Commentary

Joanna Fields
Traders Magazine Online News

Navigating Cybersecurity on a Stretch of "Regulatory Rapids"

In this shared commentary, Aplomb Strategies writes that when considering a firm’s governance structure, a holistic approach makes the most sense.

Traders Poll

Now that the SEC has approved the CHX's petition for a speed bump, will you be more likely to send them your order flow?




Free Site Registration

February 1, 2003

The Deflation Wreck

By Kathryn M. Welling

Also in this article

  • The Deflation Wreck

Christopher Bloomstran, with partner Chad Christensen, runs St. Louis-based Semper Augustus Investments Group LLC., a four-year old firm that dared take as its moniker the name of the tulip at the epicenter of Holland's 17th Century Tulipmania. So far, with decidedly better results than the original, a beautifully flowering but barren bulb that withered within a couple of years.

Then again, the Semper Augustus team's intentions were clear: to eschew the short-term enthusiasms of the crowd in favor of long-term investing in high-quality securities trading below fair value. To find them, Chris and Chad exhaustively and compulsively comb through mountains of data, tunnel through tons of financial disclosure documents, hit the bricks for field research-and annually pull all the pieces together in a no-hold-barred macro outlook of uncommon depth, perception and candor. I called Chris as soon as I got it. -KMW

Any number of things set you apart from the typical portfolio manager, Chris, but your affinity for cash has to be right up there.

I wouldn't say that we have an affinity to cash as much as an affinity to what is working. But yes, we remain very cash heavy, 40 percent-70 percent for the typical client. Cash has not been a bad place to be-though you have to keep it working, since you're not making much at 1.25 percent! Cash definitely hasn't been trash. Over the last four years, Treasury bills returned 16.3 percent while anyone holding the S&P 500 took a 24.4 percent hit.

Still, 16.4 percent over four years isn't exactly the sort of return that gets juices flowing-

The whole world got to thinking 15-20 percent a year in equities was a birthright. But some numbers we ran recently show how silly that was. From the 1982 lows through the end of 2002, you've got a 20-year total return on the S&P of all of 12.6 percent annually. That's what a bear market does. The 10-year return works out to 9.22 percent annually, and the total return on bonds over that span was only 10 basis points lower. The 70-year number-going back to the end of '32, which encompasses the market low, obviously, is 11.5 percent for stocks. But my guess is that if you start compounding at some point in the last three years, you are going to arrive at return numbers well below 10 percent per year for the next 10 years and quite conceivably for the next 20. Remember, investors suffered through 25 years of a negative total return from the peak in 1929 until 1954 before getting back to breakeven. So we're pretty happy to be able to boast good four-year numbers. An average annual gain of 13.5 percent on our all-equity portfolios vs. a loss of 6.7 percent on the S&P. Those are gross numbers, but ours include commissions and trading costs, while the S&P numbers include none of the trading costs or management fees that in reality are required to track that very actively managed index.

You're happy? Last year was a bummer for Semper Augustus, just as it was for the majority of investment managers.