Success and the Future

Ok, so we recently posted a one year return of more than 100% in one of our models. And as of this writing, we have a manager using highly leveraged positions that have his portfolio up more than 50% year to date. Now what!?

Recognition and ego-feeding have never really been a big draw for us. We like being relatively unknown and able to provide a good service to a small but highly regarded pool of clients. So, leveraging our investment success is not a big factor in our thinking. The real problem for us now to manage expectations. Having done this 100% in a year thing, now many are expecting that kind of performance each year. Let’s see...if I can get that return every year for X years...I can retire to my yacht when?

We are taking the opportunity of our performance success to encourage all of our licensees and clients no to expect these returns year after year. Why not!? We just heard the collective gasp. Because the market is not capable in our view of giving us these returns year after year. The conditions of the market place were just right for us in the last 12 months and there is no reason to expect that they will continue just right for us for any length of time. Enjoy them while you can and do not be disappointed at an underperforming period in the near future. It is all part of how we see things going. Our reversion to the mean models will need to also revert to the mean (although the mean is somewhat higher now thanks the generosity of the market in the last 12 months).

We are not sitting on our hands here. We are continually testing new models and applying some new data to old models to see if we can smooth our returns. We will post more in a few days about the kinds of things we are looking at.

In the meantime, don’t bank on a second 100% year. We are not.