national economy. Approximately 25% of debt is yielding negative returns. 

What unknown and adverse side-effects will be created by such tinkering?

The currencies behind negative yields become suspect and gold becomes a valuable backstop. 

It is no wonder why the introduction of bitcoin as a universal currency was so appealing. Unfortunately, it has become a vehicle of speculation. In my opinion, gold is better yet boring. 


Word of the Week

CONTRARIAN, n. A sheep masquerading as a lone wolf. To be a contrarian, you must buy when most others are selling and sell when most are buying—an act that sounds easy but requires almost superhuman emotional toughness. Most money managers would destroy their businesses if they thought independently, as the typical client just wants them to chase whatever is hot until it is not. When markets fall apart, investors who call themselves contrarians turn out to be conformists. Much like the Judean crowd chanting “We are all individuals!” in Monty Python’s Life of Brian, all professional investors say they are contrarians. Almost none are.


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