If you've been underperforming for the past three years, you're not alone. This market has been an anomaly, and Consuelo Mack prompts an explanation from this week's guest on her WealthTrack episode of April 26, 2013.
Charles Royce says, "Controlling risk is …the hard part. That's the part I had to learn through losing other people's money in '73 and '74...." His mutual funds have outperformed the market for most periods over several decades, but they have underperformed for the past three years.
On his description of the market of the past few years as an "anomalous market," Royce comments on the role of the Fed providing liquidity, "...the side effect, the unintended consequence – is that it has encouraged and sponsored the success of inferior companies. So if you had superior companies (strong balance sheets to provide 'fuel' over the operating cycle) you were disadvantaged in this particular environment.... It's very frustrating because we have a quality bias." Quality companies "were prepared for hard times; they had the ability to do very well in hard times. But in fact, the inferior companies were able to get their act together, fix their balance sheets, sell a junk bond for five or six percent, and go on. It is a climate in which the inferior has prospered."
"Yield is the internet bubble of today." Royce believes interest rates will rise sooner than most of us would expect. As a smaller cap investor he sees opportunity in the industrials. He sees them as "...somewhat cyclical, but we are having an industrial renaissance in this country, and I truly believe over the next five or ten years that's going to continue." He also has an interest in non-bank financials with emphasis on companies which are not asset-intensive.
Aside: Someone please explain the design on Consuelo's garment. What is that? Also, Susie G. wore busy (but less exotic) attire on the 4/26/13 NBR airing. I have no interest in women's fashion except to wonder if there might be some kind of market connected cultural connection (like skirt-length and market cycles).
If you've been underperforming for the past 3 years
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