“Public Announcement: I’m a value investor and now buying all stock on the @Vikings Bradford bandwagon. I’m buying in size!” – Actual tweet from me on 9/3/2016
I have a sports memorabilia collection which I’ve titled, “Minnesota: We Build Championships … In Other Cities” (yes, the Minnesota and “city” reference is part of the joke). Pictured above is a 40 season old unused ticket from Super Bowl XI when the Vikings lost to the Raiders 32-14. Since the Vikings are 0-4 in Super Bowls, most would say that my annual belief in the Vikings is naive at best and form of self induced depression at worst. However, it’s the beginning of a new season, and I’m fully on board with the Vikings. I’m even fully on board with the Sam Bradford trade. Are my expectations too high? Almost certainly.
My irrational expectations in football will inevitably cause me some heartache. However, that’s the extent of the damage. What’s far more troubling is the irrational expectations in the public markets. There it’s not just a joke or two at my expense (my son is a Packers fan), but we are talking about real money. Consider this:
- I heard yesterday there are over 10,000 hedge funds. Remember, you can own stuff or a piece of a company. You can lend a person or organization money. Anything else is either related to one of these two things, speculation, or trading with somebody else who is speculating. A few hedge funds will be successful (generate alpha). Most won’t. Why do they exist? Irrational expectations.
- Bonds are expensive. Do I want to lend the US government money for 10 years at essentially a 50+ P/E ratio? No thanks. It seems that buyers believe central bankers will continue to buy bonds forever. Irrational expectations.
- Stocks are expensive. Do I want to own a piece of a company that isn’t growing and trading at a 20 P/E ratio? No thanks. It’s scary how much of the market falls into this category. However, people feel like they largely don’t have any other alternatives. The last few days have shown that volatility will always be a part of the markets. Expensive stocks are always at the mercy of volatility. Anyone who believes otherwise is being irrational.
So what do we do? We try to buy individual investments where we feel like we have an advantage. Many of those are in markets where we don’t face much competition because they are too small for the 10,000 hedge funds or other large investors. We are holding a larger than normal amount of cash so we can respond to volatility and make quality investments as we find them. However, the biggest thing we have done is lowered our expectations about the public markets.
I will also continue to cheer loudly for the Vikings (and all Minnesota sports teams). Please be kind!
