I strive to be smart, wise, analytical, creative, intuitive, and informative. I hope to help make you a better active investment management pro.
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The Dark Side of Asset Allocation, Part 2
Several weeks ago in this series I wrote about my belief that asset allocation frequently leads to two important unintended consequences: greater absolute levels of risk in investment portfolios, and deworsification, or too many assets in portfolios. In this edition, I want to address another dark, and unintended outcome of asset allocation, especially when it is productized. Specifically, how it impoverishes frontier and emerging markets. Why Frontier and Emerging Markets? In my 26-year investment management career there have been...
read moreThe Dark Side of Asset Allocation, Part 1
That’s a rather provocative title don’t you think? How can I possibly say that a great good, like asset allocation, has a dark side? In this series I hope to demonstrate to you how asset allocation is actually one of the hidden sources of fragility in the global financial system. Yet, its pernicious effects are largely unexamined because of the concept’s universal acceptance as one of the best innovations in all of finance, and hence, in all of business. Taking On Unnecessary Risk In this first part I want to discuss the fact that...
read moreValues Over Institutions Every Time
Just after the election of Donald J. Trump as President of the United States I had many conversations with colleagues and friends. Regardless of people’s political persuasion, most expressed some confusion about the future direction of global politics given the unusual nature of Trump as a candidate. Was he, is he, crazy like a fox, or just crazy? How should we as investors, business people, and citizens respond to his election? In response to these conversations I developed a new framework to help me find signal within the noise. ...
read more21st Century Finance: Intermediaries
(Part IV of a series on the future of banking and finance) I began this series of articles on 21st Century Finance by comparing and contrasting the legacy finance industry put in place in the 19th and 20th centuries with the one that is emerging now. Hint: new technology and new ways of using these technologies has an outsized chance of usurping the legacy-version of finance. My next article talked about the specifics of Providers of Capital. You can think of these folks as savers and investors, both individual and institutional. Here,...
read moreGDP Needs to be Rethought or Scrapped: Here’s Why
Co-author: David Houle Gross Domestic Product (GDP) needs to be either re-thought, or scrapped as a measure of economy. Why? For several reasons, including: It measures output, not economy, and with grave unintended consequences It measures output domestically, and this is no longer a useful measure GDP Measures Output, Not Economy The whole point of both Gross National Product (GNP) and its ultimate successor, Gross Domestic Product (GDP) was to measure economic output at the scale of a nation. For not very interesting reasons,...
read more21st Century Finance: Users of Capital
(Part III of a series on the future of banking and finance) By now I hope to have convinced you in Part I and Part II of this series on 21st Century Finance, that things are never going to be the same. My thesis is that new technologies (discussed extensively in Part I) have the possibility of disintermediating 20th century finance’s business lines and that is going to chop into the industry’s unreasonably high relative to its value add, profit margins. Recall that all of finance rests on a Fundamental Transaction: Those with a...
read moreThe Vollgeld Initiative: A Primer
Over 100,000 Swiss citizens signed a petition to hold a constitutional referendum to end fractional reserve banking. Yes, really! That petition was certified on 24 December 2015 and a vote will be held sometime Sunday, 10 June 2018. Switzerland, that scion of banking, may vote to end the bedrock philosophy underlying modern finance. The movement is known as Vollgeld and is inspired by the torch-lighting work of Nobel Prize-winning economist Irving Fisher in the 1930s and the torch-bearing work of the International Monetary Fund (IMF). Though...
read more21st Century Finance: Providers of Capital
(Part II of a series on the future of banking and finance) This column follows my overview comparing 21st Century Finance vs. 20th Century Finance. Hopefully I convinced you that banking and finance are likely never to see the same profit margins as in previous decades and that many of the business lines are likely to be usurped. The Financial Ecosystem Before delving into the article let me make a brief aside to describe the financial ecosystem that is going to be the backbone of this and my future columns in the series. For...
read more21st Century Finance vs. 20th Century Finance
(Part I of a series on the future of banking and finance) Finance’s 20th century business lines – their go-to money makers – are all in jeopardy of being destroyed. Primarily this is due to finance’s blatant disregard for its customers’ actual needs. This is the result of the industry’s traditional 40%+ profit margins that allow them to make money regardless of customer satisfaction. This all stands to change, and quickly. Which business lines am I discussing? 20th Century Finance Savings First up, and chief among the...
read moreThe Active Equity Renaissance, A Case Study: Alpine Capital Research
C. Thomas Howard and I authored a series of posts entitled The Active Equity Renaissance earlier this year. We did so because we believe that it is hard but not impossible to “beat the market.” We outline many of the directions the investment management industry took over the last 15 years that have led active managers astray. Much of the blame for active managers’ failure to deliver value is on active managers themselves. Yet, we identify steps they can take to improve performance, and we support our contentions with data....
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