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“Junk equities” has become the term our family office uses to describe the companies that have underperformed in 2020 even though their dividends offer a better yield than junk bonds. The label was invented by one of the members who suggested that we take seriously Jeffrey Gundlach’s recent remark that bond market investors should, “go to the areas where the damage has been observed and the Fed has not manipulated the price,” – i.e., junk bonds that do not qualify for Federal Reserve purchasing program. “Gundlach may be wrong,” she said, “to attribute the near-vertical increases in the quotes for favored tech stocks to the Fed’s elastic legal interpretations of its authority under the 1912 Act; but his observation deserves respect. We are back in the 19th century when stocks consistently yielded more than bonds.”

Under the structure of our family office, investment policy is decided by a majority vote of the members, not a tally of their respective shares. This follows the example of the weighting of shareholder votes by the articles of incorporation of the first Bank of the United States. As a result, the respect usually shown to the wealthiest people in the room is absent from family office meetings. The structure has also abolished all presumption that age and experience are entitled to automatic deference. Fortunately, even the youngest members accept the premise that market history is worth studying. Thanks to the internet, the “lessons” of financial history are available for anyone to study; and members for whom 2008-2009 is ancient personal history are just as concerned as us geezers about whether recent events are part of another “bubble.”

Neither the older nor the younger members have found it helpful to bring up the recent remarks of someone else I admire – Eugene Fama. In an interview, Fama was quoted as saying, “Bubbles are things people see in hindsight. They don’t identify them in advance. Sure, you can look at the behavior of prices, and you may be able to identify cases where they are too high. But if you only look back and say: ‘Oh, stocks went down a lot, so that was a bubble’, then that’s 20/20 hindsight. At the time, there was no evidence that there was a bubble.” He was equally discouraging about drawing any conclusions from the extreme concentration of total market capitalization among a small number of companies. “In the past, it’s always been the case that the largest 50 companies account for more than 50% of the total value of the market. Now, we’ve got a technological revolution, and it turns out that there are five or six big winners, these trillion-dollar companies. They are a pretty large fraction of the market, but they did it through innovation, not through theft or any other illegal behavior. So I don’t know why that’s a negative. These are all new businesses that provide new services we didn’t have before.”