Trends Watch: September 14, 2017

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks to Charles Lemonides, CIO, ValueWorks LLC.

What is your outlook for alternative investments?

The alternative investments industry will be one of the most dynamic places to invest for quite some time. We are seeing major changes in the macro climate where alternatives will be far better able to adapt and navigate than “traditional” strategies, which can be somewhat constrained in their actions.  As well, the rise of passive investing, though troubling from the perspective of the market allocating capital efficiently, will mean those who manage portfolios actively will be paid premium dollars to do so.  The conditions that have allowed index-linked investing to do well have run their course and the value of plying an investment discipline with skill and experience will be reflected in superior long-term performance.  Needless to say, there is a wide array of investment approaches under the alternative banner.  We don’t believe there is any one right way to invest. Rather, we are “value” investors because it fits our skill set, experience and temperament.  Moreover, we have conviction in the efficacy of value investing, and in our ability to execute this investment discipline.  We’re proud of the fact that we make informed security-by-security investment decisions. We believe that’s good for our investors and good for the markets that foster economic success for us all.

What is your outlook for the economy?

We have been very positive on our economic outlook and continue to believe the groundwork has been laid for continued economic expansion for quite some time. Eventually we’ll get to an ebullient, overextended place in the markets, but we’re still a ways from that point. Mirroring what is happening in the economy, we are currently in an environment of slow and steady market advances.  This is fine and healthy.  We don’t need a lot of drama to reach our investment goals. The market has been a bit herky jerky at times: a gradual move higher followed by a quick correction followed by a gradual move higher…. This type of activity is consistent with a long-term bull market.  In my read of things we are not at full employment and not in a market “bubble.”  One thing that supports the conviction that we are not at a frothy top, is the widespread concern among investors that things may be getting frothy.  This has been keeping risk appetites modest, and a lot of investment dollars on the sidelines.

What keeps you up at night? 

When things go wrong in the economy and markets because important players and groups make poor decisions, which is an unpredictable problem to deal with. We are looking at an extended period of market advances as long as key actors make smart decisions, or at least don’t make disastrous ones.  If something does go wrong and markets retreat for a period, panicked investors generally overreact.  Picking up bargains created in turmoil allows our portfolios to rebound quickly leaving us in a better place after a sell-off than before. As value investors, we have conviction in the value of our portfolio holdings. It generally makes for a good night’s sleep.