Drystone Communications


 

October 15, 2014

Fear and risk are inversely correlated, a fancy way of saying that by the time you’re overcome with fear, the actual remaining risk to your portfolio may have already diminished. During periods of higher immediate volatility, the real risk of future price declines may well be easing off. And vice versa: periods of less immediate volatility reflect general investor complacency and absence of fear, but that is precisely when the real risk of future problems may be building up steam. Complacency does tend to go before a fall (in asset prices). But that fall, in turn, can kick off opportunities to buy assets with more confidence and less risk.


July 15, 2014

When I eventually do resume purchasing longer-maturity bonds and other income-oriented assets, it will tend to be when the market environment is markedly less comfortable or halcyon than it seems right now, when the storm clouds are breaking, i.e., when interest rates are rising. Paradox or no, when it comes to evaluating a potential investment, it is often other people’s loss of confidence that can give me a greater level of confidence in the price I get to pay, the income yield - if any - I get, and the total return I expect from that potential investment.  The shorthand I use for that greater level of confidence is the word “opportunity.”


April 17, 2014

Quality+Growth at a Reasonable (or better) Price: Concentrated Investments selection as a one-two-three star rating


Strength on any one criterion is OK, but growth potential plus a cheap stock price is good, favorable competitive landscape/management plus a cheap stock price is better, and favorable competitive landscape plus growth potential plus a cheap stock price is best/ideal. A rare and typically fleeting confluence, but it presents the best Concentrated Investment (i.e., individual stock purchase) opportunities, when such a confluence on all three criteria does occur.


January 16, 2014

In my October 2010 letter I projected that annual returns from the stock market would average at least 6½% (consisting of at least 4% price change + 2½% dividend yield) over the five years 2011-2015 and ten years 2011-2020.  In January 2013 I reiterated that same working assumption.  After another strong year, though, I am now revising my projection for the S&P 500 Stock Index to: at least 5% average annual total return (consisting of at least 2½% price change + 2½% dividend yield) over the next ten years. 

5% sounds disappointing, barely worth the bother of owning stocks, but remember I project 5% as an expected likely minimum allowing for plenty of upside potential.  Also, this is for the S&P index, and I certainly hope Drystone Concentrated Investments continue to add extra return on top of that base. Plus, 5% still exceeds the total returns I expect for much of today’s bond market.


 

Drystone LLC investment portfolio manager