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"The Good, the Bad and the Ugly"


This week, along with our partner Brett Guiley, Managing Partner of the Richmond, IN office, I was invited to help represent Vista Investment Partners on a conference call.  The call entailed a discussion with a Foundation to present Vista Investment strategies.  I would also be asked my opinion on "Indexing" which is something I have not given much thought to in many years.

The call did not require much preparation - I know Vista's strategies like the back of my hand.  The Vista strategies are a "best of the best strategy" in which only 40 companies currently meet our criteria.  I have managed The Investing for Growth (IFG) strategy since 1994 and I created the Growth and Income (GRIN) strategy in 2008.  Utilizing a bottom-up strategy means we look at companies first.  The emphasis is to find companies doing better than expected.  Vista finds these investments by tracking which companies are exceeding expectations.  Forecasts are set with the analyst community by the companies.  We look for these companies to outperform the market.  It is clear here that we are not looking at the market environment to make decisions.  The Good

How does this have anything to do with indexing?  It does not.  "Indexing, or index investing is a strategy designed to match the market, not beat it.  Indexing done properly, can be cheap and tax efficient" - William F. Sharp, Professor of Finance, Stanford University, 2002.  If your objective is to match the market, indexing might work?

I think the timing here is poor.  In the current market, technology has grown to be 23.7% of the S&P 500.  If you are indexing, that means 23.7% of your money is buying technology at today's prices.  The last time technology was this large as a percentage of the S&P was 2000.  The Bad - Though not all bad

We are currently underweight technology in our portfolios.  That does not mean we don't own technology - we do.  We own some "up and coming" technology companies that are beating expectations.

I believe we are in for a little bit of a pullback and I think this will cause some profit-taking in the technology names that most are hearing.  Great companies, just not a great time.

The Ugly  One of the questions I fielded on the call was about bonds.  Indexing on bonds right now looks particularly dangerous.  Interest rates are currently at or near all-time lows.  That means bond prices, which move inversely to interest rates, are at or near all-time highs.  Bonds are traditionally the safe part of a portfolio.  This elevated risk is concerning if you do not have a strategy. 

At Vista Investment Partners we do have a bond strategy - All of our portfolios have a strategy in place.  A strategy defined in portfolio terms has three parts:

1) What am I going to buy (defined in each of the Vista Portfolios)

2) When (not if) things change, what is going to cause me to sell

3) Where am I going to reinvest the proceeds


The Good: a complete investment strategy  The Bad: no sell discipline  The Ugly: buying long bonds at all-time highs

Great Movie - not a great investment strategy. 

Enjoy the day....r2