What's your vintage year?
When did you become an EdgePoint partner? Let's take a walk down memory lane as we recall the major events and fun facts from your vintage year.
Focusing on best ideas
CFA Institute recently released a blog post looking at active managers’ returns by position sizing relative to benchmark. Looks like there’s a relation between best ideas and performance. Another reason it makes sense to run concentrated portfolios of high conviction ideas.
Negative interest rates are nothing short of a mystery
Why would anyone want to buy a negative-yield bond?
• Fear about the future that causes investors to engage in a flight to safety in which they elect to lock in a sure but limited loss
• A belief that interest rates will go even more negative providing a profit on bonds when they do (as bonds appreciate in price as they would with any decline in rates)
• An expectation of deflation causing the purchasing power of the repaid principal to rise
• Speculation that the currency underlying the bond will appreciate by more than the interest rate
What is there to do?
The most reliable solution lies in buying things with durable and hopefully growing cash flows. Investments with the likelihood of producing steady earnings or distributions that reflect a substantial yield on cost seem like reasonable responses in times of negative yields. The challenge lies in accurately predicting the durability and growth of cash flows and making sure the price you pay allows for a good return. In today’s environment, assets with predictability are often priced too high and investors are unusually willing to extrapolate growth far into the future. While simple in concept, investing is far from easy, especially today.
Leveraged Loans
Loans tied to more than 50 companies have lost at least 10% of face value in just three months. Some have dropped a lot more, with lenders lucky to get back just two-thirds of their investment if they tried to sell.
Negative interest rates are likely to throw off whatever we knew about the financial world and how things worked in the past. Howard Marks discusses why negative rates have become prevalent, what implications they might have, whether they will reach the U.S., and what investors can do as they navigate these uncharted waters.
Why would anyone want to buy a negative-yield bond?
• Fear about the future that causes investors to engage in a flight to safety in which they elect to lock in a sure but limited loss
• A belief that interest rates will go even more negative providing a profit on bonds when they do (as bonds appreciate in price as they would with any decline in rates)
• An expectation of deflation causing the purchasing power of the repaid principal to rise
• Speculation that the currency underlying the bond will appreciate by more than the interest rate
What is there to do?
The most reliable solution lies in buying things with durable and hopefully growing cash flows. Investments with the likelihood of producing steady earnings or distributions that reflect a substantial yield on cost seem like reasonable responses in times of negative yields. The challenge lies in accurately predicting the durability and growth of cash flows and making sure the price you pay allows for a good return. In today’s environment, assets with predictability are often priced too high and investors are unusually willing to extrapolate growth far into the future. While simple in concept, investing is far from easy, especially today.
Leveraged Loans
Barely noticed in a corner of the financial markets, leveraged loans originally worth about $40 billion are staging their own private meltdown.
Loans tied to more than 50 companies have lost at least 10% of face value in just three months. Some have dropped a lot more, with lenders lucky to get back just two-thirds of their investment if they tried to sell.
Morgan Housel on behavioral biases and pitfalls
In January this year Morgan Housel- Partner, Collaborative Fund- gave a presentation on behavioural biases and pitfalls faced by ordinary investors at the India Investment Conference. Through five stories and various examples, he conveys that investing is not just about what you know but also about how you behave and that stocks become less risky the longer one holds them.
“The goal of investing is not to minimize boredom, it is to maximize returns! If you want clients to stick around, then do things simply.”
“The goal of investing is not to minimize boredom, it is to maximize returns! If you want clients to stick around, then do things simply.”
