BLACKROCK: Investors Are So Caught Up In Bubble Fears That They Are Ignoring A Bigger Risk

Business Insider

View gallery

.
bubble

REUTERS/Mike Blake

FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.

Investors Should Be More Worried About Low Volatility Than A Stock Market Bubble (BlackRock)

The U.S. stock market has enjoyed a great run so far this year, and now many are expecting a correction. But BlackRock's Russ Koesterich writes that low volatility is a bigger risk especially in the near term. He points out that U.S. stocks have had an "exceptionally smooth ride." Year-to-date market volatility is around 14, compared with a historical average of 19.

"The problem today is that even after accounting for strong momentum and benign credit conditions, volatility looks unjustifiably low," he writes. Also, the low volatility also suggests that investors are also ignoring what's going on in Washington. This suggests they expect a last-minute deal after budget talks resume in January and that they are ignoring the "fallout from the Affordable Care Act (ACA)."

Wealthy U.S. Investors Made The Same Investment Errors As Everyone Else (Financial Times)

Wealthy investors make almost the same mistakes as everyone else according to John Authers at the Financial Times. A study of 115 U.S. households with an average net worth of $90 million between 2000 - 2009 showed that the wealthy "are just as keen as their poorer brethren to follow investment fads." But the wealthiest are different, writes Authers. "The richest of the rich steadily expanded their advantage over other wealthy people as the decade continued."

So Far, This Has Been The 8th Best Year For The S&P 500 Since 1947 (RBC Capital Markets)

"The S&P 500 is up an impressive 26.5% year‐to‐date, the eighth best year in the post-war era," RBC Capital Market's Jonathan Golub wrote in a note to clients. But unlike many others he doesn't expect a correction. "While these results are excellent, especially in the context of weak economic and earnings growth, they are hardly out of the ordinary."

View gallery

.
annual returns 1947

RBC Capital Markets

A New Business Aims At Bringing In More Clients For Advisors (Investment News)

2,600 financial advisors from 27 broker-dealer firms have signed up with AdviceIQ, which Megan Durisin at Investment News thinks is a new way from advisors to attract clients. The site lists "their assets under management, client characteristics, mission and contact information. It couples that with a blend of fact-checked articles written by financial advisers that are syndicated daily to 12 media sites, including Morningstar, The Motley Fool and Forbes," writes Durisin. It also checks their background with four regulators including the SEC. While advisors aren't certain if this helps them bring in new clients they do realize it helps them gain visibility.

Value Investors Are Experiencing A Separation From The Meaning Of Their Investments (Epsilon Theory)

Value investors like Jeremy Grantham are experiencing "separation of an investor from the meaning of his investment," according to Ben Hunt chief risk office at Salient Partners. "Sure, you can go  on  investing  on  the  basis  of  your  discounted  cash-flow  model  or  your  earnings  margin reversion-to-the-mean model or whatever it is that floats your boat, but it’s just going to be a continuing exercise in frustration so long as we live in a Fed-centric universe."

So what are value investors to do instead? "Go buy a farm … or an apartment building … or a fleet of tankers … or a portfolio of bank loans … anything where your investment process has meaning again and isn’t hijacked by the game-playing and trend-following that dominates public capital markets. If you have to stay in public securities, at least move into areas of the market where you are not dominated by the game-players and where there remains a critical mass of your fellow value investors to make a  community of sorts … small and mid-cap industrials, say, or maybe activist targets."



More From Business Insider

Rates

View Comments (1)