Lemley Yarling Management Co
309 W Johnson St
Madison, WI 53703
Comments on activity in client accounts
25 March 2022
We tried some trades this week that didn't really work and so we're back to 70% cash in larger accounts 50% in smaller and positions in Bed Bath, Ford, The Gap and several Cloud and NASDAQ 100 ETFs.
Hopefully and prayerfully the Ukraine catastrophe finishes soon.
That'll show ‘em who's boss!!
Russia halts WWII peace treaty talks with Japan in response to sanctions over Ukraine invasion
19 March 2022
Markets rallied for the week after a down Monday. We traded the down/up and ended the week with 75% and more cash and decent trading profits. We own The Gap, the major bank ETF (KBWB), a small position in the Online shopping ETF (ONLN) and the domestic oil ETF (XLE). With accounts now up 6% to 12% while the S&P 500 and the DJIA have ralled mightily but still remain down 5% and the NASDAQ down 10% for the year.
We are being audited by FINRA (a bi-yearly occurrence) and so reimagined our investment strategy for them and our website.
We survived the Ides of March and Spring is on the way.
LY Stock Market Strategy
Our portfolio management follows an investment philosophy that buys good quality stocks when they are out of favor. This investment philosophy infers that all companies, no matter how smart the people in charge, eventually suffer corrections in price. The reasons for these corrections vary but the price drops are real. After a period of time investors seek out these issues. Just because a stock is down is not a reason to buy. Rather, it is a reason to begin looking at the company's fundamentals. We stress book value, cash flow, low debt, insider ownership and previous market performance.
Because of the now normal volatility of the stock markets that we have experienced over the years, we usually dedicate at very large percentage of a portfolio to cash equivalents.
Since 2015 we have altered our investment strategy because of the extreme volatility in stock prices that resulted from creation of ETFs and Bitcoin and the rapid increase of the use of computer trading by many hedge funds and investment banks. As a result, we are very quick to take profits and losses and turnover in the accounts has increased greatly. We maintain an unusually large cash position at times when we believe there is above average market uncertainty and risk. Stock and bond markets have become more of a casino than a place to invest for the long haul. Since the day to day controllers in the markets are computers, hedge funds and option traders, we have adjusted our style. We generate mostly short term profits- and losses. This fact has no effect on tax free accounts but it does affect taxable accounts. Our philosophy is that any net yearly gain is better than a loss.
And so that is why the portfolios - when we are invested - contain mostly large cap companies or ETFs. We are neither prescient nor brave enough to catch trendy stocks nor do we usually want to trade stocks making or backing off new highs.
This market approach with out of favor value stocks has worked well over the years and especially the last several years as we have refined our trading actions.
All this doesn't mean that stocks and portfolio values won't go down. But having survived 1974, 1982, 1987, 1990, 2000, 2008-2009 , the Flash Crash of 2010 and the Covid correction of 2020 it's obvious (or maybe "we are confident") that we can absorb, survive and profit from whatever the markets choose to do.
Managing a portfolio requires a balancing act between client hopes and market risk. In down markets our portfolios usually much better than the popular averages. But sometimes, most often when the markets are in a speculative phase, our managed portfolios under-perform the popular averages. That is because since the 1987 crash we have always maintained a large cash/short term Treasury position in accounts. Portfolios that we construct for clients are meant to: participate in stock market rallies (stock portion); survive stock market collapses (cash, stock and bond portion); and allow the client and us to sleep nights.
Our investing method differs from money managers who are given funds and told to seek the highest return by being fully invested in common stocks at all times. Those managers have a different objective than we, for they are trying to outperform the markets, period. Thus, if the markets are up 30% and the mutual fund is up 35%, that manager is a success. Correspondingly, if the markets are down 30%, and the mutual fund is down 25%, that manager is also successful. We, on the other hand, manage client funds with the intention of earning a satisfactory return on a risk-reward basis while hopefully mitigating the pitfalls of serious market declines.
It's important to understand that the spectacular returns of hedge funds that are mentioned in the media may have been derived by taking spectacular risks, and/or because the time period shown encompasses a market low to market high. For example, the advertised 30% + annualized returns on "hedge funds" are obtained by being highly leveraged (investing with borrowed money). Leverage in these funds sometimes exceeds 10 to 1 ($10 borrowed for every $1 invested).
In our managed accounts an annualized return over 10% for any long period of time is a goal to hope for rather than a result to be expected. High reported yearly returns are attained by being fully invested in common stocks in a roaring bull market-or using margin or options, or beginning an investment at a market low. We take a much more conservative approach for accounts. The money in our managed accounts is treated as all the investment money that a client has to invest. We do not attempt to match the performance of aggressive funds/ETFs during speculative market phases, since we would have to be fully invested in common stocks that do not meet the requirements of our investment criteria. We take a risk avoidance approach to investing rather than trying to "beat the market."
Investing involves assuming risk. We tend to be cautious traders. In reviewing our conduct and willingness to assume exposure to market risk it is obvious that we raise cash whenever we perceive excess volatility and speculation entering the markets.
We have not accepted new accounts for many years and our current clients have been with us for thirty years or more. All their accounts -as our ours- are being managed for their heirs or charitable beneficiaries. Thus, we tend to manage them all the same.
Bond Market Strategy
We have not invested in bonds for the past ten years because interest rates were too low. When we do buy bonds, we only invest in U.S. Treasuries.
11 March 2022
The markets suffered another down week with what has become accepted volatility. We bought the Tuesday down expecting a bear market pop after 5 down days in a row The jump did come on Wednesday morning but we gave up our trades at noon when the markets rapidly reversed from a 2% morning gain. We remain quick on the trigger trying to add incrementally to our good performance this year without overstaying our welcome.
The Ukraine catastrophe continues and until that genocide ceases, we think the markets are range bound. The commodity rally is overdone as is the constant harping on inflation. Yes, gasoline prices are high. They will remain high until producers extract enough profit or until one of the main actors decides to increase production from agreed levels. Soybeans at $17 and Corn at $7 is a blessing for farmers who deserve a few good years at our expense.
Our core holdings remain Cash (60% and greater), GM, Ford, Verizon and The Gap. All the rest of our buys and sells are anchovies- stocks for trading not for keeping.
Have a safe Ides of March.
Billionaire Says He Just Got ‘Lucky' When Friend Sold His Company to Microsoft
Calling All Patriots! Help Save America by Buying Donald Trump a New Jet.
4 March 2022
We began the week by selling the QQQs we purchased in last week's downdraft for a nice profit. Tuesday through Thursday noon we traded the volatility before deciding we had enough and closed out most positions for a small net positive. Putin is evil, if not also crazy, and the ravaging of a beautiful country while the rest of the world watches it on television is enervating.
And so, we have moved to mostly cash. We had mostly profitable trades this week. We sold our retailers before their earning announcements after we observed that even positive results in the retail sector were met by selling. We did repurchase The Gap on Friday because its report was excellent and it eventually sold off 10% after popping higher at the opening.
We have maintained and added to our Ford and GM positions. Both are now tech, chip, climate aware, self-driving stocks that have great earnings and are financially sound. If Tesla can be priced at $1 trillion, GM and Ford are each worth $200 billion which would be twice the current valuation.
We remain up 5% t0 10% in accounts. We had planned to go to mostly cash in March- and we have.
Now we just have to control our greed with patience. And we have only good thoughts for the folks in the Ukraine and also our leaders who have difficult decisions ahead.
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