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?
Andrew Wright Attorney Maine
[…]we prefer to honor several other web web sites around the internet, even if they arent linked to us, by linking to them. Under are some webpages worth checking out[…]
تبلیغات در صفحه اول گوگل
Greetings from Florida! I’m bored to loss of life at function so I determined to check out your internet site on my iphone for the duration of lunch break. I appreciate the info you offer right here and can not wait to just take a seem when I get home.…
رفع ارور 1009
here are some hyperlinks to web web pages that we hyperlink to for the cause that we think they might be really value checking out
脱毛
[…]here are some hyperlinks to websites that we link to simply because we consider they’re worth visiting[…]
رفع ارور 1009
Greetings from Florida! I’m bored to demise at perform so I decided to check out out your site on my apple iphone in the course of lunch crack. I enjoy the info you give here and can’t hold out to get a search when I get residence. I’m shocked at how s…
wordpress development
[…]Every as soon as in a whilst we decide on blogs that we study. Listed beneath would be the newest internet sites that we decide on […]
تبلیغات در صفحه اول گوگل
1 was created only for displaying seconds and tiny although a distinct one particular utilizing minute graduations is manufactured for implying hrs.
رفع ارور 1009
I’m really enjoying the design and style and structure of your site. It is a really effortless on the eyes which helps make it a lot a lot more pleasant for me to arrive here and pay a visit to much more typically. Did you employ out a developer to gen…
خرید کولر صنعتی
Greetings from Florida! I’m bored to loss of life at operate so I made the decision to check out your internet site on my iphone in the course of lunch split. I take pleasure in the data you provide here and cannot hold out to consider a look when I ge…
رفع ارور 1009
Hey! I know this is somewhat off subject matter but I was asking yourself which weblog system are you using for this web site? I’m acquiring unwell and fatigued of WordPress simply because I’ve experienced difficulties with hackers and I’m looking at a…
خرید کولر صنعتی
Greetings from Florida! I’m bored to dying at work so I made a decision to check out your site on my iphone during lunch split. I take pleasure in the data you supply listed here and can’t wait to take a look when I get property. I’m stunned at how swi…
وی پی ن آیفون
normally posts some exceptionally intriguing things like this. If youre new to this website
رفع ارور 1009
Thanks for one more informative internet site. The place else could I get that kind of information prepared in such an best technique?I have a enterprise that I’m just now working on, and I have been at the appear outfor these kinds of data.
تبلیغ در گوگل ادوردز
Superb tale, reckoned we could combine numerous unrelated info, nevertheless genuinely genuinely worth taking a search, whoa did 1 particular master about Mid East has received a great deal a lot more problerms also
vpn ایفون
I’m genuinely loving the theme/style of your internet web site. Do you ever operate into any internet browser compatibility problems? A tiny quantity of my website viewers have complained about my site not functioning correctly in Explorer but seems ex…