Other Things on Our Mind That Didn’t Manage to Work Their Way Into a Coherent Pattern for Our October Strategy Letter


J.P. Morgan boss Jamie Dimon: “It’s a fraud. It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed.”

In the other Corner: Murray Stahl.

And the following is just purely stupid:

Usually when a company rebrands itself by diving into the digital currency space, the stock waits until after the announcement to take off. In the case of Bioptix Inc., a maker of diagnostic machinery for the biotech industry, it didn’t bother waiting.

The penny stock nearly doubled in value in the days leading up to the company’s announcement Wednesday that it’s renaming itself Riot Blockchain Inc. to reflect a new focus on buying cryptocurrency and blockchain businesses. After the Castle Rock, Colorado-based firm formally unveiled the change in direction, the shares extended their rally, gaining as much as 17 percent to $9.50, the highest intraday level since January 2015.

Other companies have shown that a foray into the cryptocurrency space is often rewarded by investors, at least initially, as the astronomical increase in the value of virtual coins has lured everyone from big banks to startups. Overstock.com Inc. shares rallied after the online retailer said it was starting a digital-coin exchange. Shares of MGT Capital Investments Inc., the cybersecurity firm with ties to controversial anti-virus software developer John McAfee, soared after the company announced a move into bitcoin mining.

People grossly misunderstand the “technology” versus the Crypto-currency as an asset class. We think the former is interesting, the latter scary.


Protections have gotten so lax in the $1 trillion market for U.S. leveraged loans that if an offering comes with decent covenants, lenders take it as a sign that something’s wrong with the deal. ‘You have to think twice when you see a loan with a covenant these days’ says Thomas Majewski, managing partner and founder of Eagle Point Capital Management.

‘It’s basically the worst it’s ever been in terms of loan covenant protections,’ says Derek Gluckman, senior covenant officer at credit-rating firm Moody’s Investors Service. (BLOOMBERG)


The Under-sampling of Failure—we only see the success and incorrectly attribute cause and effect to it, without accounting for luck and randomness


Active shops have responded to this technological threat by putting those “uniquely human” tasks into an automated form—strategic-beta ETFs that codify a manager’s active thinking into rules that can be indexed. Assets in these products have grown nearly 30% this year through June from 2016 levels, growing faster than the ETF space as a whole as well as the asset management industry, according to Morningstar.

Late last month, once-legendary active shop Turner Investments announced that it would acquire ETF specialist Elkhorn Capital Group and shut down its remaining actively managed mutual funds. USAA Capital, which has for decades served the military and their families with active funds, recently requested permission to launch four multifactor funds tracking MSCI indexes and two active fixed-income ETFs. Factor ETFs are a subset of strategic beta; these ETFs choose stocks based on qualities such as their profitability, volatility, or momentum.


Mario Draghi Interview as Documented in the Financial Times: “ First of all, we have a growth-based recovery where growth is solid and robust and I said before across countries and sectors. But there is still a big labour market slack that needs to be filled. But the key point is that we don’t have a dual mandate like the Fed, where we can sort of look also at conditions of unemployment in the labour market. We only have one mandate, which is price stability. Price stability for us is defined as a level of inflation that is close but below 2% which should be reached in a self-sustained and durable fashion – and we are not there yet. The Governing Council wants to get there and there is nothing that will derail its will to get there. By the way, this anxiety should be also based on facts because so far, everybody benefited greatly from this monetary policy, all countries benefited greatly. So this angst so far has no evidence that could justify it.”


“Some decisions are consequential and irreversible or nearly irreversible – one-way doors – and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before. We can call these Type 1 decisions. But most decisions aren’t like that – they are changeable, reversible – they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high judgment individuals or small groups.

As organizations get larger, there seems to be a tendency to use the heavy-weight Type 1 decision-making process on most decisions, including many Type 2 decisions. The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention.1 We’ll have to figure out how to fight that tendency. And one-size-fits-all thinking will turn out to be only one of the pitfalls. We’ll work hard to avoid it… and any other large organization maladies we can identify. “


In the U.S., the Russell 1000 Growth Index outperformed its value stock counterpart by 10 percentage points in the first half, the widest spread over that period since 2009. Over the past decade, the performance of U.S. growth stocks has been almost three times better than that of value stocks, contributing to what index fund giant State Street Global Advisors calls “the longest period of underperformance for value since the late 1940s.”

“Investors have pulled $116 billion from U.S. large-cap value funds over the past 10 years, according to Morningstar, with more than one-fourth of that outflow occurring over the past 12 months.”

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