The Hidden Asset

By |2017-07-17T12:21:30+00:00February 1st, 2017|Global Market Update|

What’s the asset that no one talks about? Photo: Bryan Hanson. Source: Morguefile When I discuss asset allocation, I usually focus on stocks and bonds. Bonds are a senior claim on a business’s cash flow, and stocks are a residual claim on cash flow. So stocks benefit from a business’s growth, but they’re riskier – they get wiped out if the business fails. Bonds are safer, but they don’t go anywhere. If everything goes right, you just get back what you put in, with [...]

Mountains and Markets

By |2017-07-17T12:22:59+00:00April 20th, 2015|Global Market Update|

How much attention should we pay to forecasts? Tuckerman Ravine Image Source: Douglas Tengdin I recently hiked into the mountains for some spring skiing. The forecast wasn’t great: cloudy with showers, then partial clearing, with a front moving in the next day. When we arrived at the trail, expectations had deteriorated—the following day was supposed to bring worse weather—snow, sleet, and freezing rain. But there was a lot of snow right then, and we were prepared. If conditions deteriorated, we could always ski out. [...]

Beating the House

By |2017-07-17T12:23:07+00:00January 22nd, 2015|Global Market Update|

Is investing like gambling? Photo: I’ve written before how investing isn’t gambling. Gambling is a zero-sum game, while investing makes everyone better off. Gambling is entertainment, while investing is a fundamental part of business. Investors own something real—a share of a company, or a loan to a city; gamblers don’t own anything. They just participate in a process. […]

Reviewing Risk and Return

By |2017-07-17T12:23:10+00:00December 8th, 2014|Global Market Update|

What’s your tolerance for risk? Source: Flikr Some people see risk and see only danger: lions and tigers and bears, oh my! Others look at risk as an opportunity for an adrenaline-rush: backflips off cliffs into mountain lakes, bungee-jumping off bridges and buildings. Risk is an integral part of finance. Different asset classes have different levels of uncertainty regarding their underlying cash-flow. This uncertainty translates into a risk-profile. […]

Returning to Risk (Part 4)

By |2014-05-15T09:36:22+00:00May 15th, 2014|Global Market Update|

Why is risk so important? Risk-management is at the center of rational investing. It’s what keeps people up at night when markets are booming, and what allows them to sleep soundly during panics and depressions. It’s what allows your money to work for you, so that later in life you don’t need to. But risk-management puts a glaze over people’s eyes. Tell them you work in risk-management and they’ll quickly change the subject. Google the phrase and you’ll get links to wiki articles about [...]

Returning to Risk (Part 3)

By |2017-07-17T12:34:18+00:00May 14th, 2014|Global Market Update|

Is anything risk-free? Practically-speaking, sure. Insured bank deposits and short-term Treasury obligations have little to no credit risk, and their maturities are so short that if interest rates rise, they’ll have very little price volatility. At least in the short term. But over the long-term, their real value can erode. Right now the Fed has rates near zero, while inflation is running around 1 ½ percent. A 10% loss in value isn’t a lot, but it isn’t nothing, either. But that’s just the US. [...]

Returning to Risk (Part 2)

By |2014-05-13T09:39:40+00:00May 13th, 2014|Global Market Update|

What is risk? Risk comes in two major flavors: short-term and long-term. With investments, short-term risk comes from the investments themselves—where they sit in the corporate capital structure. When a company generates cash, there are three different types of claims on that cash: senior claims (bonds), operating claims (real-estate), and residual claims (equity). The volatility of the cash-flow and the priority of the claim determine the likelihood of the investor getting his or her money back. But long-term risk comes from outside the investments—from [...]

Reaching the Top (Part 2)

By |2017-07-17T12:34:20+00:00March 26th, 2014|Global Market Update|

“Getting to the top is optional. Getting down is mandatory” That’s the formula Ed Viesturs developed as he pursued his quest to climb all 14 of the world’s 8,000 meter peaks. When he accomplished this in 2005 he was only the 12th person ever to do so. Since then only 19 others have climbed all 14. On a mountain, Ed describes himself as a risk-manager, continually evaluating whether the conditions or circumstances support the next move. Similarly, risk management is an integral part of [...]

Reaching the Top (Part 1)

By |2014-03-25T09:33:51+00:00March 25th, 2014|Global Market Update|

Is investing like climbing mountains? I thought about this when I looked at the career of Ed Viesturs, the first American to climb all 14 of the world’s 8000-meter peaks—all without supplemental oxygen. He has sometimes been called a risk-taker, but he bridles at that description. He defines himself as more of a risk manager, continually assessing the conditions and deciding whether to go forward to not. Because the air is so thin and conditions are so extreme where these high peaks jut up [...]

Bond Market Math (Conclusion)

By |2013-10-09T10:05:51+00:00October 9th, 2013|Global Market Update|

So how do we put it all together? Bond investors need to understand broad trends in the economy and the markets in order to invest profitably. It’s clear that the economy continues to expand, in spite of the drama we’re seeing in Washington. Interest rates are moving higher. Corporate balance sheets are healthy, and companies are expanding in emerging economies. So the right way to invest in bonds is to own bonds that either mature or reprice sooner than the benchmark; that have exposure [...]