Quarterly Letter

We killed our quarterly investment letter to clients two and a half years ago and nobody said a word. This is probably because nobody was reading it anyway.

And why would they?

The world moves at too fast a pace for anyone to be satisfied with a note written at the end of a 90 day period that explains everything that already happened. Who on earth has the luxury these days of reminiscing about the last twelve weeks, when it’s really the next twelve week period that stands astride the road ahead like the Colossus of Rhodes, its countenance alternating between encouragement and menacing, depending upon when we lift our gaze to meet it?

See what I did there – an allusion to ancient times. That’s one of the tropes of the quarterly investment letter genre. Though not the most cloying of tropes – that honor goes to the Shakespearean reference.

How many thousands of quarterly investment letters have gone out to how many millions of investors entitled “Much Ado About Nothing“? The portfolio manager’s way of dismissing the recent economic developments as being unimportant to the real work at hand – security selection, asset allocation and position sizing. We get it: You’re not fazed by today’s headlines nor should we be. 

Quarterly investment letters began as a way to communicate with investors about developments within the portfolios that are being managed by them, but then at some point they became a parody of an English Lit masters thesis or a discourse on the classical history of Greece and Rome. And after seven or eight pages of throat-clearing, with the PM having temporarily traded in his suspenders and bowtie for a tweed jacket with elbow patches for a few thousand words, the inevitable “We believe present trends are not representative of the power of our investment process” yada yada yada is dutifully relayed, followed by the (typically) disappointing results of that period’s P&L.

And then the new quarter begins, which means fresh anecdotes from the life of Marcus Aurelius or the writings of Geoffrey Chaucer must be sought, as the the next letter is due in three months’ time.

This shtick was cute for a while but it’s 2019 and no one has time for it anymore. Buffett writes to shareholders once a year. Bill Gross, of the famed monthly letter, is now retired. Seth Klarman might still be doing quarterly, but none of us are Klarman. Howard Marks can drop a memo whenever he wants, but Marks is Marks. He wrote and sent out his memo for decades before finding out that anyone was even reading it. Turns out everyone who matters was reading it – but that was in the pre-Internet era, when publishing an investor letter was like sending a message in a bottle adrift on the ocean. You were asking a lot to be expecting someone to answer back or even acknowledge that they’d recieved it.

The best quarterly letter-writers in Hedgedom are also among the worst performing managers of the modern era. I read one recently where the manager referred to his losses as “adverse variability” – I’m not making this up. In truth, he’d probably rather just do the investing and be left alone, but institutional investment committees need to rely upon something to justify their manager selections, and so the obligatory letter simply must go out. I haven’t read any quarterly investment letters from David Tepper – the guy just goes out into the market and kicks ass.

There are no net new dollars going into mutual funds that hand-select stocks and then write about them; today’s investor is more likely to be buying an index fund or an ETF. For information, she can download the excel sheet of the fund’s holdings each night or read the white paper about the securities screen that’s been employed to gain exposure to whatever factors are being tilted toward. There isn’t a need to wrap all of this inside pedantic essays about Caesar crossing the Rubicon or Sir Isaac Newton calculating the motion of heavenly bodies or Mike Tyson punching people in the mouth.

As for financial advisors, the only thing worth talking about with clients on a quarterly basis is the specific condition of their financial plan, whether or not the investments they hold are keeping them within an acceptable range of their goals and if there are any major life changes worth discussing; a grandchild being born, a business being sold, an illness being diagnosed or a retirement being entered into or exited from after a spate of boredom and restlessness. They’ll have that conversation instead, thank you very much, hold the Mark Twain.

For those in the industry that, like me, find that they can think better when they write about what they’re considering, I recommend blogging as a daily or weekly exercise, the further divorced from discussing specific portfolio holdings the better. Newsletters work too, and if you’re a stock picking enthusiast, I sure hope you’re reading Eddy Elfenbein’s! I’m talking my blog here, yes, but I would keep writing it even if no one ever read me again. I learned that attitude from Barry, the world’s first financial blogger.

It’s also worth noting that the best investment writers of our day are writing every week in public and that it’s hard to beat them for your clients’ attention span – they’re insanely good writers and simply have more time to think than most of us do. I’m referring to Morgan Housel at CollabFund and Ben Hunt at Epsilon Theory and Jared Dillian at the 10th Man. The best market and industry commentators are likely to be employed by the mainstream media – think Dave Nadig at Inside ETFs and Eric Balchunas at Bloomberg, Matt Levine at Bloomberg Opinion and Izzy Kaminska at FT Alphaville, Michael Santoli at CNBC – these are Content Murderers, you’re most likely not going to be able to touch what they do, because they do it professionally and they’re naturally gifted. They’re not also trying to pick stocks or speculate in futures with Other Peoples Money on the side.

The investment clients of today and tomorrow are much more likely to want to read a short post, listen to a podcast episode, catch a TV appearance or watch a YouTube clip about your thoughts than they are to want to curl up in bed with a 5,000-word homework assignment. You can lament the dying out of tradition and the way things used to be. You can say “That’s not how it should be! People should read my prose!” And that’s fine.

But I’m just the guy saying what it is. This is what it is now.

There is also the speaking circuit, which goes a long way toward forcing you to be very sure about what you want to say given the presence of a live, question-asking, hard to please audience. Regularly scheduled conference calls during which slides are shown or specific questions can be answered are also superior to the PDF.

And for anything else that doesn’t quite add up to enough to be laboriously written about, there is Twitter – a significantly less demanding ask of people whose time is too valuable to be spent poring over documents filled with fluff and feathers. Say the thing you want to say, don’t act it out like a high school play.

One other great reason to abandon the anachronism of these letters is that they inadvertently draw an undue amount of attention to something that ought not matter very much – the 90-day period. A quarter’s worth of gains or losses should be treated with all of the import of a pebble skipped across a pond. Professionals applying any greater meaning to a timeframe this short are doing those investors a great disservice, and are probably building an unsustainable business and service model for their funds or their firms.


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