Dave Canal's blog

The other day, I was sitting in a restaurant with a friend watching a basketball game.   My friend is also in the investment business.  The game must have become boring because we started talking about the business.    The change of topic caused my sub-conscious to activate.  I found myself saying, “Geoff, it has always bothered me how the entire financial sector hides whatever they charge a customer.  I can’t think of another profession where people do that.   Banks, brokerage firms, and insurance companies all do it.

It's a new year, so we'd like to take a moment to share with you our Capital Markets Overview in which we recap 2017 and look ahead to 2018 and beyond for stocks and fixed income. 

The start of a new year is globally a time of celebration.   It is a new beginning with a universal theme of optimism.  But how many of us in the past 10-15 years have genuinely felt a sense of anticipation as a New Year began?   This year we can and should feel that way.  The long-term average Gross Domestic Product (GDP) for the United States has been 3.4% since 1800.  For the past 10-15 years the “new normal” has been 2% because we have been in the trough of a downswing in the long wave.  I will be amazed if it is not north of 4% in 2018!

As I was walking, my cell phone rang.   I looked and saw it was my younger son. “Yeah, that’s good” I reminded myself.  “He’s in the ‘States.’ ” My son has lived throughout the world for the past 15 years as a Foreign Service Officer with the U.S. State Department.

It was roughly 27 years ago when I became convinced that the brokerage industry business model was irrevocably broken.  It was too conflicted.  Customers were taken advantage of by hidden commissions.  However, it continued right up to the moment two Bear Sterns managers couldn’t sell bonds they held in a hedge fund.   It started the debt crisis.  But from 1982 – when the Fed started to cut interest rates – bond salesmen had had a legal license to “steal” money … with hidden commissions.   I wanted to be on “the same side of the table” as clients.  If I made money for them, I would also mak

The world of active investment management was dramatically and negatively impacted on March 6, 2006.   On that day, the New York Stock Exchange became a for-profit organization.   The impact of the event would be disruptive to active management for years, yet the impending impact was missed by everybody.   After all, who would hurt their best customers?  

The other day I pressed the Uber app on my cell phone for the first time.  As it opened, I became fascinated by its simplicity.  It showed me where the car was, how long it would take – six minutes – and the name of the driver as well as the type of car.  It also showed what the total cost would be.   Its simplicity was elegant.   Such elegance has created a private market value of 68 billion.  Unfortunately, its founder has been much in the news and none of it has been good let alone elegant.

Imagine that you could make millions in the stock market with little risk, yet know nothing about stocks.  You don’t even have to care about the direction of the market.   That doesn’t matter because you hold stocks for just a nanosecond.

This classic sentence by Charles Dickens could easily be applicable to the past eight years in the investment business.  As the market has continued to rise – now the second longest bull market ever - it has created the worst of times for investment managers.  During the past six years no active manager has been able to outperform the S&P 500.  Most people do not know there is a time when active management can beat the market and a time … when it cannot.  The past three years have been a dramatic example of this.   What has precluded active managers from doing well is correlation.

It was the fall of 2000.  Ed Noonan (founder of Contravisory) and I had gone to Vermont to attend the Contrarian Opinion Forum.   Ed had published a SELL recommendation on technology three months earlier.  By the fall, the ensuing pullback was seen by many at the conference as a “buying opportunity.” Of course, with perfect hindsight, we know it wasn’t.  It turned out to be a three year nightmare.