T.I.N.A. (or the Seller’s Dilemma)

In 1901, steel magnate Andrew Carnegie sold his entire empire to JP Morgan for $480 million – a sum he had scribbled on a piece of paper and that Morgan did not haggle over.

After years of the kind of debilitating economic and political warfare it took to remain on top, Carnegie was finally done fighting, finally free to pursue his charitable endeavors on the other side of perpetual strife. With the stroke of a pen, Carnegie had become one of the wealthiest human beings in world history – that $480 million equates to a fortune of nearly $340 billion in today’s dollars, more than the net worth of Gates, Buffett and Carlos Slim combined.

But despite this amazing windfall, legend has it that before the deal-signing champagne bottle was even through Carnegie was wondering aloud about whether or not he’d made a good deal.  Should he have departed with his business and if so, was $480 million all he could have gotten out of the insatiable banker.

When discussing the possibility for continued rotation into stocks or the lofty levels of the S&P currently relative to recent years, it is important that we consider the Seller’s Dilemma.

Think of  a portfolio manager who is charged with earning a return for investors and can assume a moderate amount of risk. Let’s suppose he’s been running a portfolio of 25% US stocks, 25% international stocks and 50% fixed income (I can’t tell you how many portfolios have looked like this in real life for the last few years).  Now assume he reads a bunch of research and news and concludes that the market is due for a ten to twenty percent sell-off. And so he sells half his stocks, putting a quarter of his portfolio into wealth-destroying money market funds.

Days go by. Weeks. In the end, he buys back into the stock market again – maybe even buying some of his old positions back at slightly higher prices.

Why does he do this?

T.I.N.A. – There Is No Alternative.

The alternative he has is to own aburdly-priced bonds, buy highly volatile commodities, or go into less-liquid assets like real estate or private equity. In other words, for most PMs there is no alternative.

Think about the college endowments – the top 800 control $400 billion in investable assets. Among these 800 pools of professionally managed capital, US equities represent only 15%. In the meantime, hedge funds are their largest allocation bucket, 20% or $80 billion. The returns have been scary-bad, not even keeping up with the pace of the schools’ spending in the past year.  Yale University posted a loss of just under 1% in their last fiscal year ended June 30th. They have a laughable 6% allocation to US stocks. If you think this kind of thing isn’t being rethought all over the country as we speak, then you misunderstand the concept of career risk.

Now we’re all going to laugh at the T.I.N.A. acronym the next time the market gets bludgeoned – and it sure is overdue for a healthy beating one of these days. But the fact remains that much of the activity we’ll see across asset classes this year will be driven by exactly that lack of alternative, barring some other calamity we’re not yet aware of.

Seriously, what else are you going to do?

This is the reason stocks are now trading at an average multiple of 14 (vs the discounted one they may deserve given the lackluster economy). It’s the reason earnings shortfalls are being ignored in the aggregate and the reason even the most dour market watchers are coming out one after the other and admitting that yes, stocks are expensive, but not relative to alternatives.

Carnegie was faced with a “dilemma” of sorts – having sold out of his stake, now what?  A good dilemma to have, but still, it bothered him. The investment management pros I talk to are all feeling the same way each time they lighten up on stocks – now what do I do?

 

 

 

Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

What's been said:

Discussions found on the web
  1. Sex Toy Haul commented on Sep 29

    Sex Toy Haul

    […]one of our visitors lately advised the following website[…]

  2. g spot vibrator commented on Oct 03

    g spot vibrator

    […]that could be the finish of this write-up. Here you will uncover some internet sites that we feel you’ll enjoy, just click the links over[…]

  3. sex toys for men commented on Oct 03

    sex toys for men

    […]Every when inside a although we decide on blogs that we read. Listed below would be the newest web pages that we pick […]

  4. How to Use Pocket Pussies commented on Oct 03

    How to Use Pocket Pussies

    […]very couple of web sites that occur to be detailed below, from our point of view are undoubtedly properly really worth checking out[…]

  5. Cyberskin Warming Wand commented on Oct 04

    Cyberskin Warming Wand

    […]that would be the finish of this report. Right here you will discover some web-sites that we feel you will value, just click the links over[…]

  6. What Does a Penis Pump Do commented on Oct 04

    What Does a Penis Pump Do

    […]just beneath, are numerous absolutely not associated internet sites to ours, on the other hand, they may be certainly worth going over[…]

  7. Men Sex Toys commented on Oct 04

    Men Sex Toys

    […]we came across a cool site that you might delight in. Take a search should you want[…]

  8. how to use commented on Oct 05

    how to use

    […]here are some links to web sites that we link to due to the fact we believe they may be really worth visiting[…]

  9. homemade dildo commented on Oct 05

    homemade dildo

    […]Wonderful story, reckoned we could combine a number of unrelated information, nonetheless definitely worth taking a search, whoa did one particular discover about Mid East has got much more problerms also […]

  10. rabbit vibrators commented on Oct 05

    rabbit vibrators

    […]usually posts some incredibly fascinating stuff like this. If you are new to this site[…]

  11. giant dildo commented on Oct 06

    giant dildo

    […]one of our visitors lately advised the following website[…]

  12. vaginal stimulation commented on Oct 06

    vaginal stimulation

    […]we like to honor lots of other internet sites around the internet, even when they aren’t linked to us, by linking to them. Underneath are some webpages really worth checking out[…]

  13. fun88 commented on Oct 06

    fun88

    […]Every once inside a even though we opt for blogs that we study. Listed beneath would be the most current web-sites that we select […]

  14. Full Moon hike commented on Oct 07

    Full Moon hike

    […]although internet sites we backlink to below are considerably not related to ours, we feel they are essentially worth a go by way of, so have a look[…]

  15. butt plug commented on Oct 07

    butt plug

    […]always a large fan of linking to bloggers that I really like but do not get a lot of link like from[…]

Read this next.