Author: Dan Plettner
Covestor models: Pure Short Opportunistic, MLP Direct Ownership, Taxable Income, Well-Intentioned Activism, Long/Short Opportunistic, Core
2011 sure had a frustrating feel to it. Not only was volatility rampant, but meaningfully beating any domestic index was tough, particularly for those of us with some non-US exposure. My Core Total Return portfolio’s goal is significant risk-adjusted outperformance. Multiple investing theses (particularly those in the Closed-End Fund Activism style) came to fruition by virtue of open-endings and other corporate actions. But Closed-End Funds with international exposure limited 2011 gains among most of my styles.
The MLP Direct Ownership style was easily my strongest in 2011. The domestic focus and yield were drivers for the MLP asset class. I was pleased that overall the MLPs identified by my MLP-specific investing discipline handily beat the asset class at large.
Yield mattered in 2011. Despite international inputs among many Closed-End Funds within the style, the Taxable Income style held up very well.
I do not anticipate changing my own blending of my various investing styles in 2012. I always expect those styles which are in or out of market favor to change over time. In my opinion, much of that favor depends on how much regard investor psyche gives to various asset classes’ inherent risks. The pendulum of investor psyche tends to swing back and forth.
On the topic of investor psyche… I reiterate that 2011 had a frustrating feel to it, even for me. Back in the 90s, people often needed to be reminded that it wasn’t historically abnormal for markets to frustrate them. Disregard for risk set the stage for investors’ lost decade. Today, I believe that at least a healthy respect for large scale investing risks permeates the investing public’s psyche.
Looking at 2012, I believe the outsized probabilities are for a strong market for equities. Fears have permeated the investing markets with the public’s fear of the Euro Zone’s debt problems heightened by their recent bear market memories.
Markets are ruled by fear and greed. Historically, excessive greed sets the stage for losses, and excessive fear sets the stage for outsized gains. Accordingly, I think that equities are likely to crush Treasury or savings returns for the next 10 year period.
My objective expectations about the market are tempered by modesty. Nobody knows where the market is going this year. I don’t either. I will continue to lightly blend my Long / Short Opportunistic Style with my other long-only styles.
What I resolve to do in 2012 is to focus on diligently managing styles as best as my own discipline allows me to. I hope my ongoing diligence leads to greater rewards than 2011.
