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TheDashToTrashAndTheGrabForGrowth
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ThisweekwelookataverythoughtfulessaybyanoldOutsidetheBoxfriendJamesMontier.JamesisnowworkingatSocieteGeneraleinLondon.
Heisoneofthetrulygreatmindsonthepsychologyofinvesting,aswellasprovinggreatresearchonhowtostructureyourportfolio.INthisweek's
essay,entitled"theDashtoTrashandtheGrabforGrowth,"Jamesshowshowinvestorstendtodothewrongthingatthewrongtimeintimesof
marketvolatility.Thisisalongerletterwithlotsofgraphs,andthereisanexecutivesummaryatthebeginning,butIsuggestyoureadthenwhenyou
have1520minutestoreallyconcentrate.Youwillbeabetterinvestorwhenyoudo.
JohnMauldin,Editor
OutsidetheBox

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TheDashToTrashAndTheGrabForGrowth
MindMatters
15January2008
byJamesMontier
Whatadifferenceaweekmakes!Recessiontalkiseverywhere.Thisbegsthequestion,aremarketspricedforsuchapossibility?Wewould
suggesttheanswerisaresoundingno.Valuationandcyclicalriskareenormous.Yet,investorspileonthepressurebybelievingtheycantell
'true'growthstocksfromyoungpretenders.Simultaneously,investorsseemtohavetransformedintospeculators.Thiscreatesopportunitiesfor
thosewiththedisciplinetosticktotheirlongtermprocess.Suchinvestorsarelikelytofindcomfortincash,iftheyareallowed.Failingthat,
largecapdividendpayingstocksareprobablythebestplacetohide.
CyclicallyadjustedmeasuresofvaluationsendaclearmessagethatUSequitiescannotbedescribedascheap.Infact,theyremainabsurdly
expensiveonthesemeasures.Ofcourse,valuationisneverabindingconstraintintheshortterm,butitistheprimarydriveroflongterm
returns.Moreover,valuationsdotendtomatterinbearmarketsmorethanbullmarkets.
Somewillarguethatequitiesarecheaprelativetobonds.Wedislikesuchvaluationmeasuresastheyconfusenominal(bonds)andreal
(equities)assets.OneofthekeylessonsfromJapanisthatallegedly.cheap.equitiesgotcheaperandcheaperagainstsupposedlyexpensive
bonds.
Thecyclicalriskisa'clearandpresentdanger'.Yetinvestorshavebeenpilingonthepressurebyplayingadashtotrashadesiretobuyrisk
assetsregardlessofprice.Morerecentlythishasbecomeagrabforgrowth.Investorshavebeenflailingaroundinadesperatesearchforany
residualgrowthopportunity(suchasemergingmarketsandcommodities).
Thegrowthuniverseappearstobemadeupoftwokindsofstocks.Firstly,theoneswewouldexpecttofindwithinthisuniversetheGoogles,
ApplesandRIMMsoftheworld.Thesestockshaveextraordinarycashflowgrowthembeddedwithintheirmarketprice(inexcessof40%p.a.
overthenext10years)surelymadness.Thesecondsortofstockinthegrowthuniversearecyclicalsmasqueradingasgrowthstocks.Someof
thegeneralindustrialsandtheminersarepricedforquiteincrediblelongtermgrowth.
Sowhatshouldaninvestordo?Thosewhocan,shouldholdcashandawaitthearrivalofthe'fatpitch'.Forthosewhohavetobeinvested,you
havemysympathies.However,stickingwithaprovenprocessislikelytobeasourceoflongtermresults.Whilsteveryoneelseistryingtoguess
whatwillhappennextmonth/quarter,theopportunitiesfortimearbitragearecreated.Focusingonthelongertermleadsustoconcentrateon
dividendsastheseaccountfornearlyhalfofthetotalreturnwithafiveyeartimehorizon.Thuslargecapstocksthateitherpayadividend
(preferablyawellcoveredone)orhavethepotentialtoturncashpilesintodividendsarelikelytobethebestplacestohide.

Thedashtotrashandthegrabforgrowth
Whatadifferenceaweekmakes!Suddenly'recession'isthetalkofthetown.ThreebigUSinvestmentbanksarenowpredictingarecession(albeita
mildone).Thistellsusthatwearealmostcertainlyinarecession.Economistsneverforecastrecessionsuntilwellaftertheyhavebegunthatisifthey
managetoforecastthematall!

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TheEconomistmagazine'swordcountofrecessionintheNYTimesandtheWashingtonPostalsoshowsamarkedincreaseintherecentpast.

Intrademakesamarketonacontractwhichpricestheprobabilityofarecessionin2008.Thisiscurrentlyshowingalmost65%chanceofarecession
in2008!

Cheapenough?
Allofthisbegsthequestion:aremarketspricedforarecession?Toustheanswerseemstobearesoundingno.Structurallyequitiesremain
exceedinglyexpensive.ThechartbelowshowsonemethodofcyclicallyadjustingthePE1usingtheprocesssuggestedbyBenGraham.Heargued
thatweshouldabstractfromthecyclebyusing"averageearnings,whichshouldcoveraperiodofnotlessthanfiveyears,andpreferablyseventoten
years."ThechartbelowshowstheGrahamandDoddPEfortheUSmarketusingatenyearaverageofasreportedearnings.

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AcursoryglanceatthechartrevealsthatUSequitiescouldn'tbecalledcheap.InfactUSequitiesarecurrentlyaboutasexpensiveastheyhavebeen
anytimesince1929(excludingthedotcommania).Ofcourse,valuationsaren'tadeterminantofshorttermreturns.Buttheyaretheprimary
determinantoflongtermreturns.Theyalsotendtomatterduringbearmarkets,farmorethanduringbullmarkets.
Thefavouredvaluationmeasureofthebullsisprobablythebondequityearningsyieldratio(BEER).Themostfrequentlyproducedversionofthis
coversthelasttwentyfiveyearsorso,andstrategistsusingthismeasureextoltheopportunitythatthecurrenttwentyfiveyearlowappearstooffer.
However,thisislikelytoprovefalsecomfort.TherootoftheproblemwiththeBEERisthatitcomparesanominalasset(bonds)andarealasset
(equities).Nominalassetsareexposedtotheravagesofinflationbutbenefitfromdeflation.Realassetsfindthemselvesinthereverseposition.Thus
therelationshipbetweenbondsandequitiesislikelytobedrivenbytheinflationenvironmentthatdominates.
Thechartbelowshowsthattherelationshipbetweenbondsandequitiesishighlyunstable,alteringastheinflationbackdropalters.Itisalso
noteworthythattheBEERdoesn'tworkempirically.Itsimplydoesn'tpredictequityreturns.SotheBEERisflawedboththeoreticallyandempirically.

ThefinalnailinthecoffinforthosewhoareadvocatingblindfaithintheBEERistheevidencefromJapan.Supposedly'cheap'equitieshavedone
prettymuchnothingexceptgetcheaperrelativeto'expensive'bonds.

Earningsriskaclearandpresentdanger
Notonlydoequitiesappeartohaveastructuralheadwindintermsofvaluation,thereisalsoa'clearandpresentdanger'fromcyclicalrisk.Thechart
belowshowsthelogearningsfortheS&P500.I.veadded6%growthchannelstoillustratethepointthatwhenmeasuredproperly(i.e.peaktopeakor
troughtotrough)USearningshavenevermanagedtogrowbymorethan6%p.a.overafullcycle.
Oflate,wehavebeentrackingthetopedgeofthisband.However,theseriesisgenerallymeanrevertingarounditsrisingtrend.Thismakessenseas
profitmarginsareahighlymeanrevertingseriesiftheydon'tmeanrevertthencapitalismiseffectivelybroken.Sosimplyfromobservingthischartwe
shouldexpectasignificantearningsrisktothemarket.

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ThisearningsriskmakestheforwardPEsobelovedbymanyasgoodasuseless.AslongtermreaderswillknowIamnotfanofusingforward
earningsastheyrepresentthepipedreamsofanalystsratherthananylikelyoutturn.
TheUSmarketiscurrentlysittingona12monthforwardPEof14x.Thismaynotsoundlikealotcomparedtothe24xreachedduringtheexcessesof
thebubbleyears.However,judgingvaluerelativetothepeakofabubbleisn'tagreatidea2.
TheaverageforwardPEsinceIBESbegancollectingdataisaround15x.Hencetoday'slevelofvaluationcan'tbesaidtobediscountingadeep
recession.Additionally,theIBESdataisverylimited.WecanhaveaprettygoodguesswhattheforwardPEwouldhavelookedlikehistoricallyby
adjustingthetrailingPEbytheaveragegapbetweenforecastandtrailingearnings.SuchanexerciserevealsthatalongertermaverageforwardPE
wouldbearound12x.Thisonceagainpourscoldwaterontheargumentsthatthemarketisalreadydiscountingarecession.
Asifthiswasn'tbadenough,inthepastwehaveshownthatanalyststendtobearoundabout10%toooptimisticintheiryearaheadforecastsofthe
earningslevel.However,inrecessionyearsthisjumpsto30%toooptimistic.Ifthisisthecasetheninsteadof$103EPSthattheconsensusofanalysts
areforecastingfortheS&P500overthenext12months,theactualoutturnmightbecloserto$73pershare.ThiswouldtaketheforwardPEfromits
current14xtoaround19.5x!
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Thedashtotrash
Investor'sbehaviourisclearlyincompatiblewithcognisanceofthisrisk.Forthelast18monthsorso,investors(orshouldthatreadspeculators?)have
beenengagedinwhatI.vedescribedpreviouslyasadashtotrashadesireforlowqualityassets.Infactthelowerthequality,thegreaterthe
demandhasbeen.
Forinstance,thisloveofriskregardlessofvaluehascreatedsomeobviousmispricings.Smallcapstradeatapremiumtolargecaps,effectivelythe
liquiditypremiumisnegative.Thismakesnosensetomeatall.WhywouldIwanttopayapremiumforstockswhicharemoreilliquid,more
idiosyncratic,andmorecyclical?

AsBenGrahamnoted"Observationovermanyyearshastaughtusthatthechieflossestoinvestorscomefromthepurchaseoflowqualitysecurities
attimesoffavourablebusinessconditions."

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Thefactthatemergingmarketsnowtradeatapremiumtodevelopedmarketsisyetanotherexampleofthisirrationalcomplacency.Fansofthesenow
relativelyexpensivemarketsarecurrentlyrotatingtheirstoriesintopartof'thegrabforgrowth.'Nowallweheararetalesofdecoupling.
Thesemakelittlesensetous.Formyperspectivetherearetwomajorflawsinthedecouplingarguments.Firstly,peoplealwaysforgetlagsatthe
turningpointsincycles.SoiftheUShousingbubbleburstingbringsdowntheUSconsumer,itisludicroustoassumethathighlyexportdependent
nationswillbeabletowithstandademanddrought.
Secondly,thedecouplingargumentsreekofcognitivedissonancethedesiretoholdtwocontradictoryviewpointssimultaneously.Thosewhonow
speakofdecouplingusedtotalkofglobalisation.Thisisoxymoronic,youcanbelieveinoneortheotherbutnotboth.

Agrabforgrowth
Morerecentlythedashtotrashhasmutatedintoagrabforgrowth.Thissmacksoflatecycledesperationdrivinginvestorstoflailaroundlookingfor
thehopeofgrowth.Aswehavewrittenbefore,hopingforgrowthisalwaysadangerousstrategy.

Despitethe'receivedwisdom',buyinggrowthintoacyclicaldownturnisparticularlyfoolhardyasfarasIcansee.Weknowthatgrowthstockswhich
disappointaremassivelypunishedbyinvestors.ThechartbelowistakenfromtheworkofDavidDreman3,itshowshowstockswhichdisappoint
performinthewakeoftheirearningsmiss.Strangelyenoughwhenavaluestockdisappoints,notmuchreallyhappensasnothingverymuchwas
expectedfromitinthefirstplace.However,whenagrowthstockdisappoints,theconsequencesarefarfromtrivial.Onaverageitunderperformsthe
marketbyalmost10%inthefullyearinwhichthemissoccurred.

Somewillarguethatrotatingintogrowthisasensiblethingtodo,afterallifgrowthisbecomingscarcebecauseofaslowdownsurelyastock
deliveringgrowthshoulddeserveapremium.Whilsttheremaybesometruthtothebasiclogicofthisstatementitisessentiallydoomedtofailureasa
realisticstrategybecausewesimplycan'tidentify'true'growthstocks.

Theanatomyofgrowth

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Currentlythegrowthuniverseseemstoconsistoftwosortsofstocks.Thefirstarethosethatmightberegardedas'true'growthstocks.Thesearethe
Googles,ApplesandRIMMsoftheworld.
Itshouldbenotedthatthesestocksrequiresomequiteunbelievablegrowthassumptionstojustifytheircurrentprices.Usingmyverysimplereverse
engineeredDDMmodelItaketheanalystsforecastsforthenextthreeyears(inordertobegenerous)andthenbackoutwhatisimpliedbythemarket
priceintermsofgrowthoverthemediumterm.Inallthreecasesforthestocksmentionedabove,a40%pagrowthrateisimpliedoverthenext10
yearsandthatisjusttojustifythecurrentprice,nevermindfuturereturns.
Howlikelyisitthatastockwillbeabletogenerate40%p.a.growthoverthenext10years?Ifhistoryisanyguide,itisnexttoimpossible.Thechart
belowisadaptedfromChanetal4.Itshowsthehistoricaldistributionoffirms10yearearningsgrowth.Firmsinthe99.99percentile(theverybestof
thebest)intermsofearninggrowthachieveda22%p.a.growthrateover10years.Sothe40%embodiedwithcurrentmarketpricinglookshighly
suspecttous.

Asifthisweren'tbadenough,asecondsortofstockcanalsobefoundwithinthegrowthuniverse.Thesestocksareeffectivelycyclicalsmasquerading
asgrowthstocks.Theyrepresentinvestorsbetsthatthebusinesscycleisdead,andthatearningsriskisnonexistent.Stocksfallingintothiscategory
includesomeofthegeneralindustrialsandtheminingstocks.Theconsensusofanalystsbelievesthattheminingsectorcangrow17%p.a.overthe
mediumterm.
However,analystsareessentiallyuselesswhenitcomestoforecastingmediumtermgrowth.Thechartbelowshowsthatthesectorswhichanalysts
expecttogrowthefastesttendtoactuallydeliverexactlythesamegrowthasthesectorswhereanalystsareleastoptimistic.Ofcourse,thesectors
withthehighestexpectedgrowthhaveenormousscopefordisappointment.

UsingthesamesimplereverseengineeredDDMmodelmentionedabove,theminingsectorispricedtodeliverevenmorethantheanalystsexpect!
20%p.a.overthenexttenyears.Thisseemslikemadnesstome.ButthenagainperhapsIjustdon'tgetit.

Sowhatisaninvestortodo?
Themostimportantthingtodoistostickwiththeprocessesthathaveservedyouwell,butappreciatethattheenvironmentweareoperatingin
maybealtering.Ifindoubt,asIwrotelastweek,inactionandhenceholdingcashmaywellbethesafestbet.
Thisremainsanathematomostinvestors.ThechartbelowshowsthecashlevelatUSequitymutualfunds.Recentlythiswasatalowerlevelthanat
thepeakofthebubble.Evengiventherecentsmallrise(drivenbyassetdecline,ratherthancashincrease),itstillstandsataverylow4.2%.

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Thislowlevelofcashrepresentstheoutcomeofaworldinwhichspecialisedmandatesinsistonbeingfullyinvested,andwherefundmanagersare
focusedoncareerconcerns,andhenceobsessedwithtrackingerrorandtheshortterm.
AmongstagroupIhavepreviouslyidentifiedasbeingsomeofthebestvalueinvestors5,cashlevelsaremuchhigherofteninexcessof20%.A
couplearerunningcashabove40%.Thisdoesn'trepresentanattempttotimethemarketbutratheristheresultofafailedsearchforbottomup
opportunities.Theyarenotswingingateverypitch!
ItisnotablethatintheprevioussectionstheonlyopportunitiesIhavebeendiscussingarerelativevalueorientated.Thatitselfisaworryingsign,it
testifiestothelackofabsolutevaluetobefoundinmarkets.
AsBenGrahamsaid"Truebargainissueshaverepeatedlybecomescareinbullmarkets...Perhapsonecouldevenhavedeterminedwhetherthe
marketlevelwasgettingtoohighortoolowbycountingthenumberofissuessellingbelowworkingcapitalvalue.Whensuchopportunitieshave
virtuallydisappeared,pastexperienceindicatesthatinvestorsshouldhavetakenthemselvesoutofthestockmarketandplungeduptotheirnecksin
USTreasurybills."
AsInotedinMindMatters(13December2007),theaverageholdingperiodforastockontheNYSEisjustninemonthsconsistentwiththe
observationontheobsessionwiththeshortterm.Ofcourse,ifeveryoneelseisfocusedontheimmediatefuture,mispricingofthelongtermmaywell
result.Perhapstheparadoxofinvestingtodayisthattheverythingthatcreatestheopportunity(themyopiaofinvestors)preventsmostfromexploiting
theobvioustimearbitrageopportunity.

Ifyouareinvestingona9monthtimehorizon(seechartabove)thenyourreturnsarelikelytobedominatedbypricereturns.Youareeffectively
simplybettingonwhetherastockgoesupordown.Infact,thecapitalgaindeliveredviathechangeinvaluationaccountsforsome62%ofyourtotal
realreturnifyouhaveanannualtimehorizon(usingdatasince1871).
ConsistentwiththisobservationistheevidencethatAndyLapthornepresentedinhisrecentGlobalStyleCounselling,(7January2008)that
momentumwasbyfarandawaythebestperformingstylein2007.Thisisoneofthefewfactorsthatworksonsuchashorttimehorizon.
However,ifyouareinvestingonsayafiveyeartimehorizonthenthechangeinvaluationaccountsforonlyaround20%ofyourtotalrealreturn.The
vastmajorityofanylongertermreturncomesfromdividendyieldanddividendgrowth(seechartbelow).

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Thusoneotherobviousopportunityistoconcentrateondividends.Ifearningsriskandvaluationriskarecomingbacktothefore,theninvestors
arelikelytobewellservedbyconcentratingonstockswithadegreeofreturncertainty.Thatmeansconcentratingondividendyield.
Inthe1990s,noonegaveadamnaboutdividendstheyhadbecomeadirtyword,thepaltrydistributionstoinvestorswereirrelevantinaworldin
whichcapitalgainswereeverything.Eventodayrepurchasesarethetalkofthetown.Thisisdespitethefactthatbuybacksareusedtodistribute
temporarilyhighearnings(i.e.earningsinexcessabovetrend6).Iftheearningscyclefailsthenbuybacksarelikelytoevaporate.
However,overalongertimeperiodtheimportanceofdividendsisindisputable.Thelongtermevidenceclearlyshowsthatdividendshave
accountedforwellovertwothirdsofinvestor'stotalreturns.Thechartbelowshowsthisdata.
I'vealsoshownthepictureoverthelastsevenyears.StrangelyenoughvaluationhasbeenanegativeastheUSmarkethasderated.Giventhe
appallinglylowdividendyieldavailablein2000,itisn'tanywonderthattheyhaven'tcontributedmuchtototalreturns.However,whatdoesbecome
clearisthewayinwhichthedividendsurge(echoingtheearningsgrowth)hasdrivenreturnstoinvestors.Again,thisdoesn'tbodewellifthecycleis
abouttocrumble.

ArecentpaperbyFullerandGoldstein7highlightstheimportanceofdividends,especiallyindownmarkets.Usingdatafromtheperiod19702000,
FullerandGoldsteininvestigatetheperformanceofdividendpayingstocksandnondividendpayingstocks.Overalltheyfindthatdividendpayers
outperformthenonpayersbyaround4.5%p.a.Thevastmajorityofthisoutperformanceisdeliveredwhenmarketsaredeclining(whenthedividend
payersoutperformbyaround10%p.a.).

AsimpledividendyieldstrategyhasgeneratedimpressivereturnsinthepastwithinEuropeaswell.Thechartbelowshowstheresultsofasimple
backtestofdividendyield.Wejustboughtthestockswiththehighesttrailingdividendyield.Suchastrategygeneratedalongonlyreturnof17.5%p.a
overtheperiod19852007,againstamarketreturnof13%.Fromalong/shortperspectivethereturnwasover10%p.a!

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Noristhisoutcomesimplytheresultoftakingonexcessiverisk.Thechartbelowshowsthebetasacrossthequintiles.Thehighestyieldgroupactually
hasthelowestrisk(alsotruewhenmeasuredusingstandarddeviation)8.

Ofcourse,manyofthefinancialswillbecroppingupinthesesortsofscreensrightnow.Forthosewhoareafraidofsignificantdividendcuts,Irana
versionofthistestexfinancialsandtheresultsweresurprisinglysimilar.
Inanybearmarket,onefinaltraittolookoutforiscompaniesthatarecashrich,butonlypayasmalldividend.Thesefirmsarelikelytocome
underincreasingpressurefromcorporategovernanceactiviststoreturnsomeofthiscashhoardtoinvestors.
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Arayofhope?
ForthosedesperatetofindsomethingbullishtoclingtothechartbelowshowsourFearandGreedindex.Itisasimpleriskadjustedpricemomentum
measurebetweenglobalbondsandglobalequities.Itisacontrarianindicator,sowhenitislowitsuggestsequitiesmaybeattractive.Thecurrent
readingsuggestsabuyingopportunitymayjustbeemerging.
WiththeFedapparentlypanicking,perhapstheywillunleasha'ShockandAwe'policyresponse(toborrowanexpressionfromoneofmyfriends).Ina
worldinwhichinvestorshavebeenconditionedlikePavlov'sdogstorespondtoFedaction,suchapolicyresponsecombinedwithan.oversold.
readingontheFearandGreedindexcouldgenerateasharpmoveup.Astothelongevityofsuchanoutcomethatisanyone'sguess.Andasshould
beobviousfromallthediscussionabove,Istronglyprefertoconcentrateonthelongertermpicture.

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Conclusions
TheUSmarketisnotpricedforevenashallowrecessionletaloneadeepone.Investorsarepilingontheriskbyblindlybelievingthattheycantell
'true'growthstocksfromtheyoungpretendershowever,historysuggeststhatamonkeythrowingdartswouldgenerallydoabetterjob!
Investorswithanabilitytoholdcashshouldconsiderthisoption.Waitingforthe'fatpitch'maybeoneofthesmartestwaysofdealingwiththecurrent
juncture.Forthosewhohavetobeinvested,disciplinewillbekey.Stickingwithaprovenprocessandfocusingonthelongtermshouldbring(long
term)rewards.Tiltingtowardslargecap,dividendpayingstocksorlargecapswiththeresourcetotransformcashpilesintodividendsarelikelytobe
thesafestplacetohide.

Footnotes:
1Weuselotsofdifferingmethods,butallshowasimilarpicture,soforthesakeofbrevityIwillfocusontheGrahamandDoddmeasure.Alternativeaverages(i.e.fiveyears)givethesamepicture

aswell.

2Weknowfromthepsychologicalliteraturethatmanypeoplewilldoexactlythisaswealwaystendtooverweightourownpersonalexperiencewhenmakingdecisions.

3SeeContrarianInvestmentStrategies.

4Chan,L,Karceski,JandLakonishok,J(2003)Thelevelandpersistenceofgrowthrates,availablefromhttp://www.lsvasset.com/research/research.html

5SeeChapter23ofBehaviouralInvesting.

6SeeChapter44ofBehaviouralInvestingformoreonthis.

7FullerandGoldstein(2005)Dodividendsmattermoreindecliningmarkets?Availablefromwww.ssrn.com

8AndyLapthorneiscurrentlyworkingonafarmorecomprehensivenoteondividendsandincomestrategies,includingcombiningyieldandcoverscreens.

Youralwaysinthevaluecampanalyst,

JohnF.Mauldin
johnmauldin@investorsinsight.com

Disclaimer
JohnMauldinispresidentofMillenniumWaveAdvisors,LLC,aregisteredinvestmentadvisor.Allmaterialpresentedhereinisbelievedtobe
reliablebutwecannotattesttoitsaccuracy.Investmentrecommendationsmaychangeandreadersareurgedtocheckwiththeirinvestment
counselorsbeforemakinganyinvestmentdecisions.
Opinionsexpressedinthesereportsmaychangewithoutpriornotice.JohnMauldinand/orthestaffsatMillenniumWaveAdvisors,LLCand
InvestorsInsightPublishing,Inc.(InvestorsInsight)mayormaynothaveinvestmentsinanyfunds,programsorcompaniescitedabove.
PASTRESULTSARENOTINDICATIVEOFFUTURERESULTS.THEREISRISKOFLOSSASWELLASTHEOPPORTUNITYFORGAINWHEN
INVESTINGINMANAGEDFUNDS.WHENCONSIDERINGALTERNATIVEINVESTMENTS,INCLUDINGHEDGEFUNDS,YOUSHOULD
CONSIDERVARIOUSRISKSINCLUDINGTHEFACTTHATSOMEPRODUCTS:OFTENENGAGEINLEVERAGINGANDOTHERSPECULATIVE
INVESTMENTPRACTICESTHATMAYINCREASETHERISKOFINVESTMENTLOSS,CANBEILLIQUID,ARENOTREQUIREDTOPROVIDE
PERIODICPRICINGORVALUATIONINFORMATIONTOINVESTORS,MAYINVOLVECOMPLEXTAXSTRUCTURESANDDELAYSIN
DISTRIBUTINGIMPORTANTTAXINFORMATION,ARENOTSUBJECTTOTHESAMEREGULATORYREQUIREMENTSASMUTUALFUNDS,
OFTENCHARGEHIGHFEES,ANDINMANYCASESTHEUNDERLYINGINVESTMENTSARENOTTRANSPARENTANDAREKNOWNONLYTO
THEINVESTMENTMANAGER.

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Posted012820084:15PMbyJohnMauldin
Filedunder:Recession,InvestingStrategies,JamesMontier,Growth,EarningsRisk

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