History Has Steered Folks to Environmental, Social and Governance Investing.
In this Milwaukee Journal Sentinel article from July 15th, Tom Saler explores socially responsible investing (SRI) and breaks down some recent high-profile examples.
Read July article.

 

New Firm Targets Socially Responsible Investors.
In this article from January 9th, Milwaukee Journal Sentinel reporter Kathleen Gallagher explores Greg Wait's launch of a new company that combines socially responsible investing and online investment advice.
Read January article.

 

Investment Trends, with insights by Greg Wait. In the Milwaukee Journal Sentinel's October 17th article, Kathleen Gallagher and Greg Wait discuss the recent rise of environmental, social and governance, or ESG investing. Greg provides insight into how reduced risk and improved returns are causing money managers to include ESG investing in their portfolios. Read October article.

 

Responsible Investing: Creating Financial and Non-Financial Value by Greg Wait. Do investors sacrifice returns in pursuit of their goal of advocating for a better world in which to live?
Learn more.

 

Ten-Year History of Investment Manager Performance by Greg Wait. As part of our process, we have conducted investment manager research and due diligence resulting in manager or fund recommendations to our clients. Here are our findings.

 

The month of September, 2013 marked the 10-year anniversary of Falcons Rock serving our clients and building relationships. We are grateful for all the years of friendship, loyalty, and support, and look forward to our next decade!

 

Investment Trends, with insights by Greg Wait. In the Milwaukee Journal Sentinel's July 20th article, Kathleen Gallagher and Greg Wait discuss the rising U.S. Treasury rates and using duration as a measure of risk. Greg's comments relate to whether we'll be "looking back on this short-term increase in yields as the warning shot for the much-anticipated longer-term rise in interest rates." Read July article.

 

Dec 9, 2012, Journal Sentinel's Kathleen Gallagher interviewed Greg Wait on current Investment Trends. Read the full article: "Low-quality stocks continue to provide strong returns."

 

We've Grown! Meet our new investment consultant: Tony Sebranek.

 

Investment Trends column of Milwaukee Journal-Sentinel shows Top-Down investment strategies are achieving positive results.
Read article on Top-Down Investing

 

Additional articles in the Milwaukee Journal Sentinel featuring Falcons Rock:
One is a fascinating story about a Mequon drug development company, which has a few of our clients as private investors.
Read article about our angel investors

 

Another features us in the Market Trends column: Strategy targets uncertain economy - and how Falcons Rock confronts specter of slow growth.
Read how we help clients get ready

 

There is a great deal of debate in the investment industry regarding active vs. passive (indexing) investment management.  We researched this topic and the results might be surprising to you.  Please see our research paper on this subject...more

 

We have experienced interesting situations with our clients. To update you on our firm’s activities, check out examples of recent work we have done for our clients...more

Get quarterly market reviews direct from Falcons Rock President, Greg Wait.

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US SIF Member 2017

Is it Better to be Lucky or Good?

 

2014 Quarter 2 Market Review

Many of us like to believe that our success is entirely a result of hard work, intelligence, training and ambition in our chosen field. Might it be that other factors, entirely out of our control, contribute to our success at a higher level? The timing of our birth, the location in which we live, the people we meet, our genetics and other random events also contribute to our success. While planning, hard work, education and persistence are all keys to ongoing success; fortunes have often been made due to lucky situations.

High-frequency trading

Malcolm Gladwell describes this phenomenon in his book, Outliers. One of Gladwell’s observations is that a person must practice his or her particular skill for at least 10,000 hours in order to achieve superior success. He cites numerous examples of this theory at work; however, the book further describes “demographic luck” as a key ingredient for success. Here are a few excerpts from the book:

  • By the time the first hockey tryouts take place for all the little Canadian boys born in a given calendar year, those born in January will be eleven months older – and thus much bigger and stronger and more coordinated – than those born in December. They’re likely to be put on better teams, receive better coaching, and spend more time on the ice. They’re more likely to get 10,000 hours of practice and –all other things being equal – to have their skills honed and showcased.
  • When I went to college in the mid-sixties, we inputted computer projects via punch cards; they ran overnight, and we went back for our results the next morning. But going to a private high school a few years later enabled Bill Gates to enter his work via a time-sharing terminal connected directly to a central computer, and to see the results in real time. Thus he could perform hundreds of iterations a week, not seven, and develop his skills and his ideas much faster. In addition, the University of Washington was a short bus ride from his home, and his family’s contacts enabled him to use its computer lab.
  • When Joe Flom and his Jewish cohorts graduated from law school in the 1930s, there were no jobs for them with prestigious Wall Street firms. They formed their own firm, Skadden, Arps, Slate, Meagher and Flom, but their work was largely confined to matters the “white shoe” firms rejected as unseemly and disreputable. Thus when proxy fights and hostile takeovers became commonplace in the 1970s and ‘80s, Joe Flom had superior experience and became a leader in advising on them, earning multimillion dollar fees.

How about this quote from Warren Buffett:

“I’ve had it so good in this world, you know. The odds were fifty-to-one against me being born in the United States in 1930. I won the lottery the day I emerged from the womb by being in the United States instead of in some other country where my chances would have been way different.”

Buffett understands that good fortune, along with hard work, has contributed tremendously to his success. Every successful person can (and should) identify other people who, in various ways, helped shape them and provided guidance. Anyone who has success in the United States can (and should) be thankful that they live in a country with a superior infrastructure, educational system and freedom to pursue their interests. Baby boomers should understand that the prior generation paved the way for much of our success. We all can identify decision-points in our life, or chance meetings with people that completely altered our future. Nobody can take full credit for their success, no matter how smart they are or how hard they work.

What does any of this have to do with investing? Part of our job is to evaluate money managers who earn a substantial income by investing other people’s money. We measure absolute return and relative returns of managers and mutual funds. We analyze risk statistics and monitor investment processes. We try to ascertain the level of skill a manager has in the selection of stocks or bonds, or in the sector allocations of their portfolios. In the end, the rate of return of any given portfolio is heavily correlated to the movement of the broader market, which is out of any manager’s control. A money manager may have a perfectly rational reason for investing in a particular stock, or a particular sector of the market, or a particular country; but that reason may completely be derailed by chance occurrences such as bad weather, an enemy invasion, new legislation, or simply emotional reactions from uneducated investors. There is never a guarantee when investing. Professor Elroy Dimson of the London Business School observed: “Risk means more things can happen than will happen.” The future isn’t predictable; the best investment managers can only attempt to build portfolios that have a reasonable chance of success given a wide range of potential outcomes. Luck will play a role in which of those outcomes actually happens, thus a manager’s performance will in large part be driven by chance.

As an investment advisor/consultant, we understand that the much of the performance of even the very best money managers is out of their control. We do the best job we can to identify managers that match our clients’ objectives and conduct a high level of due diligence on those managers. Even by doing a good job up front, we know that managers will have cycles during which they outperform or underperform the broad market. Over the past year, some very astute managers have not found good value among stocks and will not violate their disciplined process for investing. A few of these managers have therefore held a higher than normal percentage of their portfolios in cash, waiting for valuations that meet their criteria. Most of us would not fault a manager for having such conviction; however, these managers have trailed their benchmark indexes, which never include cash. Other managers have strict quality criteria that must be met before they will invest in the stock of any company. Most of us would rather know that our portfolio includes high quality stocks rather than low quality stocks, but the higher quality stocks have lagged lower quality stocks for much of the past five years since the Great Recession. Our view is that the best money managers have been able to deliver good long-term returns for their investors, and we are willing to be very patient while short-term trends play out.

I have had a framed poster in my office for many years that says: “Success: The Harder You Work…the Luckier You Get.” Maybe so!

Second Quarter 2014 Review

The second quarter of 2014 was a bit stronger than the first and marked the eighth consecutive quarter in positive territory. The best performing sectors included Energy (+12.1%), Utilities (+7.8%) and Technology (+6.5%). The “worst” performing sectors during the quarter were Financials (+2.3%), Consumer Discretionary (+3.5%) and Telecom (+3.8%).

Stocks of developed foreign countries also posted positive returns during the quarter. The best performing countries included the emerging markets of India (+12.7%), Russia (+10.8%) and Brazil (+7.7%...maybe some World Cup influence?). Among developed countries, Japan (+6.7%), the United Kingdom (+6.1%), France (+2.4%) and Germany (+2.3%) all generated reasonable returns.

Bond markets continue to attract investor dollars and all fixed income sectors realized positive returns during the quarter. Overall, most balanced portfolios and alternative strategies enjoyed gains during the quarter.

Here are the returns for select market indices for Q2 2014 (as stated in U.S. dollars):


Outlook

The U.S. economy appears to be on its way back to a more “normal” environment. Even with a downward revision to the first quarter’s GDP, we are observing positive trends in auto sales, housing starts and manufacturing orders. The unemployment rate is down to 6.3%, which is getting much closer to the Federal Reserve Board’s target of 5.4%, and very close to the 50-year average of 6.1%. In aggregate, the private sector jobs gained in the past five years now exceeds the number of jobs lost during the recession. While it has been highly publicized that the labor force participation rate has decreased, it has not been widely reported that this is mostly due to demographics and the lack of skills needed for the current job market. Average hourly earnings growth has accelerated over the past year. The top job creators since February, 2010 have been in the industries of Information/Finance/Business Services and Manufacturing Trade & Transportation, which is counter to the general perception that new jobs have been only in lower paying Retail Services. Only the Government sector has seen a net decline in new job creation during this period of time.

I’ve said in the past that we cannot have inflation while the unemployment rate is high even if the Fed is pumping money into the system. With the unemployment rate falling and earnings growth rising, it seems that the conditions are finally becoming more conducive to future inflation, barring any shock to the system. Rising inflation would likely lead to rising interest rates and, in fact, the Federal Reserve Summary of Economic Projections forecasts that the Fed Funds Rate will increase to 1.13% by the end of 2015 and 2.50% by the end of 2016, with a “long run” forecast of 3.75%. That being said, if we continue with slower than normal GDP growth, we would expect a maximum ceiling on interest rates that would be below historic norms. This would be a net positive for the global stock markets and less of a hindrance for the bond markets.

It is a tricky time for investors and the most prudent course is to maintain a balanced portfolio of stocks, bonds and alternative strategies. Even while employing the most logical strategies, driven by client objectives, we know that luck will have an influence on future portfolio returns.

Thank you for being a client of Falcons Rock…you have helped make our success possible.

Greg Wait, President of Falcons Rock

Gregory D. Wait, President
Falcons Rock Investment Counsel, LLC

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