The beginning of the year marks the time when chief investment officers, market strategists and other chief prognosticators publish their top investment themes. Barron’s also publishes their much anticipated “round table” issues in mid to late January, which pull together top investors to discuss the state of the markets and where they see investment opportunities.
There are hundreds of firms producing research all the time, most of it free. The big Wall Street firms produce enormous amounts of content, but so do practically all buy-side investment management firms these days. If you’re not careful, combing through research reports for trading and investment ideas can absorb all of the day. There are also the independent firms such as Ned Davis Research, BCA Research and the Leuthold Group, which are very expensive, but provide lots of interesting and useful information for asset class traders.
Common sense suggests that you can’t just read the research, implement the trades suggested and expect to outperform the market. That would be too easy. This is the case even for costly research from the independents, because after all, tens of thousands of professional portfolio managers can afford these services.
For an asset class trader, reading research and market commentary is important, primarily so you understand what everyone else is thinking, become aware of crowded trades and estimate what information is already priced into the markets. Every once in a while, a new piece of information is gleaned or a new way of thinking about an asset class is found. If discovered ahead of most other market participants, this information can be the seed of a new trade.
At any point in time, there are industry thought leaders who seem to have a special knack for investing and trading the markets. When they speak, I pay careful attention because the probability of discovering a new trade idea from them is much higher than reading the everyday, run-of-the-mill content.
Generally, these thought leaders are very experienced, talented and rich. They’re not inhibited by career risk. Their motivations are aligned with us, because being right about an investment theme is the most important goal associated with speaking publically since the prediction is on the record. Contrast this motivation with that of research content providers and newsletter writers, where maximizing readership is the primary goal.
In addition to investment/trade ideas, thought leaders at times introduce new ways of viewing the markets, new ways for structuring a portfolio and new ways to enhance returns. Thought leaders can also heavily influence future allocation moves associated with the professional investor herd, who mostly possess ordinary skills. I also want to learn everything I can about how thought leaders think about the markets, to get better.
So how did I choose my top 10 thought leaders? Here are my criteria.
- They’re provocative to even the most experienced asset class traders.
- They’re highly successful and experienced, with a history of investing success and alpha generation.
- They’re in the news frequently enough to be useful, and they talk about asset classes.
- I’ve gleaned new trading ideas from them in the past.
- Their motivations align with ours. They shouldn’t be afraid to tell it like it is. Being right must be the primary goal in speaking to the media. They’re not inhibited by career risk or toeing the company line.
- Their positions and trade ideas are not expected to change rapidly.
Since everyone on my list manages enormous sums of money, they often have a value bent, which is good for asset class traders who are likely uncomfortable with a value approach. I also grouped together a few thought leaders, to squeeze the list to ten. The thought leaders I’ve chosen command so much respect from me that I’ll definitely set aside high-quality time to closely read what they have to say – often on a weekend morning with a cup of coffee and a pen. Here’s my current list.
10. David Swensen
Swensen is the CIO for the Yale Endowment Fund. He’s also the author of Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, a highly influential book for institutional investors. Each year, Yale portfolio updates are published discussing the previous year’s performance and changes they’re making at the margin.
We’d expect Swensen’s major asset allocation shifts to eventually be copied by institutional investors around the world. It’s also interesting to see what other Ivy League endowment funds are doing at the margin. They’re typically much smaller than major pension plans, are rich in talent, and thus have more opportunity to add value with tactical asset allocation shifts.
9. Stanley Druckenmiller
Druckenmiller is a retired hedge fund manager who worked with the legendary George Soros as the lead portfolio manager for the Quantum Fund and as Chairman and President of Duquesne Capital. He is now retired, managing his own money, and is freer to talk about where he sees investment and trading ideas. His style is top-down global macro, and he’s a trader.
8. Sam Zell
Sam Zell is the chairman of Equity International, but is most widely known as the chairman of Equity Residential (symbol: EQR), the largest apartment REIT in the United States. Mr. Zell is an ornery type of fellow who is uninhibited by any sort of career risk associated with calling things the way he sees it. I’m always interested in his thoughts on real estate, which is a major asset class comparable in size with equities and bonds. Real estate is mostly privately traded, so he provides insight on the attractiveness of real estate compared to the more tradable asset classes.
7. Cliff Asness
Cliff Asness is a founder of the highly successful investment management company AQR. He primarily writes about asset class expected returns, risk premia and alternatives, although he ventures much further out from these topics. Everything he writes is provocative. While his pieces are picked up in many different places, he now has a blog called Cliff’s Perspective on the AQR website.
6. Rob Arnott
Rob Arnott is the founder of Research Affiliates, an independent research firm, index provider, and subadvisor to billions of assets. He manages the PIMCO All Asset Funds, which are among the largest asset allocation funds in the industry. He’s written many provocative papers on expected returns. Research Affiliates also has a new asset class expected returns tool that’s very interesting to study.
5. Ben Inker and Jeremy Grantham
Both these guys work at GMO, a major investment management company serving institutional investors. Both write must-read articles on asset class expected returns. Often Asness, Arnott and GMO contradict each other with respect to portfolio construction and expected returns, and it’s interesting to reconcile the pros and cons of each other’s arguments. For instance, GMO is not a fan of fully collateralized commodity futures funds, while both Asness and Arnott recommend this asset class. Risk parity is another contentious topic with GMO and AQR.
4. Warren Buffet, Howard Marks, and Seth Klarman
Three famous billionaire value investors. Anything they write is a must read. Even though they generally focus on individual securities, they often comment on various asset class valuations. They’re also willing to wait in cash when there are no compelling investment opportunities, which is rare in the institutional money management arena. Such a market-timing approach (waiting in cash) is very different from the tools used by traders, hedge fund managers and trend-followers. They also go anywhere in search of good values in the public markets, private space, real estate, fixed income and anywhere in the capital structure.
Warren Buffett, CEO of Berkshire Hathaway (Symbol: BRKA), publishes an annual report every spring, which is a must read. Howard Marks, a founder and Chairman of Oaktree Capital (Symbol: OAK), writes a must-read quarterly letter to shareholders. Seth Klarman runs privately held Baupost Group. He’s not in the news much, but when he is, I’m very curious about what he has to say.
3. PIMCO and Bill Gross of Janus
PIMCO’s investment approach is to take a secular three-to-five-year view of what they expect to occur in the markets. PIMCO is one of the largest bond managers in the world. They hold a secular forum every spring, the results of which are a must read for asset class traders. They also produce commentaries by a number of authors that have triggered investment opportunities for me in the past. Their commentaries are especially helpful in developing themes around fixed income, currencies and central bank actions.
Bill Gross founded PIMCO and has written a monthly commentary for years. After a recent falling-out there, he is now with Janus Funds managing an unconstrained bond fund (Symbol: JUCIX). He continues to write a monthly commentary for Janus.
2. Jeffrey Gundlach
Jeffrey Gundlach is a long-time, highly successful bond manager, first at TCW managing the TCW Total Return Fund (TGLMX), and then at his own firm Doubleline, managing the Doubleline Total Return Fund (DBLTX). He has fast become one of my favorite managers to listen to, primarily via his webcasts. I like the way he thinks, and he often has alternative views on the markets that resonate with me. While primarily a value-orientated, bottoms-up manager, he also has a bit of trader in him, including the use of technical signals to understand what’s going on in the markets. Even though I don’t always agree with him, he’s always entertaining and provocative.
1. Ray Dalio
Ray Dalio is the number one person on my list. He founded Bridgewater Associates, which has become the largest hedge fund organization in the world. Bridgewater manages an immense amount of money – more than $100 billion – yet the uncorrelated returns produced by this firm have been quite impressive. Much has been written about the unique, brutally honest culture there. Yet their results speak for themselves. Anytime he’s interviewed, it’s a must read/watch. His firm provides insights on all asset classes and potential central bank actions.
Finding highly successful investors to follow is extremely useful in learning how to trade asset classes. Since it’s impossible to read even a small fraction of the investment research produced, I tend to focus on the work of highly successful thought leaders in the industry because interests are aligned, it provides the opportunity to learn and because the potential to find an investment idea from them is much higher than average.
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