INSIGHTS

Expert knowledge combining financial science with real world applications.

Insights

  • July 22 - The Rebound?

    A prominent financial investor/columnist wrote last week, "the current environment is one of the most challenging I can remember." This person has been involved in the markets for slightly less than 20 years and is generally an excellent writer. But that quote is one of the most overused comments made by market participants. While there are rare periods of smooth sailing, most market environments present unique challenges that generate risk and worry. The uniqueness of this period stems from the Federal Reserve tightening in the face of a bear market in the equity market, a recessionary style economy, and high inflation. In the last eight bear markets, the Fed has responded by cutting rates, but not this time, not with excessive inflation. Inflation is the number one enemy, and rightfully so.

    After the worse starting six months for the equity market since Nixon was in office and the worst start for the bond market since returns have been recorded, it was unsurprising that a relief rally occurred in July. In mid-June, 98% of US large-cap stocks were below their 50-day moving average, a sign of an extreme oversold condition in the equity markets. More than anything else, the severe negative sentiment at that time prompted the recent rally.

    The relief rally most benefitted the areas that the decline had hardest hit. Mega cap stocks led the way, with the top 5 companies in the S&P 500 (now carrying 23% weight) returning 19% in July, pulling up the market cap indices. These stocks, the kingpins in 2018 through 2020, had recently suffered due to their valuations. Value and lower volatility equities, significant performers thus far this year, did not keep up with the overall market in the past month. This weighed on Versatile's equity performance in July. Additionally, International Equities, which increased by only 5%, and Emerging Market Equities, which were flat, also were a drag on performance.

    Wall Street and financial news heavily emphasize our need for certainty by attempting to tell us what will happen to the economy and the markets over the near term. Academics have demonstrated this is futile, yet the appetite for this information persists. What academics know is that the equity premium is strong over the long term and that there are specific drivers of returns for equities that increase the odds of investment success. Versatile adheres to this academic approach.

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  • Which strategy would you prefer?

    April 17, 2019

    Which strategy would you prefer? Obviously, anyone looking at the graph below would choose “Factors” as it outperformed the S&P 500 by 380% from the period of January 1996 through December 2018. An easy choice, right? But Factors are not the option most people choose.

    factorsGrowth700px

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  • Invest like Warren Buffett

    February 1, 2019

    We at Versatile Capital believe that a simple approach to investment management is usually best and had an engagement with a prospective client recently that highlighted this for us. This individual, who already has substantial wealth, told us that he wanted to be “as wealthy as Warren Buffett”. He said this implying that our approach might not be the most direct path to that goal. On the contrary, the approach that we take here at Versatile emulates much of what Buffett has done to accumulate his substantial wealth.

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  • Confessions of an Investment Advisor

    May 14, 2018

    We at Versatile continue to observe common behavioral flaws across most investors and many potential clients.  These revolve around the actions and inactions of individual investors and speak to the pitfalls of long-term investment success.  They can be grouped as follows:

    1. What is one’s investment strategy and approach?
    2. How do fees and taxes affect returns over time?
    3. How do investors think about time horizons?
    4. Is ignorance bliss in investing?
    5. What does history tell us?

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  • Odds of Winning in the US Equity Market

    January 10, 2018

    Picking an entry point to the equity market is always difficult. Rarely does intuition tell you that market levels are attractive. When the market is rallying, frequently the thought is to buy on a pull back, and, when declining or in a bear market, the feeling is that it will continue to drop.  In fact, it is often said that the equity market is one of the few markets where people run away when prices drop or go on sale.

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  • There is no place like home…except in the Equity Markets!

    December 1, 2017

    Geographic diversification  is a key driver of portfolio performance.  Although many US investors exhibit a home country bias, for a US-based investor there are many arguments for allocating at least 35% of a global equity portfolio to non-US equities.

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  • Value is Cheap

    December 22, 2015

    Value equity investing may be the only financial anomaly that has withstood the test of time, academic research and intellectual integrity. Logically it is easy to understand, over time cheap stocks (value = low price to book, low price to earnings) should provide a higher return that expensive stocks (growth). History has proved it to be true given the following results:

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  • Wealth, Factors and the Strategic Core Portfolio

    November 1, 2015

    At VCM we view the investor’s broad portfolio as consisting of three buckets – floor, core, and explore. Your provision for wealth in the unlikely case of a global financial meltdown, the floor bucket, should consist of investments in real assets—your house, real estate, etc.—that are likely to retain some value even under the most stressful conditions. How these investments interact with the other two buckets is something we can counsel you on, but presumably these are assets you already have in place.

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  • Folly of Forecasting Redux or The Perils of Listening and Acting on Predictions

    October 15, 2015

    Forecasting the future path of the economy and markets is an endless obsession on Wall Street and in the financial press. This is no cottage industry but something that enormous amounts of money are spent on. CNBC is one part reporting what is happening and two parts asking people what they think is going to happen in the future. “I think” maybe the two words most used during each segment. Everyone tells you what they ”think” will happen. Ironically the evidence is clear that no one knows. No one.

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  • Excess Return Premium Over the Past 80 Years

    August 15, 2015

    One of the main goals of the firm is to “rise above the noise” of Wall Street. At its core, Versatile Capital Management (VCM) is based primarily on well-established academic investment principals. One of the few truths in investment research is that nothing works all the time; however, there are investment concepts that have been extensively researched which, if followed with discipline, have proven in the past to increase the odds of success. It is about reducing the personal biases and behavioral tendencies of fear and greed that plague many investors.

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  • The Beginning

    October 1, 2015

    Versatile Capital Management officially became a Registered Investment Advisor in January 2015. It is a very humble beginning. The goal of the firm is to “rise above the noise” of Wall Street. The noise is seductive, full of promises, but often short on the delivery. At its core, Versatile Capital Management, (VCM) is based primarily on well-established academic investment principals. One of the few truths in investment research is that nothing works all the time. However there are investment concepts that have been extensively researched which, if followed with discipline, have proven in the past to increase the odds of success. It is about reducing the personal biases and behavioral tendencies of fear and greed that plague many investors.

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  • John Russell
  • (312) 981-9848
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