Pleased to see from Howard Mark’s latest memo that he’s read and...

Pleased to see from Howard Mark’s latest memo that he’s read and copied my material e.g. stay fully invested (almost always); possibly inflation might not be increasing any time soon; such inflationary predictions can’t be founded on any past comparable economic periods; it makes sense to carry businesses that would fare well if inflation were to surface (as VGI is aware).

Heartening to observe the net market exposure in both funds increased from ~ 80% to 90% over the last several months. Admittedly, this may have occurred after the May market lows and before the recent Asian sell off, but probably unfair to criticise this aspect given they are long term investors and not market timers (evidently! ).

Hope they’ve taken advantage of the very recent weakness, particularly in Asian markets (VG8), in order to further increase their equity weightings by deploying into those companies they like for a reduced outlay.

On a side, Marks mentions he’s unconvinced the Fed can successfully print indefinitely. Whilst on the one hand this is such a huge force pushing assets in an upwards direction, as he states (thus giving him resolve in his reluctance to bet against being in markets, i.e. against betting against the Fed), and while there are just so many ways in which this could come to an end, I think he alluded to one possibility, that being the following:

Even though MMT would have you believe that, by definition, reserve banks can respond to any downturn by endlessly stimulating the monetary system, and no shock is too great as they are effectively in control over the rest of the market, I wonder if that’s simultaneously both the solution and the problem, as the more they print away, the more they debase their currency, reducing its value. Ultimately, it may depend on which way their actions are viewed by the market participants (i.e. which side of bed they get out of - hard to predict really). It just depends which way it works out (and when), both of which I doubt even a supercomputer could predict.

Back to VGI: I understand they are an absolute return fund. However, over the very long term at the least, they will have to compare their after tax performance with the alternatives, being equities or property. There’ll be arguments for and against full investment, but as much as they purport the flexibility and downside protection of a cash weighting, when the tide of markets more likely goes up the longer the period one refers to, and given they are after all focussed only on LT returns, I don’t see the merit in intentionally exposing oneself to the fixed asset by putting our hard earned cash into cash. IMO they (among many other institutional investment teams) disadvantage themselves by running a mixed equity/cash fund.

Imagine how their LT performance would have been without the drag of cash. No extra brainpower required. The easiest returns ever. If they’d put all their same ideas but just in bigger portions, in the same relative weightings. Not a cent more in costs, no additional staff, offices or registry costs.

From March last year, not being fully invested was risky in my opinion rather than the other way around. The short portfolio can act as a de facto downside protection. You have to be in it to win it. Being exposed risks periods of bigger hurt and looking silly (mind you, I don’t think they concern themselves with ST performance), but there’s only one thing in the world worse than being invested and that’s not being invested. Not having fully cashed in on the last year’s (IMO inevitable) returns makes a humongous difference to the long term outcome. Let’s hope that’s one mistake that’s not repeated.