Client Benefits

If you suffer from the following symptoms of investor distress, then relief is at hand in the form of SED's highly unusual Advisory Service. 

- Symptoms of Investor Distress -

• Are you satisfied with your ability to interpret the news which inundates you on a daily basis? Do you impress your clients with your ability to better interpret and explain this news than others do?

• Are you troubled by the cacophony of conflicting views of economists on such elementary matters as whether larger fiscal deficits raise (lower?) interest rates? Does anyone know the truth?

• Have you noticed how much more difficult it is to make sense of the news given the globalization of the economy in recent years? There was a time when no one worried about whether "foreigners will pull out their money, thus driving up US yields".

• But wait. Did you know that foreigners cannot in fact "pull out their money" because of the No Net Selling condition of international accounting-a point first stressed by James Tobin at Yale, the first Nobel laureate in financial economics? Indeed, do you know why the influence of foreign capital flows on US interest rates is largely negligible-and what usually happens when foreigners shift their asset preferences away from the US? (Hint: The dollar falls, but interest rates do not rise). The blunt fact of the matter is that a proper understanding of international economics is required to make sense of asset prices in today's world, and this subject is so counter-intuitive that very few commentators who discuss it know what they are talking about. Frankly, they were not trained in this field, and the required knowledge cannot be "picked up" on the fly.

• Do you wonder where stock market "risk" comes from given that Robert Shiller at Yale demonstrated 25 years ago that only 20-25% of price volatility is generated by news? Did you know that the remaining three-quarters stems from investors beliefs about the news, and is now known as "endogenous risk"? Do you wonder why you have never heard of this?

• Are you frustrated with recycled and vacuous claims that markets are perfectly efficient-a claim that, if true, predicts that the observed distribution of investor wealth would be eight times less concentrated than it is? Do you know why markets are necessarily inefficient even when everyone receives all the news at the same time? [Hint: Investors will possess different models for interpreting the same news. Ex-post, some will have interpreted the news better than others and thus end up richer.] Because of this reality, we now know that there are three legitimate ways in which to beat the market, even when everyone does possess the same information at the same time. Are you aware of these strategies? Are you exploiting them? Do you impress your clients with your knowledge of these arrestingly important developments that, in fact, justify your existence as a money manager?

• Are you troubled by classical portfolio theory instructing you to adopt a "strategic asset allocation mix" and to stick with it through thick and thin? Would a farmer in Vermont be so stupid as to stick with a 50/50 mix of cabbage and corn through the entire year? Or would he not rotate from a 100% corn plant in summer to a 100% cabbage planting in winter? Do you know the analogous logic in portfolio theory? The correct logic? If not, why not?

• Are you confused by the assertion that the most dangerous phrase in all of finance is, "This Time Is Different"? Because, on the one hand, it is always somewhat different this time. Yet in another sense nothing really does change, as Warren Buffet always points out. Confused? Well, you ought to be, unless you happen to be familiar with recent advances at Stanford University that show how to combine relationships that do not change over time with those that do.

• Are you frustrated by the proliferated confusion of the meaning and measurement of "risk"? Have you noticed that the most important form of risk is swept into the vacuous concept of "fat-tails" with no explication of its genesis? Have you noticed that 95% of "risk assessment" is nothing but sensitivity analysis, with no serious attempts to derive the probabilities of those underlying events which define the risk being analyzed? If so, you are not alone.

- The Antidote -

SED's Advisory Service was specifically designed to relieve these myriad symptoms of investor distress. To begin with, we talk UP to clients, not DOWN, drawing upon very good theory when needed. In what was perhaps the snobbiest comment of the 20th Century, Albert Einstein was right: "Good theories are good because they work better." Additionally, we do not address or comment on most so-called news since it often amounts to white noise. Rather, we focus on very big and important topics that are prone to misunderstanding by the consensus and indeed by many experts. We hope to generate up to a dozen important inferences each year-no more. And none of these are sound bites.

Above and beyond helping clients understand how economies and markets do work, we also focus on the normative question of what investors should do with their money and why. Along these lines we have developed precisely the extension of portfolio theory needed for investors who most cope with the reality of market and indeed sector cycles. Investors are little different from farmers who live in Vermont and need to rotate their portfolio of crops with the seasons. Conversely, investors have little in common with the denizens of Vanuatu who live on the equator, experience no seasonal change, and need never change their 60/40 allocation of pineapple and sugar cane. Yet classical portfolio theory tells us to mimic the behavior of farmers of Vanuatu by adhering to our static "policy portfolio"!

The claims we have made about our research service are very strong indeed. For back-up, we refer you to several testimonials of those who have subscribed to our service over the years. We also, once again, refer you to either the written or the audio discussion about the philosophy underlying our distinctive research service.