Uncompromising Commitment

Viewpoints

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Periodically at Welch Hornsby we want to just share our point of view on things. VIEWPOINTS are a series of white papers on the way we see life in this financial world we live in today. We hope you will enjoy.

OFF TO THE RACES SEPTEMBER 2016
Written by Jim Underwood, CFA, Chief Portfolio Strategist
As we approach November 8th, I am repeatedly asked, “How will the outcome of the upcoming elections impact investment markets, and which is better for the stock market – Republican leaders or Democratic?” My honest, easy answer (or non-answer) is always – “it depends”. However, let’s see if any broad generalizations can be made based on historical observations.
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USE IT OR LOSE IT JUNE 2016
Written by Jim Underwood, CFA, Chief Portfolio Strategist
Every time investors believe global central bankers are running out of ammunition to fight sluggish economic growth, policymakers return to the theoretical drawing board, adopting increasingly radical policies that economists can “prove” work in theory, but have minimal practical evidence will work outside of the lab. One of the more recent experiments surrounds the adoption of Negative Interest Rate Policies (“NIRP”).
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BALANCING ACT NOVEMBER 2015
Written by Jim Underwood, CFA, Chief Portfolio Strategist
Humility and confidence, two conflicting personality traits, are both critical to long-term investment success. Confucius said that real knowledge is knowing the extent of one’s ignorance.  The ability to acknowledge one’s ignorance is rarely seen in an industry relying on “experts” to gain a competitive advantage.
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MERCY RULE AUGUST 2015
Written by Jim Underwood, CFA, Chief Portfolio Strategist
I spend many weekends watching my son play little league baseball. The game consists of six innings; however, if the losing team is down by more than 15 runs after their third at bat, the mercy rule applies and the game officially ends. “After” is emphasized as the umpire ensures the losing team always gets their final at bat. 
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ACTIVE VS PASSIVE, WHAT’S THE DIFFERENCE? 2015
Written by Jim Underwood, CFA, Chief Portfolio Strategist
The active versus passive investment debate has been going on for decades. John Bogle, the founder of Vanguard, has called active management that relies on superior stock picking a “loser’s game.” While active advocates point to legendary investors like Ben Graham, Warren Buffet, Peter Lynch, Sir John Templeton, Julian Robinson…as evidence superior stock picking can add value. 
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OIL SLICK FEBRUARY 2015
Written by Jim Underwood, CFA, Chief Portfolio Strategist
“The oil industry is like a ship with its center of gravity above the water line, says Jeremy Elden of Germany’s Commerzbank. It can sail smoothly for years, but capsize suddenly in rough seas – and do so quite rapidly. An unprecedented combination of excess supply and weak demand has created just such rough seas in the past year.” Jeremy Elden’s comment about a rapid capsize certainly captures the dramatic collapse in oil prices over the last eight months…
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THE DETAILS IN THE DOLLAR NOVEMBER 2014
Written by Jim Underwood, CFA, Chief Portfolio Strategist
In the same week the Federal Reserve shut off the printing presses, the Bank of Japan ordered more ink and paper! On Halloween, Haruhiko Kuroda, the Governor of the Bank of Japan shocked the investing community by announcing the central bank would increase its quantitative easing program, boosting its monetary base at an even faster pace, bringing its annual bond buying purchases to 80 trillion yen (approximately $724 billion). The monetary policy surprise sent local equity markets soaring…
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BLIND FAITH AUGUST 2014
Written by Jim Underwood, CFA, Chief Portfolio Strategist
I open nearly every presentation defining risk as more things can happen than will happen. Uncertainty is a broader concept focusing on the clarity surrounding the range of things that can happen. Most people look backward to deal with uncertainty, reviewing what happened historically to build their forward-looking probabilities. However, like everything in the investment world, the popular disclaimer – past performance may not be indicative of future results – is applicable. We are living in an exceedingly ambiguous period as unprecedented policies could ultimately lead to unprecedented outcomes. 
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NOT AGAIN MAY 2014
Written by Jim Underwood, CFA, Chief Portfolio Strategist
I probably too often use as an illustration the Capital Allocation Line (I can hear you saying “not again.”)  And, while I write about it semi-annually, I think about it constantly. One of my choice Warren Buffet quotes is “Investing is simple but not easy.” The theoretical concept behind the Capital Allocation Line is simple – investments deemed higher risk must provide a higher expected return. However, the practical application is certainly not easy. I spend most days trying to better understand the current slope of the Capital Allocation Line…
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IS TIME REALLY MONEY? FEBRUARY 2014
Written by Jim Underwood, CFA, Chief Portfolio Strategist
It often feels my job is to understand how financial markets should work in theory and then to explain why they don’t. Over the past fifteen years, I have read thousands of investment related pieces and find myself referring back to a select few that have profoundly shaped my understanding of investment markets. One of the most influential pieces was an article written by Richard Bookstaber in 1999 entitled A Framework for Understanding Market Crisis
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A DEHYDRATING ECONOMY DECEMBER 2013
Written by Jim Underwood, CFA, Chief Portfolio Strategist
The majority of corporations have never had a stronger financial foundation. The Great Recession forced companies to review operations and trim any and all excesses. The Federal Reserve provided a low interest rate environment enabling companies to restructure/refinance their balance sheet and significantly reduce their cost of capital. The hurdle for profitability has been dramatically lowered and profits/profit margins have reached new highs. 
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ALL IN GOOD TIME AUGUST 2013
Written by Jim Underwood, CFA, Chief Portfolio Strategist
Investors that rely on their portfolios to provide periodic distributions e.g., retirees, foundations, endowments, pension plans adopt an asset allocation that contains enough equity (growth) exposure to ensure long-term/perpetual support for the investor and balance it with an allocation to fixed income to dampen short-term volatility. Over time, many “conservative” growth investors gravitated towards a 60% equity / 40% fixed income allocation (standard target for most “balanced” funds) and have historically…
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THE TORTOISE AND THE HARE MAY 2013
Written by Jim Underwood, CFA, Chief Portfolio Strategist
In the popular Aesop Fable, The Tortoise and the Hare, the tortoise concludes by saying “Plodding wins the race.” This slow and steady approach to winning the race would certainly describe several critical components of our investment framework. We are often willing to accept lower highs in exchange for higher lows, knowing there are countless combinations of upside/downside capture ratios that provide the same long-term return but change the height of the peaks and depth of the valleys along the way.
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THE PRICE OF SUCCESS FEBRUARY 2013
Written by Jim Underwood, CFA, Chief Portfolio Strategist
Spend any time with our research team at Welch Hornsby you would inevitably hear discussions regarding our common beliefs/philosophies when building portfolios. You would hear “Do not predict what will happen but rather be prepared for what can happen”; or “If everything in the portfolio is performing well at the same time, it is probably not appropriately diversified…”
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THIRD TIME THE CHARM? DECEMBER 2012
Written by Jim Underwood, CFA, Chief Portfolio Strategist
The Federal Reserve continued its aggressive attempt to stimulate economic growth, announcing in mid-September a third round of quantitative easing (“QE3”). Unlike previous actions, QE3 has neither a time nor size limit. The latest liquidity injection(s) calls for the purchase of $40 billion Agency mortgage-backed securities monthly until “substantial improvement in the outlook for the labor market” is shown…
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FOREIGN OIL- HERE TODAY GONE TOMORROW? SEPTEMBER 2012
Written by Jim Underwood, CFA, Chief Portfolio Strategist
The investment world today seems to be in complete disarray. Government balance sheets are far from “balanced.” Central bankers continue to throw massive amounts of liquidity at a solvency problem. Euro members responses to the ongoing debt crisis tend to be long on words but short on actions…
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CLIFFHANGER AUGUST 2012
Written by Jim Underwood, CFA, Chief Portfolio Strategist
Very publicly, lines have been drawn within the U.S. political arena. Republicans and Democrats have left very little wiggle room to find a long-term compromise to the impending fiscal challenges the United States will face at year-end…
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IS VALUE IN THE EYE OF THE BEHOLDER? MAY 2012
Written by Jim Underwood, CFA, Chief Portfolio Strategist
In the book Predictably Irrational, Dan Ariely states “Humans rarely choose things in absolute terms. We don’t have an internal value meter that tells us how much things are worth…
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MONEY CHANGES EVERYTHING APRIL 2012
Written by Jim Underwood, CFA, Chief Portfolio Strategist
The U.S. stock market has maintained the momentum gathered in late 2011, with the S&P 500 gaining nearly 9% during the first two months of 2012. The year-to-date progress marks the best two month rally to start a year since the S&P 500 climbed 11.9% in 1991…
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GREAT EXPECTATIONS FEBRUARY 2012
Written by Jim Underwood, CFA, Chief Portfolio Strategist
In the preface of the Fourth Edition of Benjamin Graham’s legendary book, The Intelligent Investor, Warren Buffet wrote, “To invest successfully over a lifetime does not require a stratospheric IQ…
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EMOTIONALISM NOVEMBER 2011
Written by Jim Underwood, CFA, Chief Portfolio Strategist
The decision to invest – whether in capacity projects, human capital or investment markets – requires making judgments about the future and often depends on confidence and a level of stability/predictability – two words no one would use to describe the investment landscape during the third quarter…
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RISKY BUSINESS OCTOBER 2011
Written by Jim Underwood, CFA, Chief Portfolio Strategist
The past ten years have been extraordinarily challenging for investors. Investors have endured two of the worst bear markets in history, rapid changes in monetary policy, a real estate boom/bust, a subprime debt crisis and one of the most heinous terrorist attacks in U.S. history. The cumulative impact has been a stock market with many zigs/zags yet minimal net gains…
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COMPROMISE OR POLARIZE AUGUST 2011
Written by Jim Underwood, CFA, Chief Portfolio Strategist
After the market’s close on Friday, August 5, 2011, Standard and Poor’s announced its decision to downgrade its rating on long-term U.S. debt from AAA to AA+, marking the first credit downgrade in U.S. history. This downgrade includes all outstanding U.S. debt with maturities greater than one-year accounting for approximately 72% of the $9.4 trillion in publicly traded U.S. government debt. At this time, the two other primary rating agencies, Fitch and Moody’s, have not decreased their ratings on U.S. government debt, yet both firms have published concerns surrounding U.S. debt levels and unsustainable fiscal deficits…DOWNLOAD PDF WHITE PAPER

 

MAD MONEY JULY 2011
Written by Jim Underwood, CFA, Chief Portfolio Strategist
Brilliant economists have written thousands of pages surrounding the long-term implications of the ongoing government deficits, soaring debt levels, and extensive monetary/ fiscal stimulus programs, leading to daily debates regarding the timing and magnitude of future inflation/deflation, currency, and interest rate changes. I am neither brilliant nor an economist, but believe I have sufficient understanding of the roles Congress, the U.S. Treasury, and Federal Reserve play in coordinating economic policy…DOWNLOAD PDF WHITE PAPER

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