The Tortoise Can Beat The Hare

Jessie Livermore was one of the greatest investors of all time. In the book, Reminiscences of a Stock Operator, Livermore explained that the single activity that made him the most money was, “sitting on my hands.” In other words, the willingness to leave your portfolio of companies in place longer than your competitors was one thing which made him rich. This tells us much about where the tortoise can find investment opportunities today.

1. Asset allocation is in disarray

Source: The Wall Street Journal

Through mid-November of this year, the largest number of asset classes had negative returns. In other words, almost nothing has worked in asset allocation this year and frankly, not too many stock sectors besides FAANG stocks have worked for the last five years in the U.S.1 The hares have run way out ahead of almost every asset class regardless of any tortoise-like qualities they might have had. The momentum people were racing out front in 2008 and 2011 by being in love with China, emerging markets, oil, industrial commodities and farm commodities. Those hares are like Joe DiMaggio in the song, Mrs. Robinson, “Where have you gone?”

This harkens us back to 2012, when we wrote a piece called, “Stock Pickers: Somebody I Used to Know!” Back then, David Swenson from Yale’s endowment, Jeremy Grantham from GMO and other early asset allocation adopters were at the pinnacle of their success. Most of the largest endowments are reorganizing around a different approach, because of dismal lookback returns since then. When investors get concentrated in one sector of investing, whether it be tech stocks, oil stocks, gold and commodities, it is usually a good time to spread your bets and add to the sectors which are the most out of favor. We are not asset allocators outside of large-cap U.S., but asset allocation is probably a tortoise and due for a comeback.

2. Value is screaming for dollars

Source: Fundstrat, August 29, 2018

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Disclaimer: The information contained in this missive represents SCM’s opinions, and should not be construed as personalized or individualized investment advice. Past performance is no ...

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