September Jobs Report Light As 1st Debate Disappoints Country!

When you are in your lane, there is no traffic. Ava Duvernay

At a time when technology has made it easier to do nearly anything, many professions are based on specialization. You need open heart surgery, you see a specialist. You have a legal problem regarding an estate, you see a trust attorney. You have an issue with auto or health insurance, you find an insurance broker. Much of this can be done on line, or with an app on your phone. The preponderance of information also extends to learning almost anything. Many quick and easy lessons are done on video, especially using YouTube or Vireo. As people learn more and in a easier way, they accumulate information and begin to feel confident about their knowledge. Usually, a credential or some kind of official accomplishment signals expertise. In many cases, surface knowledge is not the same as comprehensively studying and becoming an expert in a field. One of the serious problems in the investing world is the idea that because you succeeded in one area of investing, those skills transfer to other areas. Allow me to explain.

In the money management business, there are a wide variety of asset classes. Each asset class has quite a few different sub segments of their own. For example, in the stock universe, you have large cap, mid cap, small cap, micro cap, domestic, international, European, Asia, North America, South America. Within Asia, you have more specific focused areas like Chinese large cap, Japanese small cap, Indian mid cap. If we turn to fixed income products, you have treasuries, corporates, municipals, convertibles, and distressed debt. If we isolate corporate debt, there is a wide variety of classification, ranging from triple A rated debt down to D rated debt. In venture capital, you have angel investing, series A, B, C, D, etc. Hedge funds have a wide range as well, from long only, to long short, short only, commodity focused, currency focused, long with a currency overlay, real estate focused, etc. As many investment professionals are highly educated individuals, they learn as much as they can about all of these different asset classes. Where you can have problems is thinking because you have invested successfully in one area you are now able to invest well in a similar area. Yes, many of the lessons you learn in one segment may apply to another, but not always. Each situation is different. For example, the idea you can invest successfully in JP Morgan’s or Bank of America’s common stock is a vastly different skill set than investing in a small community bank in South Dakota, or the preferred stock of a regional bank, or the subordinate debt of a Texas based bank. Personally, there was a time when I looked at a lot of angel type venture capital investments. It was when web sites like Angellist first became popular. I still think it is an interesting area to invest in, but I realized that there were a few problems with this asset class. Number one, and I think this is applicable for almost anyone who isn’t managing a significant amount of money (let’s call the threshold $100 million), capital is scarce so venturing into areas where you are diluting your capital base is counterproductive. Second, many venture startups have founders who come from a top five or ten school, and similarly for their board members. In nearly all cases, the valuations they put on businesses which are just starting (no revenues, customers, proof of concept, financial s, or very little substance in all of these areas) are completely unjustified. Third, academic research on venture capital returns show that the preponderance of excess return in the sector comes from very few investments. Only the top five venture firms out perform market indexes, and their returns often are based on a few huge winners that become Facebook or Google. So, given those three premises, grazing in the venture area makes no sense for me. Investing is tough enough when you focus on a few specific areas where you believe you know what you are doing. Staying in your lane simplifies your approach and might even give you a better chance for success.

Turning to the joy that is politics, last week the country was treated to the first debate between Donald Trump and Joe Biden. Every four years, our citizens have to make a determination as to which candidate is better equipped to lead the Federal Government. There are three Presidential debates, and one for the Vice Presidential candidates (it will take place on Wednesday October 7). Every four years, many citizens complain about the moderators and how poor a job they do in playing the referee for these important events. In the first debate, Chris Wallace of Fox News was the moderator, if you can call him that. He had no control over either candidate, and structured the questions in a way where his political opinion was interspersed into the conversation. Let’s consider the issue of racial injustice and the role of the police. The country had a summer of riots. Portland had one hundred days straight of protests where people were killed and badly hurt. Seattle had blocks taken over by protesters. More businesses and property was destroyed this summer in terms of a dollar value than ever before. Mr. Wallace chose to concentrate on the role of the white supremacists during these events. Yes, they had their hand in some of the rioting, but to focus on this small element was comical. It is a prime example of Mr. Wallace’s ineptitude. Naturally, both candidates played their part in the poor quality of the show. Statements like “I am the Democratic Party,” or telling another candidate to shut up, or the constant interruptions made both look like grade school kids. Just as important, the inability to answer a direct question with a thorough, compelling answer left viewers in the very place where they started when the debate began. The result was a very poor experience for all of our citizens. As I have explained before the campaign started, when a one and fifteen team plays a zero and sixteen team, someone has to win. It doesn’t make the winner a good team. There are three debates to go, and hopefully, the substance and quality will improve. It might help if the candidates just answer the questions with a thoughtful, complete response, and avoid insults and interruptions. Essentially, just stay in their lane.

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Thank you for reading the blog this week, and if you have any questions about investing, please email me at information@y-hc.com.
Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog,  Investing in securities involves risk and the potential loss of ones principal.  Past performance is no guarantee of future results.  All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one’s overall financial situation.  The fact that Yale Bock has earned the right to use the CFA designation does not mean Y H & C Investments will outperform broad market indexes.

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