Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

market commentary from Eric Cinnamond @ PVCMX

From today's market commentary by the Palm Valley Capital Fund (PVCMX) co-manager Eric Cinnamond.

Complete blog post with graphs can be found here: https://www.palmvalleycapital.com/post/the-b-team


*****************************************************************************************************************************
[EXCERPT]

The B-Team
March 28, 2024

Believing in someone or something when circumstances promote doubt isn’t easy. The current investment environment has many valuation-based investors questioning their long-held beliefs and disciplines. The popularity of passive investing, trillions of quantitative easing, and an overly accommodative Federal Reserve have pushed prices significantly higher since the cycle began in 2009. Regardless of valuations, inflation, and the unsustainability of the drivers of the current cycle, equities appear determined to continue their rise. It’s tempting to set aside investment rules, change stripes, and participate in one of the most profitable and carefree cycles in the history of the stock market.

While there was tremendous value in the earlier stages of the cycle, and pockets of value throughout, we believe our opportunity set has rarely been more overvalued. Nevertheless, given the strength and persistence of the current cycle, many investors are giving up on valuation as their guiding light when allocating capital. Actively managed value-based strategies are being replaced with price-insensitive passive funds that are often concentrated in many of the best performing and most expensive stocks.

While it saddens us to see capital give up on time-tested valuation disciplines, we’re empathetic to those who feel pressured to keep up with sharply rising benchmarks. In effect, it’s not an investment decision but a business decision, and response to a market cycle that isn’t being allowed to fail and appears invincible. For many investors, this time really does look and feel different.

Although some things have changed this cycle, most things have not. Human nature remains the same. Greed, envy, and the powerful forces of groupthink are stronger than ever. Confidence in the Federal Reserve and its ability to protect investors from overpaying hasn’t changed. Easy monetary policies have again led to significant asset inflation and credit growth, artificially boosting spending and corporate profits. Fed policies have also enabled the government to significantly increase debt and fiscal deficits. Wealth inequality is soaring again. Risk assets are being priced as if the economy and markets are no longer cyclical. We even have another housing bubble this cycle with millions of Americans being priced out of the market. Lastly, examples of overheated speculation are numerous, with the return of day trading and a boom in short-term stock options. No, things are not different this time. It’s all very similar to past bubble cycles led by asymmetrical monetary policy, debt creation, and the extrapolation of the unsustainable.

Valuation-driven investment disciplines have been the B-Team of the current market cycle. In today’s market, carefully considering the value of a stock may feel more like a hinderance than an investment discipline. It’s tempting to throw in the towel and change teams. Although switching may be comforting and possibly rewarding in the near-term, we remain committed to our valuation-based discipline and assumption that one thing will never change—the cyclicality of human behavior. As such, we do not believe the current market and profit cycles are perpetual. Like past cycles, we expect many of the trends inflating profits and asset prices will revert and be proven unsustainable. In basketball terms, this game (cycle) isn’t over. We plan to keep shooting, finish the game, and are prepared for the final shot. Instead of giving up, we believe valuations matter more today than ever.

Eric Cinnamond
[email protected]

Comments

  • edited March 28
    I have always invested in value funds. I hold several today between the taxable and IRA accounts. They are a large part of my holdings. I go by the style box, or Lipper classification, rather than M*'s generic classification.

    The difference between the value funds in my accounts and PVCMX might be the commitment to the value stocks identified. I don't see how a value oriented stock fund can make much progress if it is unwilling to back its best stock picks past 17% of holdings.

    I recently realized VSMIX was available in most of our accounts. We now have toeholds, or better. They commit.
  • edited March 28
    Sorry, but there is more to a manager's job than "only" following
    "time-tested valuation disciplines"
    . At some point, there is a huge loss of return, over time, using this philosophy only. I'm not a fan of a manager who says they can't invest because of valuation. There are just too many more factors a manager has to consider. FWIW, I've not been a fan since losing money investing in ARIVX (I think that was Cinnamond's first solo adventure with his "disciplined" style).
  • MikeM said:

    I've not been a fan since losing money investing in ARIVX (I think that was Cinnamond's first solo adventure with his "disciplined" style).

    I won't try to defend Mr. Cinnamond's record or explain why I find his approach compelling - I've done this on a different thread - and I can sympathize with the feelings one gets from a losing investment that sometimes takes year not to pay off. But to correct something you have said for others: ARIVX was Cinnamond's third fund as a manager and, I believe, second as a lead after ICMAX.

    In my experience (and I've invested in three Cinnamond funds), his funds tend to go through a long period of flat performance, followed by fairly rapid appreciation bursts, followed by another period of flat performance. All of this can be readily understood within the technicalities of his style. So, when one is unfortunate to invest towards the end of the run, losses - though rather modest losses - would follow should one sell out before the next run or if Cinnamond decides to liquidate the fund (as he - rather objectionably, imo - did with ARIVX).

    To be fair, if you wait for and hold on through the run, the returns might be quite impressive. I've invested early in ARIVX and did make money on it. Similarly, ICMAX returned ~ 100% over Cinnamond's tenure there (roughly, 2006 - 2011) while SP500 barely broke even during that time.

  • I think if you have a longer-term time horizon, a fund like this can pay off nicely. He looks like a champ if/when the market corrects heavily, and a chump if we just glide higher and higher for years to come.

    I can respect the patience and discipline required to wait out the cycle. Its a gamble of sorts, with opportunity risk a potential issue. I will buy some and hope for 8% to 10% returns over time.

    Another ingredient to toss into the melange. At least it is unique.
  • Don't time markets when you can time Eric Cinnamond.

    Cue up The Last DJ
  • WABAC said:

    The difference between the value funds in my accounts and PVCMX might be the commitment to the value stocks identified. I don't see how a value oriented stock fund can make much progress if it is unwilling to back its best stock picks past 17% of holdings.

    I recently realized VSMIX was available in most of our accounts. We now have toeholds, or better. They commit.

    I had also taken a small position in VSMIX before closing, but I do not think a direct comparison with PVCMX was meaningful. Invesco Small Cap Value Fund (VSCAX/VSMIX) had three really good years. Even during this exceptional period they've managed a max DD of -20%, while I do not remember Cinnamond getting substantially below -20% in his entire career across 4 funds. (I do not have great fund data at that resolution, though, so please do not hesitate to correct me if this is wrong.)

    If we take a more extensive view, things at VSCAX/VSMIX start looking downright dismal: max DD of -45%/-48% and alpha of -0.16/-4.74 at 5/10 y respectively. So, investing in VSCAX/VSMIX one hopes to make money now and not need them when another < -40% DD hits. I am more comfortable taking 5-10 y results and being reasonably sure that I'll have no less than 80% of max whenever I need the funds. To each his own...

  • When did VSMIX close? If you have the weblink readily available to you, please share. M* does not show it is closed.
  • BaluBalu said:

    When did VSMIX close? If you have the weblink readily available to you, please share. M* does not show it is closed.

    Officially, it closes 03/29/24 but the markets are closed then for Good Friday.

    One can still mail them a check which they promise to accept if postmarked 03/29 or an advisor might be able to place a direct order, if they are open then.

    Here is the link:
    https://www.invesco.com/us-rest/contentdetail?contentId=9add3438-7a6b-4945-b2f5-7aa23303e3db&dnsName=us&title=invesco-small-cap-value-fund-to-close-to-new-investors
  • The main problem with
    yugo said:

    MikeM said:

    I've not been a fan since losing money investing in ARIVX (I think that was Cinnamond's first solo adventure with his "disciplined" style).

    I won't try to defend Mr. Cinnamond's record or explain why I find his approach compelling - I've done this on a different thread - and I can sympathize with the feelings one gets from a losing investment that sometimes takes year not to pay off. But to correct something you have said for others: ARIVX was Cinnamond's third fund as a manager and, I believe, second as a lead after ICMAX.

    In my experience (and I've invested in three Cinnamond funds), his funds tend to go through a long period of flat performance, followed by fairly rapid appreciation bursts, followed by another period of flat performance. All of this can be readily understood within the technicalities of his style. So, when one is unfortunate to invest towards the end of the run, losses - though rather modest losses - would follow should one sell out before the next run or if Cinnamond decides to liquidate the fund (as he - rather objectionably, imo - did with ARIVX).

    To be fair, if you wait for and hold on through the run, the returns might be quite impressive. I've invested early in ARIVX and did make money on it. Similarly, ICMAX returned ~ 100% over Cinnamond's tenure there (roughly, 2006 - 2011) while SP500 barely broke even during that time.

    I think you touched on several good points. I mentioned Arnott before. Both did well when markets went down, but since 2009, PAUIX had a terrible performance compared to the easy SPY. Finding compelling risk-reward funds is what I have done since 2000. It is part of my system, but I stopped following Cinnamond more than 10 years ago.
    The guy also jumps from one fund to another = not a great idea.

    The main problems:
    1) Is he going to be another Arnott in the next 5 years?
    2) How much patience is someone supposed to have?
    3) What % of your portfolio are you investing with him? The less you invest, the more it's insignificant. For me this is major.
    4) How do you know when in the start, middle, or end of the cycle? Remember, markets can be irrational for a lot longer than you think. Prof Shiller claimed in 2012, based on valuation, that SPY would make only 4% after inflation in the next 10 years, it made 11%
    (link)
    5) Cinnamond plays timing hugely, owning less than 20% in stocks is difficult to grasp.

    But, I'm a flexible investor who looks beyond categories and is interested in total portfolio risk-reward performance.
    Someone's style and goals matter a lot when selecting funds.
    How many funds do you own, what trading are you doing,
    I've invested early in ARIVX and did make money on it.
    What % did you make less than SPY or PRWCX?
  • edited March 29
    yugo said:

    WABAC said:

    The difference between the value funds in my accounts and PVCMX might be the commitment to the value stocks identified. I don't see how a value oriented stock fund can make much progress if it is unwilling to back its best stock picks past 17% of holdings.

    I recently realized VSMIX was available in most of our accounts. We now have toeholds, or better. They commit.

    I had also taken a small position in VSMIX before closing, but I do not think a direct comparison with PVCMX was meaningful. Invesco Small Cap Value Fund (VSCAX/VSMIX) had three really good years. Even during this exceptional period they've managed a max DD of -20%, while I do not remember Cinnamond getting substantially below -20% in his entire career across 4 funds. (I do not have great fund data at that resolution, though, so please do not hesitate to correct me if this is wrong.)

    If we take a more extensive view, things at VSCAX/VSMIX start looking downright dismal: max DD of -45%/-48% and alpha of -0.16/-4.74 at 5/10 y respectively. So, investing in VSCAX/VSMIX one hopes to make money now and not need them when another < -40% DD hits. I am more comfortable taking 5-10 y results and being reasonably sure that I'll have no less than 80% of max whenever I need the funds. To each his own...
    To each his own.:) Did I read that you are a new subscriber to the data side of MFO? I hope you have as much fun with it as I do.

    The only way I would compare VSMIX and PVCMX is to say that both invest some money in small caps.

    When I look at five and ten year returns, I compare VSMIX to its peers in SCV. It doesn't make sense to me to include a fund that has never surpassed an 18% stake in equities, just because the manager says there is nothing worth buying, but he would buy, if only something; darn the luck, or curse the times.

    Over ten years, as tracked by MFO Premium, VSMIX is in first place for APR in SCV. The standard deviation is not for the faint of heart at 25.5. And the alpha is -.1. OTOH, it's fourth in Sortino and Martin, so the pain doesn't last as long as it might with other SCV funds.

    BTW. VCSAX is third in APR behind XSVM. In fact, Portfolio Visualizer tells me a person would take about a 2000$ haircut from VCSAX on an original 10000$ investment made ten years ago when the Invesco team took over. Zowie.

    Over ten years VOO's APR beat VSMIX's 12.7 to 10.4

    Over five years VSMIX (and two of its siblings) is once again tops for APR among SCV, and running ahead of VOO 16.8 to 14.7. Its alpha is at 6.1 to 0 for VOO.

    I don't know if VSMIX is still beating its SCV peers, but it is still beating VOO if M* can be believed.

    A five year run at MFO runs from March through February at this point. I am curious where you got the negative alpha for VSMIX? Portfolio Visualizer also shows a positive number starting from January 2019.

    What about risk? What about if I need money right now? Well, that's why I own funds like GLIFX, FSUTX, IYK, VRIG, and USFR. Four out five had positive returns in 2022, and GLIFX was only off -1.30.

    I have only owned VSMIX for a few weeks. But might the total return of a dog's breakfast portfolio like mine end up beating a fund like PVCMX over some period of time? Would it fall behind, what with volatility, drawdowns, and all that stuff? I have no idea.

    Is my approach "simpler" than leaving the allocations to a few managers like Cinnamond? I suppose most would say not. OTOH, I'm reasonably certain that the funds I own are actually investing in what they advertise, rather than waiting for Godot. And none of my funds charge me a buck 38 for the pleasure of their company.

  • Thanks @yugo

    I am an existing shareholder; just have to make sure I keep a few shares if I sell.

    To current holders of VSMIX,

    There is a theory that funds underperform after they close and outperform after they reopen. Pl comment/ share your experience. (PRWCX has been a known exception.)
  • I'll let you know in a few years, but you might have to remind me.
  • edited March 31
    FD1000 said:

    The main problem with

    yugo said:

    MikeM said:

    I've not been a fan since losing money investing in ARIVX (I think that was Cinnamond's first solo adventure with his "disciplined" style).

    I won't try to defend Mr. Cinnamond's record or explain why I find his approach compelling - I've done this on a different thread - and I can sympathize with the feelings one gets from a losing investment that sometimes takes year not to pay off. But to correct something you have said for others: ARIVX was Cinnamond's third fund as a manager and, I believe, second as a lead after ICMAX.

    In my experience (and I've invested in three Cinnamond funds), his funds tend to go through a long period of flat performance, followed by fairly rapid appreciation bursts, followed by another period of flat performance. All of this can be readily understood within the technicalities of his style. So, when one is unfortunate to invest towards the end of the run, losses - though rather modest losses - would follow should one sell out before the next run or if Cinnamond decides to liquidate the fund (as he - rather objectionably, imo - did with ARIVX).

    To be fair, if you wait for and hold on through the run, the returns might be quite impressive. I've invested early in ARIVX and did make money on it. Similarly, ICMAX returned ~ 100% over Cinnamond's tenure there (roughly, 2006 - 2011) while SP500 barely broke even during that time.

    I think you touched on several good points. I mentioned Arnott before. Both did well when markets went down, but since 2009, PAUIX had a terrible performance compared to the easy SPY. Finding compelling risk-reward funds is what I have done since 2000. It is part of my system, but I stopped following Cinnamond more than 10 years ago.
    The guy also jumps from one fund to another = not a great idea.

    The main problems:
    1) Is he going to be another Arnott in the next 5 years?
    I hope not. I have years of experience w Cinnamond and have a reasonable expectation that this will be the case, but most cannot predict the future w 100% accuracy. Those who can grow their money at a double-exponential rate, causing them to spend less time on forums...
    FD1000 said:

    2) How much patience is someone supposed to have?

    My personal investment horizon is 5 - 10 y.
    FD1000 said:

    3) What % of your portfolio are you investing with him? The less you invest, the more it's insignificant. For me this is major.

    Currently ~ 10% of retirement, but I have just learned of his new fund and may invest more in the future. The main thing holding me back is not Cinnamond's investment approach, but what he did in liquidating ARIVX. To put it bluntly, imo, that was gutless and he let a lot of people down who trusted him to work through the cycle. If that is something you find significant, I am with you 100%.
    FD1000 said:

    4) How do you know when in the start, middle, or end of the cycle? Remember, markets can be irrational for a lot longer than you think. Prof Shiller claimed in 2012, based on valuation, that SPY would make only 4% after inflation in the next 10 years, it made 11%
    (link)

    As I tried to explain before, I do not believe myself to be a capable market timer. At most, I pick an investment and look for a good entry point over a few weeks. However, if I were to judge a good entry point for myself, based on my experience w Cinnamond ("flat-burst-flat" [repeat]), I would be most comfortable doing so when his fund has been flat for a while - one of the reasons I invested a substantial amount in PVCMX right after learning about it a few days ago. His max DD's also tend to be rather small, so the main risk - in my eyes - is opportunity cost.
    FD1000 said:

    5) Cinnamond plays timing hugely, owning less than 20% in stocks is difficult to grasp.

    But, I'm a flexible investor who looks beyond categories and is interested in total portfolio risk-reward performance.
    Someone's style and goals matter a lot when selecting funds.
    How many funds do you own, what trading are you doing,

    I think you are misinterpreting Cinnamond's strategy - or, else, I misunderstand it. The way I see it, he looks for "value" and will buy it in any market irrespective of timing. If he is low on equity, it means he simply cannot find enough value available.

    I own a whole bunch of funds but most with only a toe-hold position: either closed or ones I'd like to make myself keep track of more closely.

    Sadly, I am often time-constrained and cannot properly focus on investing for extended periods. When I have time, I sometimes do a bit of equity trading, but that's about it.
    FD1000 said:

    I've invested early in ARIVX and did make money on it.
    What % did you make less than SPY or PRWCX?
    Unfortunately, MStar no longer provides the record for ARIVX and I could not find another place to chart it w div. I'd invested very early on, perhaps, in the first couple of months - since I followed Cinnamond from ICMAX - w a decent entry point. I remember I was net positive in the end but would not venture on the %. If you can find where to chart it, I would be curious of the PRWCX comparison, since I also own that fund.

  • WABAC said:

    To each his own.:) Did I read that you are a new subscriber to the data side of MFO? I hope you have as much fun with it as I do.

    Yeap. Very much looking forward to it!
    WABAC said:

    A five year run at MFO runs from March through February at this point. I am curious where you got the negative alpha for VSMIX? Portfolio Visualizer also shows a positive number starting from January 2019.

    MStar. Currently showing: 0.11 / -4.48 at 5 / 10 y for VSMIX, which is a notable improvement in just a couple of days. One might say that m-stars are moving in your favor...
    WABAC said:

    Is my approach "simpler" than leaving the allocations to a few managers like Cinnamond? I suppose most would say not. OTOH, I'm reasonably certain that the funds I own are actually investing in what they advertise, rather than waiting for Godot. And none of my funds charge me a buck 38 for the pleasure of their company.

    To be fair, unlike Godot, Mr. Cinnamond does come by bearing gifts worth more than a buck 28 from time to time. Though, those who have chosen to wait for him always hope that he does so sooner rather than later...:)

  • edited April 1
    yugo said:

    MStar. Currently showing: 0.11 / -4.48 at 5 / 10 y for VSMIX, which is a notable improvement in just a couple of days. One might say that m-stars are moving in your favor...

    Thank you for the info. I forgot they have five and ten year numbers under the risk tab. I just don't spend much time there anymore.
Sign In or Register to comment.