Buy & Hold is DOA?

Yahoo Tech Ticker has a video and article up with an interview of Lakshman Achuthan from the Economic Cycle Research Institute, hat tip to Barry Ritholtz. My internet connection is not fast enough to watch the videos on that site (one of the tradeoffs of living in the woods) but I was able to get the gist from the article. Achuthan feels we are in for more boom and bust cycles and so with that backdrop he feels buy and hold is not the best strategy. The comments were also interesting ranging from they’re all crooks, to Bogleheadesque comments to comments agreeing with Achuthan. Framing the argument in such definitive terms doesn’t make sense to me. We all know that the S&P 500 was down 24% on a price basis in the last decade, adding in dividends it was down 4.5% for the decade. Whatever the result of the index obviously some stocks did better than the index and some did worse. For the decade Caterpillar (CAT), a client holding, was up 142%. While there were a couple of trading opportunities along the way someone who held on for the entire decade added a lot of value with the pick. Even someone holding on during a couple of big declines for the name had a lot of luck with it for the decade. Contrast that with Citigroup (C) which was down 91% for the decade. The stock spent most of the decade between $40 and $50 before rolling over in 2007. I’ve never owned Citi so I can’t really pinpoint exactly when the story changed but after doing OK...

Buy & Hold is DOA?

Yahoo Tech Ticker has a video and article up with an interview of Lakshman Achuthan from the Economic Cycle Research Institute, hat tip to Barry Ritholtz. My internet connection is not fast enough to watch the videos on that site (one of the tradeoffs of living in the woods) but I was able to get the gist from the article. Achuthan feels we are in for more boom and bust cycles and so with that backdrop he feels buy and hold is not the best strategy. The comments were also interesting ranging from they’re all crooks, to Bogleheadesque comments to comments agreeing with Achuthan. Framing the argument in such definitive terms doesn’t make sense to me. We all know that the S&P 500 was down 24% on a price basis in the last decade, adding in dividends it was down 4.5% for the decade. Whatever the result of the index obviously some stocks did better than the index and some did worse. For the decade Caterpillar (CAT), a client holding, was up 142%. While there were a couple of trading opportunities along the way someone who held on for the entire decade added a lot of value with the pick. Even someone holding on during a couple of big declines for the name had a lot of luck with it for the decade. Contrast that with Citigroup (C) which was down 91% for the decade. The stock spent most of the decade between $40 and $50 before rolling over in 2007. I’ve never owned Citi so I can’t really pinpoint exactly when the story changed but after doing OK...

A Minksky Moment On A Taleb Tuesday?

The catalyst for this post is a similarly titled post from Cam Hui at the Humble Student blog. You may know the term Extremistan from Taleb’s writings which Cam defines as “a state where one’s wealth can change massively in a very short time” or as he puts it elsewhere in the post as 100 year floods happening every few years. For Taleb’s part he describes Extremistan as “a world I describe as one in which random variables are dominated by extremes, with Black Swans playing a large role in them.” Hyman Minsky is celebrated posthumously for observing that very extreme events occur as a result of long periods relative tranquility which creates complacency. The complacency then gets shattered by something like Bear Stearns or Lehman Brothers blowing up. Are we now in Extremistan? When will complacency return so we can all go back to making money again? Candidly I do not frame it this way. I think Minsky’s idea holds plenty of water and I don’t think disagree with Taleb, I just don’t think in terms of tails in the manner that Taleb (and Hui) writes about them. Where extreme events are concerned I think about avoidance more than anything else. For my money S&P 500 sector weights give ample warning of trouble (but not magnitude). This worked with energy almost 30 years ago, tech ten years ago and financials three years ago. For people who have been reading this site for a while, are you going to overweight the next sector that comprises 20%, or more, of the S&P 500? In the last decade I think choosing...

A Minksky Moment On A Taleb Tuesday?

The catalyst for this post is a similarly titled post from Cam Hui at the Humble Student blog. You may know the term Extremistan from Taleb’s writings which Cam defines as “a state where one’s wealth can change massively in a very short time” or as he puts it elsewhere in the post as 100 year floods happening every few years. For Taleb’s part he describes Extremistan as “a world I describe as one in which random variables are dominated by extremes, with Black Swans playing a large role in them.” Hyman Minsky is celebrated posthumously for observing that very extreme events occur as a result of long periods relative tranquility which creates complacency. The complacency then gets shattered by something like Bear Stearns or Lehman Brothers blowing up. Are we now in Extremistan? When will complacency return so we can all go back to making money again? Candidly I do not frame it this way. I think Minsky’s idea holds plenty of water and I don’t think disagree with Taleb, I just don’t think in terms of tails in the manner that Taleb (and Hui) writes about them. Where extreme events are concerned I think about avoidance more than anything else. For my money S&P 500 sector weights give ample warning of trouble (but not magnitude). This worked with energy almost 30 years ago, tech ten years ago and financials three years ago. For people who have been reading this site for a while, are you going to overweight the next sector that comprises 20%, or more, of the S&P 500? In the last decade I think choosing...

Sunday Morning Coffee

A friend newly interested in the capital markets, interest rates, government debt and so on emailed me to ask whether I thought we were now at a tipping point. Perhaps she was prompted to ask that because of the noticeable back up in the ten year treasury yield last week. My initial answer was simply to note belief that whatever the consequences of the financial crisis and the attempts to “fix it” will be they will play out over a longer period of time than people like Mish (a must read) and Peter Schiff call for. Right or wrong the reason I feel this way is the extent to which the US is enmeshed in the world economy. Additionally I noted that reasonably speaking interest rates should have been much higher than they are now and part of the reason is the foreign interest in US paper but of course the debt that has been bought by the Fed has hurt either. Weakly supporting the idea above about consequences happening slowly is the speed at which Iceland, Greece and Ireland ran into trouble. I use the word weakly because those countries are different than the US but still. Then a couple of other things that have occurred, some anecdotal, that I think can also contribute to the slow motion wreck theory. A fraternity brother of mine (actually my roommate during my junior year) and his wife are both teachers in California (but not in a big city) and if I am following his posts on Facebook correctly they have both been given pink slips and looking for jobs in...