Bernhard Koepp, Author at C.J. Lawrence
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21 Oct Embracing Market Volatility – Can You Stomach 20% Annual Market Volatility? You should…

As we reflect on the 30th anniversary of the 1987 crash in the context of an 8-year bull market for stocks, it is worth highlighting that investing based on traditional measures of volatility, like the CBOE VIX index, are not always a good indicator of future market returns. There has been a lot of commentary about the VIX trading at low levels not seen since 2004 or the early 1990s. In previous periods these unusually low periods of volatility as measured by VIX, were in fact followed by very robust market returns. It is unclear if the same holds to be true for today’s market.
Perhaps a better way to look at market volatility in the equities’ market is to simply divide the high and the low of the market index (S&P500) annually. This year this difference is 13%. Since 1967 you get an average percentage of 21% on average since 1967. Jim Moltz, C.J. Lawrence’s Chairman and my mentor for the past 25 years, suggests that equity investors should be willing to stomach at least 20% annual volatility if they are allocating into stocks regardless of valuation or market timing. Are you ready for that?
It is interesting to note that since 1967 there were only 6 years where the percentage between high and low was above 30%, the most recent two events were in 2008 and 2009, 48% and 40%, before that in 2001 and 2002, 30% and 34%, and prior to that you have to go all the way back to 1980 when it was 30% and 1974 when it was 38%. These volatility spikes were often signaling to adverse macro conditions or recessions.
If you look to the chart above, when paired with CJL’s Rule of 20 (a measure of the market attractiveness based on adding the market P/E with CPI), market volatility stays in a predictably range between 10% and 30% and tells you very little about how attractive the market is, in other words, there is a low correlation between the market’s valuation and volatility even when accounting for inflation. This means that every investor should be willing to embrace at least 20% annual volatility if allocated into stocks. It is actually quite the norm!
Sources: High-Low data for S&P500 index from Standard & Poor’s handbook. Rule of 20 data from C.J. Lawrence.


Full Disclosure: Nothing on this site should be considered advice, research or an invitation to buy or sell securities, refer to terms and conditions page for a full disclaimer.


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BK 10/20/17

19 Oct “Finding The Optimal Balance – Lessons From a NYC Commuter”

Navigating these markets is much like my 30-minute bike commute to work every day through the streets of Manhattan (see video above in 6 min version). Every twist and turn is a split-second reassessment of risk versus reward. Your mind is constantly evaluating speed, risk, braking, volatility, potholes, shifting terrain and anticipating sudden obstacles either human or natural. The key here is to be highly alert and active. Activity is the only way to find the optimal balance.  It not only leads to much safer outcomes, but also leads to better health. In the end, you will arrive at your destination safely and it gives you the satisfaction that you are in charge of your journey.  These lessons apply directly to how I approach investing, which is the basis for successful long-term financial advice.

What do successful market practitioners need when they dive into these markets?

Well, it starts with the proper equipment and tools. My equipment of choice when I leave my apartment on the upper East-side of Manhattan is my Dahon-Mariner bike. I love this bike! It is compact, foldable, it has 8 speeds (just right!), it has a highly nimble but strong aluminum frame, and above all costs half of what some other higher end brands cost.  If your ‘tool’ for navigating these financial markets is a financial advisor follow these same principles: beware of high cost advisors, be suspicious of advisors pushing “passive” investing, find an advisor who is nimble and not too rigid when it comes to advice-giving. All advisors must demonstrate a deep proficiency in their tools of trade, but the good ones possess the intellectual honesty to know when they are wrong and change course when the facts have changed.

I launched “The Trusted Navigator” to share insights and observations on markets and investing, based on my 30-year experience as a banker, institutional portfolio manager and now advisor to private clients at C.J. Lawrence. Hopefully it will give you an insight into how we apply our trade.

Why “The Trusted Navigator”?  I was always fascinated with the concept of navigation.  According to a legendary adventurer1, there are five characteristics of an expert navigator. I believe these same characteristics apply to successfully investing:

  • Equipped with the proper tools
  • Proficiency in the understanding of these tools
  • Attentive
  • Anticipating
  • Experienced

My fascination with navigation began in 1970, when at age five my parents moved our family across the Atlantic from Bonn, West-Germany to Washington D.C. where my father spent the next 25 years at the World Bank.  My Grandfather, did the same in 1927 when he boarded a freight ship in Germany and headed for New York City.

With little money and no formal education, the idea was “to gain work experience” in the new world. He began doing odd jobs like washing dishes to various jobs as an office boy. He learned the language quickly and soon landed a job at a fish-tackle distributor and travelled to all corners and the smallest towns in America to sell his goods.  A year after his arrival in New York, he sent for his fiancé, who he married within days of her arrival in New York harbor (she is in the bottom right row in the picture). As a result, my father and aunt were born in Manhattan at Lenox Hill hospital in the 1930s.  So began our family’s history in New York!

When I started working in New York in 1993 for Deutsche MorganGrenfell/C.J.Lawrence (the long name for Deutsche Bank at the time) followed by 16 years at ISI Group, the circle was complete. The connection to New York has obviously not only shaped my family’s life, but also how I navigate through the ever-shifting financial markets. I believe this perspective gives me an edge when giving financial advice to private and institutional investors. I hope you will follow “The Trusted Navigator” on your way to becoming an expert navigator!

Notes: 1 Andrew Skurka, the 35-year-old is most well-known for his solo long-distance backpacking trips, notably the 4,700-mile 6-month Alaska-Yukon Expedition, the 6,875-mile 7-month Great Western Loop, and the 7,775-mile 11-month Sea-to-Sea Route. In total, he has backpacked, skied, and packrafted 30,000+ miles through many of the world’s most prized backcountry and wilderness areas—the equivalent of traveling 1.2 times around Earth’s equator!


Full Disclosure: Nothing on this site should be considered advice, research or an invitation to buy or sell securities, refer to terms and conditions page for a full disclaimer.


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BK 10/16/17

16 Feb C.J. Lawrence Recognized as Top Guns Manager by Informa Investment Solutions

C.J. Lawrence today announced that it has been recognized with Top Guns status by Informa Investment Solutions’ PSN manager database in 4Q 2015.

CJL Balanced was named a Top Gun across all six star categories, and CJL Bulldog Equity was named a Top Gun in the 1-Star Category.

Utilizing a proprietary blend of Informa Investment Solutions’ top priority performance screens, PSN Top Guns ranks products in six proprietary star categories in over 50 universes. This is a highly anticipated quarterly ranking and is widely used by institutional asset managers and investors.

Top Guns receive a star rating in the range from one to six. The stars indicate the continued performance over length of time.

1-Star Category: Products with this rating were top ten performers within their respective universes, based on quarterly returns.

2-Star Category: These products were top ten performers within their respective universes, based on returns for the one-year period.

3-Star Category: These products were top ten performers within their respective universes, based on returns for the three-year period.

4-Star Category: Products with this rating must have an R-Squared of 0.80 or greater relative to the style benchmark for the recent five-year period. Moreover, products must have returns greater than the style benchmark for the three latest three-year rolling periods. The top ten returns for the latest three-year period ending December 31, 2015 then become the 4 Star TOP GUNS.

5-Star Category: Products must have an R-Squared of 0.80 or greater relative to the style benchmark for the recent five-year period. Moreover, products must have returns greater than the style benchmark for the three latest three-year rolling periods. After that they select only the products which standard deviation for the five-year period is equal or less than the median standard deviation for the peer group. The top ten returns for the latest three-year period ending December 31, 2015 then become the 5 Star TOP GUNS.

6-Star Category: Products must have an R-Squared of 0.80 or greater relative to the style benchmark for the recent five-year period. Moreover, products must have returns greater than the style benchmark for the three latest three-year rolling periods. After that they select only the products which standard deviation for the five-year period is equal or less than the median standard deviation for the peer group. The top ten information ratios for the latest five-year period ending December 31, 2015 then become the 6 Star TOP GUNS.

“The PSN Top Guns ranks products in six proprietary star categories in over 50 universes,” said Leno Toich, Managing Director of Informa Investment Solutions.

This data-driven award recognizes elite performers on the leading investment manager database in North America and provides high-level exposure to hundreds of institutional clients and investors across our platform.

 

About Informa Investment Solutions

A market leader in intelligence and software solutions for investment professionals and financial institutions of all sizes, Informa Investment Solutions offers a robust set of analytics and tools to help you grow and retain your business. With a nearly 40-year history, Informa Investment Solutions is part of Informa PLC, a leading business-to-business knowledge provider serving International markets. Informa Investment Solutions has set the standard for providing turnkey and customizable applications for performing manager searches, building wealth plans, and producing client reports and investment marketing materials for companies worldwide. For more information, please visit http://www.informais.com/ and follow https://twitter.com/InformaInvest.

Disclosures

This material is intended for discussion purposes only. It is not an offer to sell, nor a solicitation of an offer to buy any security, nor does it purport to be a complete description of the terms of or the risks or potential of interest inherent in any actual or proposed security or transaction described herein. Past performance is not indicative of future results and the investor must be able to withstand a complete loss of his or her amount at risk. Transactions entail substantial risks.
Securities are offered through Fidelity Brokerage for ”in-house” accounts cleared through NFS. For more information please visit our website at www.cjlawrence.com or contact:.
Bernhard Koepp
CEO
Tel.: 212-888-6342
bkoepp@cjlawrence.com
David J. Gallacher
Senior Managing Director
Tel.: 212-888-3841
dgallacher@cjlawrence.com
E. Terrence Gardner, Jr.
Senior Managing Director
Tel.: 212-888-6403
tgardner@cjlawrence.com


Bernhard Koepp is the CEO and Managing Member of New York based C.J. Lawrence.

C.J. Lawrence

Investment Management