JUDGMENT UNDER UNCERTAINTY
Behavioral Economics Takes Center Stage in Q3
I will be very impressed if the title of this latest edition of Portfolio Matters sounds familiar to anyone. It’s actually the title of the research paper by Daniel Kahneman and Amos Tversky back in September of 1974 that brought the field of behavioral economics into the mainstream mindset we know today. (We credit writer Jason Zweig for bringing this anniversary into spotlight.)
What this research paper really did was to question our understanding of how we think, or at least, how we think we think. The paper shed light on powerful thought patterns that likely affect us all. And when it comes to investing, these thought patterns and resulting behaviors play a far greater role in the markets than most folks realize…read more
A SMOOTH RIDE IN Q2
But Don’t Fall Asleep At The Wheel
On May 16th, there was a Wall Street Journal column by Jason Zweig that may have gone unnoticed, if not, underappreciated. The article discusses Amazon’s 20th birthday as a publicly traded company. Since its IPO in 1997, Amazon generated a total return of nearly 49,000%, or over 36% annually for its shareholders. No doubt that a performance number of 49,000% will make anyone stop dead in their tracks, either in amazement, disbelief, or both. But the rest of the article had some far more important points that may not have sunk in for most readers.
We’ll return to this story later, but suffice is to say that the Amazon story was likely lost among the many negative stories that embodied the most recent quarter. In this issue of Portfolio Matters we’ll discuss what all these moving parts mean for investor returns and, more importantly, the future for our clients and friends…read more
Is The Market Getting Ahead of Itself?
I recently attended an event at which General George W. Casey spoke to a crowd of emerging business, civic, and non-profit leaders. General Casey served as U.S. Army Chief of Staff and was Commanding General of the Multi-National Force in Iraq from 2004 through 2007. He described his experiences in the Middle East, and his words offered some key truths for us all.
In his remarks, he referenced the “vuca” world in which we live: volatile, uncertain, complex, and ambiguous. He then stated how important relationships are to the success of any objective in such a world, in his case, peace in Iraq.
The turmoil in the energy sector was widely publicized since the historic decline of prices starting mid-2014. This has largely been due to a glut of oil in the market with relatively flat demand.
As a result, the energy sector was plagued with volatility and decreasing prices as investors fled for safety.
This negative sentiment has spilled over into what should be an uncorrelated segment of the energy industry: mid-stream providers. Think of mid-stream as an infrastructure of toll roads that transport and store units of energy, not just oil. As Jim Callahan discussed in his latest edition of Portfolio Matters, the U.S. pipelines currently transport 70% natural gas and 30% oil. The demand globally for oil has decreased the volume of oil flowing through pipelines, but natural gas production is growing. The Energy Information Administration, estimates that natural gas consumption will increase by 60% on a global basis by 2040. The U.S. is the largest producer and exporter of natural gas and estimates point towards an increase in volume of 9% in 2016. While oil gets all the press, we remind our clients that its natural gas that is more important to the U.S. mid-stream MLPs, and because of this, we are very comfortable with our mid-stream focused investment thesis.