The Vegan Growth Portfolio.

New lows for the yield curve

There are times when the investor should ignore the unaccountable pundits on CNBC and elsewhere who’ll have you confused as a goat on astroturf.  An investment thesis can be developed simply from a chart that shows the long term direction of an asset and that history typically repeats itself.   As investment managers we ignore the pundits and look for the classical signs of economic expansion or contraction. This morning we are happy beneficiaries of significant strength in Treasury bonds.   What should also be noted is this morning marks a milestone as the yield curve is breaking the 2008 lows both in the 10y minus 2y and the 30y minus the 1y. This is good news if you happen to have a bearish inclination to the U.S. economy and stocks as we have.  Yield curve inversions represent an early warning of impending recession.  While a classical inverted yield curve is impossible given that the short end yields are a fraction of 1%, inversions may be seen with the longer term short ends such as 30’s minus 1’s. The move today reinforces our thesis of recession by 2017 and the primary asset class to own are Treasuries. Long...

The Vegan Growth Portfolio update 2/12/2016

The Vegan Growth Portfolio is our primary managed account.  Since state and federal regulators have issues with advisory firms posting past performance, regulators from Colorado Division of Securities did approve of our tracking account on Collective2.com.  Trades made for individual client accounts are mirrored on Collective2.com.   Return and trade data are independently calculated by Collective2.com.  As always, past performance is not guarantee of future success.   Return data includes trading costs but does not include OP management...

Updating “What do investors really want?”

Two years ago I began to write conceptual articles based on “What do investors really want?”.   At the time the vanilla stock-centric approach to investing was working fine and there was no way to distinguish our philosophy from any other traditional investment adviser.  Bear markets in stocks are a fact of life and rather than being a cheerleader with the hopes of eternally rising prices we’re realists who accept the investment cycle. But how times have changed!  Our interpretation of “What do Investors really want?” is that investors really want steady returns without dramatic drawdowns if they can be helped.   Big annual returns are nice and they will happen from time to time but if those returns come with -40% or -50% pullbacks just as frequently then investors would have no part of it.   However, this type of volatility is exactly what you get if you’re a stock mutual fund/Index fund “long term investor” who’s strategy is to “buy and hold”.   The chart above shows that the real rate of return for the SP 500 is a mere 1% per annum since 2000 which simply isn’t worth the risk if you’re a long term buy and holder. Our primary issue with mutual funds or vanilla style advisors is that regardless of asset or style is that they’re all single direction oriented (they need a bull market to make money).   Mutual funds don’t adapt and consider changes into the macro economic environment to adjust their holdings which would remedy the dramatic declines and sharply increase the chance that the investor will be a true long term investor but...

Indexing comes with heavy risk

Investment in stock index funds dwarfs prior secular peaks.  When you own an Index Fund you’re also indexed to take major losses along the lines of 30% or more on average in a sustained bear market. Active managers can switch gears and realign portfolios to benefit from bear markets....

The attraction of Earnings Yield for acquirers: WIBC

The underlying methodology of our quantitative equity models is to identify companies/stocks that are very attractively priced – including debt- so as to be potential targets for acquisition. One such holding Wilshire Bancorp symbol WIBC announced today that it will be acquired by BBCN Bancorp for $13 a share. Lets take a look at the valuation of WIBC pre-merger: Enterprise Value: $651m EBITDA (trailing 12 months): $101.3m Earnings Yield: 15.5% On of the factors that made WIBC so attractive and why using Market Capitalization as the basis of valuation incorrect was the fact WIBC has $6.52 a share in cash and very little debt.  The cash can then be used to reduce the cost of acquisition. No longer long...

October is the new September, our September letter

Hello all This is our latest monthly letter.  We’re essentially positioned for what we expect to be a strong stock market into December while anticipating a probable recession in 2016. 9.29.15 monthly letter All the best,...

Our bearish base case scenario

Its a great feeling to wake up to the realization that our anticipation and planning for several months comes to a very fruitful conclusion this morning..  We had watched the sea of red in the futures market over night but was still amazed to see a fall of 1000 Dow points in the first hour of trading. We have been anticipating a bear market for about a year and positioned our clients in a very conservatively in July, but didn’t expect this crash so soon.  I remember back in August of 1987 that it was a rough month as well but the real crash didn’t occur until October.   September could be another bad month as well. This morning we sold our profitable short positions in China A shares “CHAD” and Emerging Markets “EUM”.   We’ll revisit them and others at a point later in time.  We do expect some sort of big equity rally at any time now.  We remain holders of our largest positions in long dated US Treasury bonds. Our base case scenario is: There is no good reason to own stocks right now.  Despite this month’s crash we believe that stocks have entered a Bear market and we expect this to last in the range of 1 1/2 years.    We expect that this month’s crash is only the first leg down for the Bear, we anticipate a very strong reaction rally which is why we’ve sold our Emerging Market and China short positions.   The anticipated reaction rally will be short lived and eventually fail where a prolonged decline in stocks will take hold...