Aug 3, 2017

Where We Stand – Taking Mr. Market’s Mood


The legendary investor Benjamin Graham once analogized the stock market to a manic-depressive character he called Mr. Market. Sometimes Mr. Market is ebullient, and no price is too high for his stocks. At other times, he is gripped by despair and will offer you his goods at incredible discounts. As investors, our job is to gauge how Mr. Market is feeling and react accordingly. One simple way to assess Mr. Market’s mood is by using the great investor Howard Marks’ market conditions score-card.*

Mark’s scorecard is divided into two sections. On the left side are market conditions that tend to associate with overvalued and risky markets for investors. And on the right side are conditions that commonly correlate with undervaluation and good investment opportunities. Here is what that scorecard would show today based on my best estimates:

As you can see, a substantial majority of market conditions today land on the risky side of the table: Lenders are eager, capital is plentiful, credit spreads are narrow, recent performance is strong, and asset prices are high which means that prospective returns are low. Even more telling, there is nothing checked in the opportunity column. As a whole, this chart indicates that investors may be manically optimistic and thus irresponsibly dismissive of risk. As Howard Marks likes to put it, “The riskiest thing is thinking there is no risk… You want to take risk when others are fleeing from it, not when they’re competing with you to do so.”*

But before we get too carried away with worry, keep in mind that this chart does not necessarily mean there is going to be a crash. The fact is that had we performed this same exercise over the past few years, it would have produced similar results. Meanwhile, the stock market generated strong returns.

Where it can be helpful is in calibrating your appetite for additional risk. For instance, if you are considering investing in a cyclical business, or thinking about whether to take profits in the hot technology stock you bought a few years ago; Mr. Mark’s scorecard can help to determine if you should be actively seeking or avoiding additional risk.

Thought for the Week:

“For the last nine years, central banks drove interest rates to nil and pumped money into the system creating favorable carries and abundant cash… That era is ending… Central bankers have clearly and understandably told us that henceforth those flows from their punch bowls will be tapered rather than increased… Recognizing that, our responsibility now is to keep dancing but closer to the exit and with a sharp eye on the tea leaves.”

Ray Dalio,
Central Bank Reversals Signal The End of One Era
and The Beginning of Another


** I have slightly modified Mark’s table in the interest of brevity.

** Marks, Howard. The most important thing: uncommon sense for the thoughtful investor. New York: Columbia U Press, 2011. Print.

While the information presented herein is believed to be accurate, WhiteTree Investment Management LLC (WhiteTree) makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in the document. WhiteTree is under no obligation to notify you of any errors discovered later or of any subsequent changes in opinions. Nothing herein should be construed as a recommendation to buy or sell any of these securities.  It should not be assumed that any of the securities, transactions, or holdings discussed will prove to be profitable in the future or that investment recommendations or decisions WhiteTree makes in the future will be profitable or will equal the investment performance of the securities discussed herein. WhiteTree or its employees may have an economic interest in securities mentioned herein. This information is intended only for the recipient of this email.  Under no circumstances should this report be shared with or forwarded to anyone else without the express permission of WhiteTree.


Jun 14, 2017

Give and Be Thrice Blessed by the IRS


“The quality of mercy is not strain’d, It droppeth as the gentle rain from heaven Upon the place beneath: it is twice blest; It blesseth him that gives and him that takes:..” – William Shakespeare,                                          […]

Apr 18, 2017

What Does The Fed Mean For Your Portfolio? Not as Much as You Might Think.


Since at least 2010, people have been predicting higher interest rates. Now, finally, the Federal Reserve (the Fed) has been steadily raising its benchmark interest rate. But contrary to what you might expect, this does not necessarily mean that we are in a bear market for all interest rates. In fact, there have been several […]

Mar 9, 2017

Size Matters – It’s Hard To Be Large


If I was running $1 million today, or $10 million for that matter, I’d be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing […]

Apr 4, 2016

Almost Does(n’t) Count: Ackman Valeant – Buffett Salomon


  “Risk is more things can happen than will happen”  – Elroy Dimson “Many things can happen but only one will” – Howard Marks   Sometimes a thing creates an echo in your mind. That is to say you keep thinking about it, and while you know it’s important, you can’t quite externalize why. An […]

Feb 18, 2016

Handicapping Atlantis – South Florida’s Sea of Troubles


“What important truth do very few people agree with you on.” – Peter Thiel Michael Lewis’ The Big Short is out in theaters. The movie is a lightly fictionalized account of the hedge fund managers who were able to foresee the U.S. housing bubble and profit from it. One of the principal characters is Dr. […]

Feb 8, 2016

Allocating Blame


“All things are full of weariness; a man cannot utter it; the eye is not satisfied with seeing, nor the ear filled with hearing. What has been is what will be, and what has been done is what will be done, and there is nothing new under the sun… In much wisdom there is much […]

Jan 27, 2016

Don’t Get Hornswoggled by Leveraged ETF’s


The article below is an excerpt from WhiteTree’s Q4 market commentary. If you would would like to receive our quarterly commentary, please email us at

Sep 4, 2015

Risk Parity In The Financial Times


After reading quite a few articles making bad arguments against “risk parity” strategies, I wanted to write a post that elucidated my understanding of the thought process behind risk parity, while also pointing out the flaws in the arguments of some critics. I started writing something but it never came together quite the way I […]

Jul 30, 2015

Bond Portfolios – What’s Conservative Got To Do With It?


Below is a section from the most recent WhiteTree quarterly client letter. Excerpt:   What’s Conservative Got To Do With It? Echoing the famous poll in which 80 percent of people rated themselves above average drivers, most investors consider themselves more conservative than their peers. Unfortunately the term “conservative” has little descriptive power in context […]