Zararin neresinden dönülse kardir. (No matter how far down the wrong road you have gone, turn back). – Turkish proverb

1. Old school wealth management.

Generally speaking, the wealth management industry and comprehensive financial planning had their roots in the stock brokers of the early 20th century. Wealthy individuals from prominent families rode trains into metropolises and ascended recently constructed skyscrapers in newfangled elevators in order to sit in the plush leather chairs of big-time city brokers who might have been intelligent investors with true institutional advantages, but more often than not were mediocre rent-seekers or glorified snake-oil salesmen. The broker, or self-described “advisor,” recommended the investing in or divesting of stocks. They filled out on paper an order to buy or sell, and then sent scrambling to the broker’s window a young Jesse-Livermore-wannabe so the trade could be processed at the new 18 Broad Street headquarters of the New York Stock Exchange.
Continue reading “The Road Less Traveled: Fee Structure”

Doubt is not a pleasant condition, but certainty is absurd. – Voltaire

Life presents the unanticipated with surprising frequency. For example, in the course of our Insights, we’ve quoted two foundational thinkers of the French Revolution – first Rousseau and now Voltaire – and yet Churchill only once, despite the fact that on the Hamiltonian-to-Jeffersonian scale, we’d land decisively with the Federalists; not averse to being revolutionary, but focused more on collective self-governance and less on kingly decapitation. Before you turn to Wikipedia to decipher our pedantic references, let us save you some time by simply stating that, when it comes to investing, we lean more conservative than socialist. While imperfect, the free market tends toward more optimal outcomes than central planning. Instead of Voltaire, maybe we should have quoted a conservative-ish libertarian to make the same point. Echoing the French writer, Clint Eastwood’s Dirty Harry said, “a man’s got to know his limitations,” but hopefully we’re doing more than talking to empty chairs with this communique.
Continue reading “Doubt or Certainty: Impacts on Portfolio Management”

Revisiting a Key Secular Theme: The Debt Supercycle

Great works are performed, not by strength, but by perseverance; yonder palace was raised by single stones, yet you see its height and spaciousness. He that shall walk with vigor three hours a day will pass in seven years a space equal to the circumference of the globe.

Samuel Johnson

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Executive Summary

1. Human nature is responsible for the less important short and more important long cycles that permeate existence.
2. Debt, like a bullet, is intrinsically neither good nor ill, merely a tool of human intent.
3. In developed economies, persistent low interest rates incentivized the accumulation of debt and lowered the discount rate for risky assets.
4. In developing economies, the accumulation of debt is still in a secular uptrend.
5. Past recoveries from secular debt peaks have been long and painful.
6. The optimal solution – real growth – is quite unlikely.
7. More likely is a mix of inflation, default, and financial repression. The last is likely to dominate.
8. Along with high asset valuations, this mix makes for a bitter stew of developed market investments. In the long-run, the highest return should come from emerging market equities. Ultimately, the best characteristics of sound investing remain unchanged: logic, evidence, discipline, and fortitude.

Continue reading “Revisiting a Key Secular Theme: The Debt Supercycle”

The best argument against democracy is a five-minute conversation with the average voter. – Churchill

On June 23, British voters were queried in a referendum, “Should the United Kingdom remain a member of the European Union or leave the European Union?” 72% showed up to the polls and 52% of them selected “leave.” Queue Armageddon.
Continue reading “Averaged Down”

So shall the last be first, and the first last. – Matthew 20:16

At Gryphon, we do not believe that markets for financial securities are perfectly efficient; in fact, they are frequently mispriced, often diverging from our determination of fair value. In the investment literature, some commonly cited reasons for the mispricings are a lack of information available to all market participants, encumbrances to frictionless trading such as the cost of shorting, and non-neutral regulatory structures that favor bullish investing. In light of these enumerated discrepancies, at Gryphon we ask ourselves if is it possible to profitably exploit these inefficiencies in a sustainable and risk-conscious manner. The answer we arrive at is that at a firm such as ours, it is impossible to pervasively and profitably exploit the aforementioned inefficiencies on a net of fee basis because the gains are simply too small relative to the transaction costs. Fortunately, there is one source of consistent and consistently exploitable mispricing available to us; human nature.
Continue reading “The Reversion Process”

Patience is bitter, but its fruit is sweet – Rousseau

There are periodic instances when a prudent investment manager is tested. A logically-grounded, historically-proven, data-tested strategy that prevails over the long-run is subject to bouts of short-term underperformance. One’s mettle is tested; does the manager patiently adhere to his beliefs, confident that his approach will be successful, just as it has in the past? Or does he surrender to emotion, become anxious, and abandon his philosophy. Welcome to the internal conflict that has raged within value managers these past few years.
Continue reading “The Internal Conflict Rages”

Whom the Gods would destroy they first make mad.

In the sixth part of Longfellow’s poem, The Masque of Pandora, Prometheus issues this warning to Epimetheus. It aptly describes how it feels to invest in the current market climate; particularly, in stocks. Despite entering the year with historically attractive valuations, emerging market equities returned (15.47)% through the end of the quarter while equities from foreign developed markets  returned (5.28)% and domestic market equities returned (5.45)%. Widely-owned low correlation diversifiers such as REITs and commodities generated losses of (4.52)% and (15.80)%.
Continue reading “Mind Over Matter”

This past weekend, our home state of Illinois announced “stay at home” protocols. You may wonder how this will affect our business operations, the planning we do for you, and your portfolios. Prudent planning is a hallmark of our firm, and effective business continuity is an integral part of any robust plan. It would be ludicrous for us to implement a sturdy, long-term strategy for you, and then ignore this practice for ourselves.
Continue reading “COVID-19 Update”