Posts by: Rusty Guinn

Whom Fortune Favors | The Five Things that Matter

Author: Rusty Guinn
Date: July 6, 2017
Category: Things That Matter, Theory in Action
Tags: risk, evolution, social structures, manna, asset classes, Idiocracy, genealogy, asset allocation, behavioral finance, style boxes

If you’ve seen the film, you know why it has become so fashionable to talk about Idiocracy’s prescience. If you haven’t, a brief synopsis: the film tells the story of humanity many years in the future. In this future, humans are very stupid. The biggest celebrity is the resilient star of a hit reality show about a man subjected to repeated groin injuries. Farmers water their fields with an electrolyte-laden sports drink since, after all, as the Brawndo company clearly states, “it’s got what plants crave.” Plus, with that kind of television programming available, it’s not like you’re going to have time to read debates among historians about whether Scipio Africanus truly ordered the salting of Carthaginian fields.

Well, all that and they elected a wrestling and adult film star as president.

Don’t worry. I’m not going where you think I’m going with this, although I will admit that even though I threatened to write in President Dwayne Elizondo Mountain Dew Herbert Camacho in two prior elections, when he actually appeared on the ballot I found it a bit more difficult to pull the lever…

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Chili P is My Signature

Author: Rusty Guinn
Date: June 9, 2017
Category: Things That Matter
Tags: volatility, baseball, portfolio construction, Shakespeare, covfefe, value investing, robo-advisors, risk, correlation

When we build portfolios, we know full well how many options our clients or constituents have, so these three competing impulses drive our behaviors: cynicism, affectation and tribalism.

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And They Did Live by Watchfires

Author: Rusty Guinn
Date: May 19, 2017
Category: Things That Matter
Tags: things that don't matter, portfolio construction, active investing, ETFs, liquidity, narratives, performance-chasing, cash

Market returns have continued to defy the odds, but the data, our consultants, our advisors, our home offices and our instincts are telling us that the combination of demographic slowing, stagnant productivity, limited debt capacity, low rates and high valuations isn’t going to end well. Or at a minimum, we remain optimistic but confused.

When it’s hard to see what’s two feet ahead of our own noses, when the game feels rigged, sometimes it feels like we have no choice but to stay at the table and play. After all, it’s the only game in town. And so instead of walking away and taking what the market gives us, we tweak, we tilt, we “take chips off the table,” we “go all in” and we hack, hack, hack at the beams and joists of our own homes for the great bonfire.

This bias to action is a road to ruin. That’s why the endless tweaking, trading and rebalancing of our portfolios takes spot #4 on our list of Things that Don’t Matter.

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Break the Wheel | The Five Things that Don’t Matter | Part III

Author: Rusty Guinn
Date: April 24, 2017
Category: Theory in Action
Tags: active management, stock picking, AQR, scientific method, data mining

Epsilon Theory readers, my kids eat because I’m a fund manager. Mostly hot dogs and Kraft macaroni & cheese, but they eat. So it pains me to tell you that the amount of time, personnel and attention we all spend picking, talking to, debating and stressing over fund managers is ridiculous. This is why picking fund managers comes in at #3 on our list of Things that Don’t Matter.

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What a Good-Looking Question! The Five Things that Don’t Matter | Part II

Author: Rusty Guinn
Date: March 31, 2017
Category: Theory in Action
Tags: investment philosophy, code, active management, volatility, things that don't matter, bike shed, stocks, stock picking, portfolio risk

It is hardly a novel observation that disputes among those who agree on the most critical questions and disagree on details are often among the most violent. After all, more died in the disputes between French Catholics and Huguenots alone than in all three of the Crusades. And it took twice as long for John Lennon and Paul McCartney to get in a recording studio together after the Yoko Ono Experience than it took for King George III to receive John Adams as ambassador after the Treaty of Paris. As investors, however, we have turned this seemingly normal human behavior into an art form.

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I Am Spartacus: The Five Things that Don’t Matter | Part 1

Author: Rusty Guinn
Date: March 17, 2017
Category: Theory in Action
Tags: active management, passive management, S&P 500, Russell 2000, Russell 1000, diversification, large-cap, small-cap, mid-cap, mega-cap, MLP, costs, volatility, Spartacus, things that matter

It seems like every few years the debate on active vs. passive management comes back in full force — not that any of this is new, of course. DFA, Vanguard, and brilliant investors and writers like Charlie Ellis have been shouting from the mountaintop about what a waste of time active management is for decades now. So why the breathless excitement from the financial press on the topic this time? Mostly because they haven’t the faintest idea what they’re talking about.

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A Man Must Have a Code

Author: Rusty Guinn
Date: March 5, 2017
Category: Theory in Action
Tags: investment philosophy, code, poker, worldview, Dalio, Bridgewater, Dimensional Fund Advisors, DFA, things that matter

A few years back I worked with the Teacher Retirement System of Texas. I was responsible for hiring ostensibly sophisticated money managers—the type hedge funds and others generally regarded as some of the most intelligent people our society has to offer. But the most impressive people I worked with were not London-based portfolio managers but two of my fellow laborers. At a public pension plan in Austin. Go figure.

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