저자: Investing with Leaders · 외국인
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what inning do you see our current cycle being in and have we started a new game first person to ask that question in this cycle i haven't given it that much thought you know it it's it's unusually hard to to uh to answer that question today uh we normally think that the market has a certain ebb and flow and and that the cycles are uh their difference in detail their difference in the duration their amplitude their speed but but that certain things that do tend to repeat from from or at least to rhyme as mark twain said and you know normally what happens is that we have uh an upcycle we have increasing optimism increasing risk tolerance increasing good feelings because the upcycle is so rewarding and rising prices and eventual excesses of valuation and and and uh the same thing through the economy we have excess of expansion and excessive hiring and and leverage and so forth then things uh reverse and we get movement on the downside and we get uh falling prices and worse corporate results and and deteriorating psychology and this switch from greed to fear and and we also get economic deterioration that's the normal cycle and the it's a it's a matter i think the best way to think of the economic cycle and the market cycle excesses and corrections excesses and corrections excesses of corrections and the a lot of the changes are endogenous they are within the economy and within the market this is unique because this is exogenous it's not it wasn't excesses of of markets and economies it was the pandemic we had a recovery it was a basically a healthy recovery it was a slow gradual recovery the longest in history but the slowest in post-war history and um and and not too many excesses in the economy or even in the market uh but then we had the pandemic and the pandemic required us to close our economy in order to keep people apart and and control the spread and we had the worst quarter in the history a second quarter was down 33 on an annualized uh basis um so it's it's very hard to say what what inning we're in uh because this is not a routine game i guess i would say um we are we're at at the beginning we know we're only uh about four months five months into an economic recovery we believe that recovery will will last at least as long as it takes to get the economy back to its 2019 level in terms of gdp um there's some doubt now with the with the failure of washington to provide support payments uh there's some doubt as to whether the recovery will live up to its everyone's expectations but i think we are in a recovery but you know an interesting question is we never had a a a normal recession we had a an artificially induced recession are we still slated for a normal recession or has this has the entire cycle been reset and since it's only five months old do we have years and years to go i don't think anybody can say uh and you know the extent to which the uh the fed and the treasury and the recovery rebuild people's liquidity and rebuild their uh willingness to consume um and the extent to which uh life returns to what it always has been is is very uncertain so i i uh you know i think we're it where i think we're in the second inning uh vis-a-vis the economy of course the market being at an all-time high uh despite the negative fundamentals uh of or i should say modest fundamentals uh that that juxtaposition gives me more pause and i would say that the rally in the market is in the sixth inning or the seventh inning but but uh who's to say if if the economy is is uh dietary for the next uh five years on an uptrend the market will do pretty well although i do think that the the recovery from the all-time lows uh in in march has been very dramatic and it feels to me most of us like the market is is ahead of the economy yeah howard uh to follow up on that um it's been a extremely interesting and diverse recovery uh across styles and classes one thing you read about in the memo is risk adjusted return which of course in some sense lead us back to the academic notion of the sharp range so of course you can't eat the sharp ratio right and what can you do and you can't spend the sharp ratio right we need to we can require we hit a required return there are small number of ways to get there um what what's your view on the on on on whether we're getting paid the right at the right level today and i love how in the memo you bring in the capital market line so it fits right into my lecture notes so thank you for that that's a great one but then well one thing about that is the dispersion across sectors which is really unusual uh with uh growth and large cap stocks for example doing well but there's still being a large number of industries and sectors in deep distress well that chris is reference to the capital market line uh if you if you think about a graph with the with return on the vertical axis and risk on the horizontal axis we have a point on the left side where the we're at at zero risk you have the risk-free rate and that's usually 30-day bills which have no credit risk and and no inflation risk and that's the lowest return you can get on anything as you move up from that in risk you there should be an increase in the expected return people shouldn't invest in riskier assets if they're not expected to be higher returning than safe assets so the line goes at an angle from the left it goes up and to the right we call that a positive correlation a positive relationship between risk and expected return and you know that's when and when when when that line does go up into the right at a reasonable pace we say the market's at equilibrium and if if all the asset classes are on the line we say they're at equilibrium because they're in a reasonable relationship to each other in terms of risk-adjusted return as the risk rises the return rises and that's only right if nothing else would make sense the problem today is that the the fed took that risk-free rate which is here it's the point from which all returns begin and emanate and they pulled it down and when you pull down the risk-free rate on the left-hand axis the line also folds now sometimes it falls not in parallel sometimes different parts of the line fall more than others this this slope could increase or decrease that's the the slope of the line is the is the risk premium uh and but the point is i believe that most asset classes appear to be in equilibrium with each other the the risk-free rates appear to be proportional the returns appear to be proportional to the risk but the problem is that all returns are at a very low level and as i said you know the the the uh the pension fund that needs seven has a hard time getting it today in stocks and bonds and most of them have given up on that and and put substantial money into uh alternative investments with their illiquidity and their manager reliance and so forth now the the great question that i usually end up speaking about is how do you how do you pursue a high return in a low return world what should you do in a low return world and there i i've come up with five possibilities and i can't think of any more you can continue to invest as you always have and understand that you'll beli that the return you make will be lower than ever you can worry about the level of asset prices reduce your risk to to cushion the blow if a correction comes but then your return will be lower still you can go all the way to cash to the uh the ultimate preparation for a correction but then your return will be zero and you better be right fast because if you're in cash for two years and the market goes up you may be looking for another job or new clients rather than risk reduction you can go in the opposite direction you can increase your risk in pursuit of a higher return but is this the time to be increasing risk when there's great uncertainty in as to the fundamentals geopolitical political uncertainty in addition to economic or number five you can try to look for exceptions what i call special niches special people who who hopefully can produce a a good return with safety in a low return world but those people are truly exceptional and not easy to find yeah uh uh truly you know alpha should be in some sense um that's right yes it's hard to find uh what's the if we've spoken together when we had been so lucky to have you on campus about the use of leverage and in some cases you railed against it in other cases maybe not with low yields it might be tempting to lever a portfolio and of course theory would say you can move along the capital market line either by adding capital structure to an investment de-levering or levering it up uh what's your view as a practical matter about the use of leverage today well after the i mean the global financial crisis of 08 was really an uh in a a demonstration of the effect of leverage but because uh the world essentially had taken mainly mortgage-backed securities but also loans to some extent corporate loans and put them into leveraged entities structured leveraged entities uh clos cdos rmbs and so forth and so what they did is they they had internal leverage which is to say that that that you could buy a highly levered piece at the bottom of the structure with an extremely high levered return or you could buy the tap of the structure where where uh you are not participating in the leverage with a low safe return over collateralized by the junior tranches and what happened is that that you know when you leverage you say well i if this happens i'll be great if that happens i'll still be okay if this happens i'll probably make it through and the the outcome in terms of defaults on mortgages was a multiple of the worst case that anybody had modeled and after the global financial crisis i put out a memo that entitled uh leverage plus volatility equals dynamite and you know a lot of uh there were thousands of defaults in mortgage-backed securities because uh because of the over leverage and people should understand that leverage does not make any investments better it magnifies the gains if you win and the losses if you lose um and so it you know i think i think that to make an investment better you have to increase what i call the asymmetry the goal in active investing should be to look for asymmetry situations where if things go well you'll make a lot of money and if things go poorly you won't lose them and if you can find those that's that's the holy grail if you find an investment where if things go well you'll make 30 of things so poorly you lose 30 you know it's it's not a great thing we're looking for this asymmetry and uh and and leverage does not produce an asymmetry it produces an absolute symmetry it magnifies the gains if you win and the losses if you lose but there's one other aspect which is not symmetrical which is it reduces the likelihood that you can get through tough times so there can if there's a downward fluctuation an unlevered portfolio will make it through a leveraged portfolio may not so i think that you know leverage is far from a a magic solution um and most of the uh most of the real uh challenges in economic history have come from people who overestimated their ability to live through bad times with a leveraged structure so live by the sword die by the sword exactly and in fact if you think about it leverage is an example chris in investing everything is a two-edged sword except for alpha if you if if an individual really has alpha which is which i define as a superior skill and insight that then that'll help you in good times and bad but but the other things in it like leverage like concentration as opposed to diversification uh and these are these are two-edged swords they they help you if the outcomes are good but they hurt you if the outcomes you
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