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The Cordant Blog

What If….

by Isaac Presley, CFA on January 06, 2017

What if you had the choice between two investments: both earning $100 per year, but one taxed at 30%, and the other at 20%?  For which would you be willing to pay more?

What if investment A was otherwise identical to investment B, but had an upfront fee and significantly higher transaction costs than option B:  Which would you rather own?

Would you be willing to pay more for the ease of having something delivered to your home versus dragging yourself out to a store and then hauling it back home? That is, does convenience justify a premium?

What if alternatives solutions to a problem were lacking: would you be willing to pay more to solve your need than you otherwise would?

Elevated valuations on the US stock market relative to its long-term history are often cited as reason for alarm—like picking up nickels in front of a steam roller according to a recent Yahoo Finance article. And it’s true that current valuations, using the cyclically adjust price-to-earnings ratio made famous by Nobel Laureate Robert Shiller, are above average—27.9 currently vs. the 1881 – 2016 average of 16.7. However, since 1990 we’ve spent 95% of the time above this 135-year average. Valuations do have some predictive power over long-term returns—it’s one reason we think it’s important to have a meaningful allocation to cheaper foreign developed and emerging markets stocks right now—but high valuations don’t necessarily mean we are due for a market crash.

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The Hidden Variable of Performance

by Isaac Presley, CFA on December 22, 2016

What’s your motivation for investing?

Simply answering this question and keeping it top of mind will make you a better investor. So says a recent study by the CFA Institute and the State Street Center for Applied Research.

Whether you’re a D.I.Y. investor, an individual working with an advisor, or a financial professional, understanding the motivation and purpose of individuals when investing should be an easy way to improve outcomes.

Investing with purpose should be easy. It’s not difficult to remind yourself why you are investing in the first place. To set up your strategy and tactics to this aim. To review your results in the context of what you are investing for.

But, all too often, it’s easier said than done. It’s natural to get caught up in short-term thinking and performance chasing. To compare results with a colleague or neighbor even though your goals, risk tolerance, and strategy make it an apple to orange comparison.

Cordant was founded on the principles of purpose. "Intention" is a word we use a lot around here and even the first line in my bio states “begin with the end in mind” implying starting with objectives first. But, it takes constant reflection to keep this in mind.

A recent study by the CFA Institute and the State Street Center for Applied Research shows just how important it is to remember what we are trying to accomplish—to invest with purpose.

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The Key to Great Investing

by Isaac Presley, CFA on December 02, 2016

*This article was origionally published on the CFA Institute's Enterprising Investor blog.


All great investors have one thing in common: the “ability to clearly communicate their [investment] philosophy,” Michael Batnick, CFA, observed.

I agree. Whether hedge fund managers, value investors, or index aficionados, the best investment professionals are great communicators.

But great investors, no matter their investing styles, share one other quality: the discipline to adhere to their investment approach through various market cycles.

Great investing is not simply a matter of identifying The Best™ investment strategy. In the 1990s, James O’Shaughnessy documented a variety of effective strategies in What Works on Wall Street. A number of approaches work, however, the key is not so much to find them, but to apply them with consistency.

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Cheaper Doesn’t Mean Do More

by Isaac Presley, CFA on November 21, 2016


If more information were the answer, we'd all be billionaires with perfect abs." Derek Sivers


We live in a world with more information at our fingertips than previously thought possible. According to Google’s Eric Schmidt, “Every two days now we create as much information as we did from the dawn of civilization up until 2003.” And as a result, many things today are cheaper than ever before. However, in the end, this access to more and more at ever lower prices, ends up costing us more in terms of the outcomes we seek. Let me explain.

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Where Do We Go From Here?

by Isaac Presley, CFA on November 10, 2016

The results of Tuesday’s presidential election were surprising to many and concerning to some, but they’ve left pretty much everyone asking: where do we go from here?

In an attempt to answer this very natural question, we now have the very same pundits, prognosticators, and seers who couldn’t predict the outcome of the election lining up to tell us exactly what will happen over the next four years.

But what do we think? Honestly, our crystal ball is a little cloudy. We don’t know, and neither does anyone else; someone telling you otherwise is probably either lying or selling you something—maybe both.

If we’ve learned anything in 2016, it’s that the prediction business is not a business you want to be in as an investor. First, the “Brexit” vote which few saw coming and now, a billionaire real estate developer with no political experience, has been elected to serve as the 45th President of the United States. Heck, even the Chicago Cubs snapped a 108-year drought and won the World Series.

So, despite the lessons of this year, the desire to know the future remains. We still crave certainty. It’s why the prediction business, no matter how bad the track record, will never go away.

Let’s look at some examples of how difficult it is to predict the future, let alone make money by doing it. Then we will give our thoughts on what you should be doing now.

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What To Do With Your Company Stock: A 3-Step Plan

by Isaac Presley, CFA on November 04, 2016

Barron’s recently published an article titled ‘Does Your Company Give You Stock? Great. Sell It.’ As our clients will know, this is our default advice when it comes to company stock. Sure, it makes sense to evaluate company stock holdings in light of your unique financial situation—maybe it makes sense to hold from a tax perspective or to fund future charitable giving—but even still, it’s best to put a plan in place now. Don’t let the inertia of past decisions continue to influence your decisions today.

So, why does Barron’s (and many others) recommend selling your company stock? To quote the article, “Your financial future is already reliant on your employer’s fortunes. Don’t double down.”

Let’s review why it’s risky to concentrate wealth in your company stock and then conclude with suggestions on how you can take action today.

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Diversification: More Important Now Than Ever

by Isaac Presley, CFA on October 27, 2016

Diversification has gotten a bad rap as of late. Over the last five years, due to the strong performance of US equities, a simple 60% US Stock / 40% US Bond portfolio would have been one of the best portfolio allocations—outperforming the majority of more diversified asset mixes, especially anything including an allocation to international stocks.

Increasing correlations between asset classes are often cited by those claiming that diversification is no longer helpful. That, coupled with the US market’s recent outperformance means many are questioning the need of going beyond this simple 60/40 portfolio.

The problem with this logic, though, is that what’s worked best recently won’t necessarily work best going forward—investing isn’t that easy. For several reasons, which we are about to see, building a diversified portfolio allocation may be more important now than ever.

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The Difference Between Smart Financial Advice and Smart Financial Advice For You

by Isaac Presley, CFA on October 21, 2016

The best strategy in theory might not be the best strategy for you. How can this be?

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How Not To Evaluate Investment Performance

by Isaac Presley, CFA on October 11, 2016

Harvard’s Endowment has been making headlines recently due to its $2 billion investment loss in the fiscal year 2016. And the Crimson (the student newspaper) is up in arms about this “unacceptable” loss.

From their article The Urgency of the Present come the following gems:

Harvard Management Company announced a $2 billion loss for the fiscal year 2016.

Let’s not mince words: this is unacceptable.

Now, a $2 billion losses certainly catches attention and grabs some headlines, but it’s only a major loss in dollar terms. Because of the endowment’s size (a good thing for Harvard) it’s not a major loss in percentage terms as the paper admits:

“…help to bridge this small (in percentage terms) loss.”

The editorial continues with some advice of sorts:

“We also recognize that we are not investment advisors. College students have no business telling seasoned analysts and managers where to invest the endowment. Instead, we wish to urge the administration to prioritize endowment performance before Harvard falls further behind peer institutions.”

From my vantage point[1] this is a case study on how NOT to evaluate your investment performance. Let’s take a look at what we can learn from this example.

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How Concentrated is Too Concentrated? A Mistake That Costs You the Whole War

by Isaac Presley, CFA on October 07, 2016

During the First World War, Britain had the greatest Navy ever assembled in world history. And yet, through most of the war, it used its Naval superiority to play defense, not offense. 

Dan Carlin in his excellent podcast Hardcore History describes the situation as follows:

“The opportunity was there for the numerically superior British fleet to apply their numbers and kick German tail, but the problem was Naval outcomes were quite variable. One lucky punch could turn the tables and in this case, remove the British numeral advantage.”

He continues, quoting Winston Churchill directly:

The great disparity of the results at stake in a battle between the British and Germany navies can never be excluded from our thoughts.”

This “great disparity of the results” and the quite variable outcomes could produce a major victory, but it could also produce an unacceptable outcome. Again to quote Churchill:

“The chance of that happening [a British loss] may not be great, but if that happens, it could cost us the whole war.”

The strategy was to stay alive and play the long game—Not to make some grand, heroic strike.

You should apply a similar strategy with investing as well.

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