Category: Investing

https://www.barrons.com/articles/dividend-fund-manager-daniel-peris-51557706862    

In a recent column, Bloomberg columnist John Authers asked “Wherefore the lack of inflationary pressure? The most coherent explanation stems from the effect low rates have in dampening the capitalist process of creative destruction. Simply put, low rates allow those companies that would normally fail to survive and stay in business. That means that capital is wasted and growth remains far below what it ought to be otherwise.” By day, I manage a portfolio of dividend-paying, dividend-growing companies that are supposed to get killed by raising rates.  While that has not happened, I actually want to see long rates rise, …

Over the past few days, Bloomberg columnist John Authers has been hosting an online discussion of Peter Bernstein’s Capital Ideas from 1996.  Much of the back and forth has been about using volatility (standard deviation of mostly shareprice-based returns) as the measure of risk in investing. That’s the preferred approach in Modern Portfolio Theory.  In recent years, I have made a cottage industry of bashing MPT’s definition of risk. I’ve also likened alpha (the excess or deficit of return after adjustment for risk or specific factor exposure) to Santa Claus: He may or may not exist, but it makes a …

(The full version of my contribution to an online discussion organized by John Authers/Bloomberg. An edited version appeared on the Bloomberg website.) When assessing Capital Ideas, it is critical to distinguish between the messenger and the message. Through the Journal of Portfolio Management (starting in 1974), and then in Capital Ideas (1992), Peter Bernstein clearly succeeded in achieving his goal of bringing gown to town, as well as explaining to a broader audience in Capital Ideas what the complex and rather dry Journal of Finance articles actually meant.  His enthusiasm and wit and wisdom emerge on almost every page. He …

I’m pleased to announce that I have become the host of the New Books in Finance podcast, now a dedicated channel on the New Books Network. (My previous NBN interviews fell under the more general Economics rubric.)  I look forward to interviewing authors on a variety of finance and investment-related topics (and the occasional work on Russian history or aviation!). Please get in touch if you have a book coming out, or if you’d like to join me as a co-host. I am looking for both. Previous interviews can be seen at https://newbooksnetwork.com/category/politics-society/finance/  

Capitalism is under attack, in the US, in France, pretty much any where you look.  Whether for reasons of income or wealth inequality or the damage being done to the planet, a lot of people are blaming the system. My question is, “Which capitalism?” Is it the stick-figure University of Chicago version reflected in the orthodox finance model and in your MBA program and CFA curriculum?  The damage it has done to investors in the stock market is the topic of Getting Back to Business, but it is too much to say it is responsible for all the ills of …

A decade ago or so ago, one of the jokes making the rounds in Hollywood was that the hottest screenwriter in town was Jane Austen.  Now one of her contemporaries—albeit a generation earlier—is crushing it in finance. Adam Smith passed away in 1790, but he is making a big-time come back. And it is not for his undergraduate standard, The Wealth of Nations (published in 1776 and expanded in 1784), but for his earlier and broader The Theory of Moral Sentiments (published in 1759 and revised nearly continuously until he died). Smith considered this his magnum opus, with Wealth of Nations serving as a specific application …

An even-handed review of Getting Back to Business by @MartinFridson from the @CFAInstitute, on their @Enterprising Investor site. Given my take on the state of the profession, I am pleasantly surprised. https://blogs.cfainstitute.org/investor/2019/03/15/book-review-getting-back-to-business/  

How did the abstract theories of the great classical economists become specific and rigid policy prescriptions for modern life, including MPT? Here’s how. Listen to David Colander explain how the “Chicago” school changed the rules. David Colander and Craig Freedman, “Where Economics Went Wrong: Chicago’s Abandonment of Classical Liberalism” (Princeton UP, 2018)    

The notion that the value of an asset would rise with the sustainable increase in distributable cashflows from said asset is not a controversial notion in the business world. It is, however, not the accepted wisdom in the US stock market where the rules have been different for several decades, and where paying a dividend—even a rising one—is derided as giving up on growth. Despite that adverse environment, most US stocks when measured over long periods still observe the basic rules of business. In other words, stocks go up because dividends go up. That’s the recurrent theme in The Strategic …

Wall Street’s reputation, already quite bad on Main Street, has turned …. esoteric.  To the surprise of many, an “inside-baseball” stock market practice, the share buyback, has become an early issue in the 2020 presidential campaign. Go figure.  The first salvo was fired in the New York Times by two prominent Democrats, one of whom has run for President before and might again. A high-profile Republican senator, also a former White House contender and probable future one, could not resist temptation and chimed in with his view and proposal.  The back and forth has led the financial chattering class to …

Enjoyed discussing the book with Demetri Kofinas of the Hidden Forces podcast. You can listen in at https://www.hiddenforces.io/podcast/show/daniel-peris-financial-theory-history …. Note, the final part of the interview is behind a paywall.

This Pittsburgh Post Gazette editorial about the importance of studying history makes the usual “knowing history is good for society” points, but leaves out the competitive advantage in business knowing the history of said business. So say I. https://www.post-gazette.com/opinion/david-shribman/2018/12/30/David-M-Shribman-The-end-of-history/stories/201812300095      

Factor investing through index funds and ETFs has been all the rage for the past decade. Yet, it may not work. https://www.bloomberg.com/opinion/articles/2018-12-24/professor-lu-zhang-has-some-questions-about-your-index-funds How about the factor hiding in plain sight, business ownership?

Had the pleasure of interviewing Ian Gow and Stuart Kells, authors of The Big Four, a new history of the modern audit industry. Fascinating and frightening at the same time. Listen here: Ian D. Gow and Stuart Kells, “The Big Four: The Curious Past and Perilous Future of the Global Accounting Monopoly” (Berrett-Koehler Publishers, 2018)    

Year-to-date, the US stock market, as measured by the broad S&P 500 Index is roughly flat, with a -1.4% change in price (thru 12/11), augmented by nearly 2% in dividends distributed and accrued. It surely has not felt that way.  In January, the S&P rocketed up 7.5% in less than one month, and then fell over 10% in 10 days in late January and early February. From late March through September, the market rose steadily to a 9% gain before the up-and-down action in the fourth quarter brought the year-to-date returns back to around zero. Start Finish Price return % …

Following up on my post from November 1, here is a matrix of the Macaulay durations for a range of equity portfolios.  The conclusion is obvious: the amount of the upfront payment is far more significant in determining equity duration than the growth rate. The incremental growth rate, and the incremental expected return or discount rate, ends up being almost trivial in the calculation.   Cash is king.   Macaulay Duration Matrix for Equity Portfolios The “Dividend” Market The Stock Market The “Dividend Growth” Market Yield 4.0% 4.0% 4.0% 2.0% 2.0% 2.0% 2.0% 2.0% 3.0% 3.0% 3.0% 3.0% 3.0% Div …

WealthManagement.com’s John Kador puts Getting Back to Business on his 2018 Top 10 Book list for financial advisors. Link here.

In the past month or so, I’ve been interviewed by several podcasters. The crispest is Michael Covel’s Trendfollowing podcast, episode 711. You can listen to it here.   There is also an interview on Jay Coulter’s The Resilient Advisor podcast.   Note: The views expressed here are those of the author alone, and do not necessarily reflect the views of his employer. Nothing written here should be construed as investment advice. Consult your investment advisor for specific recommendations.

I am far from alone in pointing out the damage done by the near-termism of both investors and corporate managers.  It is addressed at length in Getting Back to Business. This issue is not going away.  See, most recently, the comments of UK asset manager Baillie Gifford in today’s Financial Times.

James Mackintosh’s Streetwise column in Today’s WSJ (behind a paywall for non-subscribers) tells the tale of a American industrial giant that had to cut its dividend twice this year, most recently down to a penny a share. As Mackintosh wrote, “The business has been eating its seed corn recently, partly to maintain the dividend.” Mackintosh seems to blame “irrational” investors for placing too much emphasis on dividend payments, and managers for being cajoled into making dividend payments when the company really needed to push less, not more, cash out the door.  He ends by repeating the flawed Miller & Modigliani dividend irrelevancy …

One of the key points made in Getting Back to Business is that the daily repricing of assets in the stock market, and the “near-termism” that can result, ends up leading both company managers and investors astray. As a potential solution, I argue in favor of having both focus on cashflows, which are generally much more stable, and lend themselves to longer-term analysis and investment. The challenge of near-termism showed up in two completely separate forums this week. In the first, the Buttonwood column in the October 27 issue of the Economist, very likely now behind a paywall, points out the …

The historian in me frequently notes that too many people operating in finance assume that the “rules” are static, and everlasting.  That’s the case of MPT, as argued in Getting Back to Business. It’s also the case in regard to the US dollar’s status as the world’s reserve currency. A recent Bloomberg Businessweek article by Peter Coy, “The Tyranny of the U.S. Dollar,” (October 8) reviews the status of the greenback as the dominant currency in global affairs and why it might or might not remain that way. (One factor in favor of the dollar is that there is no …

In Getting Back to Business, I call into question the notion of a “risk free” rate, to which one adds a certain incremental amount to determine the appropriate overall risk (and expected return) of an investment. According to today’s FT, consumers in Italy are asking (sort of) the same question, as they become unusually aware of and focused on the spread between Italian government bonds and those of the “risk-free” investment source, German bunds.

Whatever the flaws of Getting Back to Business, irrelevance to portfolio management is not one of them. The book provides a critical history of the current paradigm, and then proposes an alternative approach, written from the perspective of an active practitioner overseeing one of the largest dividend complexes in the country. So I had to laugh when a leading journal in the field of investment management declined to review the book, writing to my publicist, “Not that kind of journal.” Alas, this is consistent with how I expected the book to be received by the academic community, as discussed in …

A nice shout out from Barron’s, with some Warhol-esque imagery, at https://tinyurl.com/y7vmhpky Note: The views expressed here are those of the author alone, and do not necessarily reflect the views of his employer. Nothing written here should be construed as investment advice. Consult your investment advisor for specific recommendations.