Procrastination,
in delaying being short high yield, is like standing too close to the fire
I have recently read a short piece in
The New Yorker discussing “procrastination”, which effects all of us in
one form or another. It is interesting
that George Akerlof authored the piece. His
wife, for those that are unaware, is Janet Yellen (our soon to be new Federal
Reserve Chairperson). She may want to
read closely what her husband has written on the subject of procrastination
when she thinks about “Tapering”. I have spoken to several very smart
investors, many of which are much more educated than myself, but regardless of
the Ivy League pedigree or the Nobel Prizes on the mantel, we can all have a
case of procrastination from time to time.
The current investment theme we are focused
on and excited about is shorting high yield companies who never procrastinated
when “free” money became available. I am
surprised by some potential investors’ theories which suggest that they can
time the fall in high yield…or is it just procrastination rearing its big ugly
head?
George Ainslie, the well-known
psychiatrist, psychologist and economist, wrote in an essay that
procrastination “…is as fundamental as the shape of time, and could well be
called basic impulse…”. The word
procrastination itself means “to put off for tomorrow”, and entered into the
English language early in the sixteenth century. By the eighteenth century, Samuel Johnson was
describing it as “one of the general weaknesses” that prevails in all great
minds. In a study done at the University
of Calgary, the percentage of people who admitted to difficulties with
procrastination quadrupled between 1978 and 2002.
In this light, I now understand why
so many colleagues and intelligent investors sometimes procrastinate in making
fairly obvious decisions. I thought it
was timing, but maybe in some cases I was wrong and it’s just old fashioned
procrastination. As for me, I really
hate to put off what I can do today for tomorrow. This probably comes from my strict
Grandmother and all of her values.
I can honestly say that two of the
best trades I have been involved in would have been missed if I had been a
procrastinator: 1) Short Subprime, and
2) Short HY. Both trades were so
cheap to have on that I never really thought about waiting for tomorrow when,
for pennies, I could have it on early when bonds were at the highest levels, allowing
us to maximize the returns. These two trades were the most profitable trades
for myself and our investors in the crisis period. (Of course we should have had double the size).
I encourage everyone who is looking
seriously at our Short-Biased High Yield Portfolio to get invested now (or
soon) as bonds are generally at their mathematical peaks and fundamentals in
the HY companies we focus on are eroding fast.
Best Regards,
Michael Beattie
Chief Investment Officer
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