December 31, 2019 – Accelerate was founded in 2018 with the mission of democratizing alternative investments.
With that in mind, alternative investments can be quite complex and investors may require education to get up to speed on the asset class. Given the inherent complexity of alternative investment strategies, we were active this year providing research and insights to help educate investors.
Here are our top 10 blog posts from 2019
1. Replicating Private Equity With Liquid Public Securities – “Private equity’s market-beating returns generally do not come from the harvesting of the illiquidity premium, nor operational improvements at portfolio companies. The returns of leveraged buyouts come from three investment factors: value, size and leverage. Private equity performance can be replicated with systematic strategies based on these three factors.”
2. Innovators, Imitators And Idiots – “What’s an investor to do? Clearly, copying a heavily replicated strategy is not the answer. It’s good to be influenced by great investors and study their methodologies and techniques, but ultimately, to find success in investing an investor must find his or her own style. Buffett’s “three I’s” expresses this idea succinctly: First come the innovators, who create something unique and novel. Then come the imitators, who seek to copy the innovators. Finally come the idiots, whose greed tends to ruin what the innovators created.”
3. Whatever You Do, Don’t Invest Based On Dividend Yield – “Dividends have lost their luster ever since share buybacks came to dominate shareholder yield over the past 15 years. Combine this with the viewpoint that dividend yield investing is just a watered-down version of value and quality investing, albeit a much worse version. If you insist on sticking with a yield-based investment strategy, invest based on free cash flow yield and quality instead of dividend yield. Your net worth will thank you later.”
4. Private Equity’s Mark-To-Model, Career Risk And The Volatility Premium – “The problem with traditional private equity is that the flood of capital has taken value out of the equation, such that leveraged buyouts are now overvalued compared to public equities. The best way to get real private equity returns is through focusing on small and mid-cap value equities, with a bit of leverage, in the stock market with private equity replication. Just buckle up your seat belt because it’s going to be a wild ride.”
5. Risk Management, Before It’s Too Late – “When seeking to further diversify your portfolio and manage risk before it’s too late, look to the “gold-standard” of asset allocators. Consider going beyond just stocks and bonds and investigate whether alternatives, such as hedge funds and private equity strategies, are right for your portfolio.”
6. The Shareholder Yield Dilemma: Dividends Or Share Buybacks? – “Bottom line? When considering the shareholder yield conundrum, focus on a stock’s share buyback yield and ignore its dividend yield.”
7. To Hedge, Or Not To Hedge (Foreign Currency) – “You have enough to worry about with your asset allocation and security selection. Don’t worry about your currency exposure too. Don’t hedge it.”
8. Should Long-Term Investors Worry About A Yield Curve Inversion? – “While the headlines can be scary and the short-term market drops stomach-churning, long-term investors can take heed in the historically positive long-term stock market performance following yield curve inversions. The short-term drawdowns can be gut-wrenching, however investors with a long-term perspective should stay the course and reap the rewards granted to those willing to hold through the tough times.”
9. The First Time I Lost $1 Million – “If you’re an investor, you will face setbacks. It is inevitable. You have to roll with the punches. The number one key to longevity in investment management is resilience to the many setbacks you’ll endure. Over time, a hedge fund manager accumulates battle scars – some memorable, and some forgotten. The first time I lost $1 million will always stick with me.”
10. Sentiment Is Path-Dependent – “The recency bias has a tremendous effect on investors’ sentiment which in turn has a material effect on investment decisions. It is important to be aware of these inherent cognitive biases that the vast majority of investors suffer. Combat the recency bias by putting additional weight on other factors such as valuation and long-term asset performance, instead of making a fast, system 1 decision based on recent price action.”
Bonus. Merger Arbitrage: A Strategy For Consistent Profits In The Market – “Warren Buffett said “teach a man to arbitrage and you will feed him forever”, meaning arbitrage is an essential investment strategy that aims to generate consistent results in the future. And investors need to eat.”