Investing in 2018 – Quote of the Week

Doug Kass, President of Seabreeze Partners Management, wrote the following as part of a broader article for Real Investment Advice.  That article concluded that US shares peaked in January this year and could be in correction mode over the balance of this year.  The following succinctly spells out why:

“Investing is a complicated mosaic – making decisions on only one or two factors often leads to a dangerous journey, particularly when valuations and stock prices are elevated, when a market’s leadership seems to be narrowing and certainly with the recent emergence of a ‘two-sided market’ (from a formerly one-sided and bullish market) which often leads to a one -sided and bearish market. And, our investment world is more transparent and the transmission of news quicker and more universal than it has ever been. Communication is instantaneous and through a plethora of broadcasting and social media platforms, we are almost all armed with the same information about at the same time. It is how we interpret and analyse that information and our willingness to be open to changing data is what sets our opinion and investment performance apart.

I worship not at the altar of price momentum but rather at the altar of security analysis and margin of safety. That process provides me with a relatively concise analysis of the relationship of reward and risk.

At the core of my near-term concern are the deterioration (and worsening rate of change) in reward v. risk, the growing ambiguity of the trajectory of global economic growth, the pivot in monetary worldwide monetary policy, the likelihood of a steady move higher in short-term interest rates (and a higher risk free rate of return), evidence of a loss of any fiscal responsibility (on the part of Democrats and Republicans), expanding policy risks in part based on the behaviour of our President, the possibility of a ‘Blue Wave’ in November [Democrats winning mid terms] and the evolution of a one-sided (long) market structure (and a rising role of FAANG stocks).”