I recently spent several days in Los Angeles visiting an asset manager that I hold in high regard, First Pacific Advisors (FPA). The event was a biannual opportunity to hear from each of the firm’s portfolio strategists, ask questions and meet their respective teams.
I read an excellent autobiography this summer by Edward Thorp which I also mentioned in our most recent newsletter. Mr. Thorp’s name is much less known in contrast to his accomplishments. He is a mathematician by training, obtaining his Ph.D. from UCLA. He’s popularly known for a number of feats.
As human beings, I think we’re naturally more inclined to be active than inactive. Our minds are constantly turning with thoughts and ideas. If you’ve never tried meditation, I would encourage it just to experience how difficult it is to keep your mind from drifting.
After a remarkable run, the stock market has finally experienced some negative volatility. The last time we experienced anything like the past few weeks was in 2011. As you may recall, late that summer, one of the big ratings agencies downgraded the credit of the United States as politicians in Washington wrangled over raising the nation’s borrowing limit.
Measuring performance in the investment business is absolutely necessary. But far too often, evaluating performance itself causes investors to make wealth destroying decisions. This is a phenomenon I’ve witnessed throughout my career.
One of the lessons I’ve learned over the years is that a critical part of my job is setting expectations. Since late 2012, US stocks have really marched steadily upward with no major pull-backs. This type of market environment tends to create a false sense of security.