Author Archives: Devesh Shah

About Devesh Shah

Hi, I’m Devesh Shah and I’m pleased to meet you. As a professional, I was a co-inventor of the CBOE VIX Volatility Index, an equities and derivatives trader, and Partner at Goldman Sachs. My passions now mostly involve writing, teaching about investments, practicing yoga, playing the piano, and volunteering with a non-profit, Sponsors for Educational Opportunities (SEO), that opens up career and college pathways for underprivileged students of color. I am an alum of SEO. My hope for the months ahead is that I might share a few things I have learnt about investing.

What Really Matters…is that we are American investors

By Devesh Shah

We are approaching the end of an extraordinary year, one that has left many of us – citizens, investors, employers, workers, and parents – feeling whipsawed, anxious and confused. Much of that comes from the sense that we can’t figure out what’s behind this year, so we don’t have much hope about managing, much less thriving in, the year ahead.

I entirely agree with your feelings, but I’m here to suggest that you take a deep, cleansing breath. We’re doing better than you know, and if we keep our wits about us, we’re going to do okay. Continue reading →

Kinetics Mutual Funds: Five Star funds with a Lone Star Risk

By Devesh Shah

The great charm of traditional index funds is that they offer broad market exposure at a low cost. Critics deride their diversification as “diworsification,” where a portfolio automatically contains too little of the really great stuff and too much of the really poor stuff. Bold and confident managers have staked their careers – or at least their investors’ fortunes – on their ability to find one or two great (and greatly misunderstood) companies and then pour resources into them.

At its peak, the legendary Continue reading →

Rebalancing, Portfolio Restructuring, Tax Loss Harvesting

By Devesh Shah

Down years in the financial markets are a heavy burden on asset holders. (We presume you’re noticed.) Holding assets through down years is the price we pay for earning long-term risk premia embedded in assets. Years like this are particularly challenging because the current downswing feels so very abnormal: it’s a correction in the financial markets (normal but painful) in which both investment grade bonds and speculative tech stocks are falling sharply and simultaneously (utterly abnormal and still painful), and the trajectory of the decline Continue reading →

Emerging Markets Investing in the Next Decade: The Players

By Devesh Shah

Who, from a universe of 200+ emerging markets managers, did we choose to speak to … and how?

Good question! We decided to rely on insiders’ judgment, rather than mere notoriety or a strategy’s recent performance. We started by talking with Andrew Foster about his take on his investable universe and its evolution, then asked Andrew whose judgments he respected and who we ought to talk with. We asked those folks the same. Those recommendations, constrained by time and availability, led to conversations with the six worthies below. Continue reading →

Emerging Markets (EM) Investing in the Next Decade: The Game

By Devesh Shah

Is it time to overweight EM stocks now? To answer this and many other questions, the Mutual Fund Observer reached out to six EM Equity Fund Managers. Our plan was to talk with each at length, sharing one manager’s insights with another and seeking their response. Our hope was to help you gain an insight deeper than “boy, EM valuations sure are low! Time to buy, right?”

I am deeply grateful to them for helping our readers further their understanding. This essay will walk you through their arguments and our reflections on what EM investors might Continue reading →

I wish I could give you some good TIPS on beating inflation

By Devesh Shah

I’m not sure that I can. If I were to offer any tip, it might be to avoid TIPS.

The Problem: Inflation, TIPS, and Investment Frustration

Some investors (me included) bought Treasury Inflation Protected Securities (TIPS) to protect against rising inflation. Inflation has been raging in 2021-2022. Are you frustrated that shorter dated TIPS have made no money, while anyone who bought longer TIPS lost a bundle? All bonds lost money this year but TIPS were supposed to make money. And they didn’t. This very frustrating outcome is counterintuitive. In this article I take a look at Continue reading →

Confession is good for the soul, honest reflection is even better: My mid-year review

By Devesh Shah

Irresponsibility might not be the gravest sin committed by internet pundits, but it’s surely one of the most widespread. We are forever regaled by advice from “the strategist who called the 2008 crash” has announced the 2022 recession will be worse than 2008, though we are spared the messy details about the source’s other 49 missed guesses. It’s the nature of the internet that Continue reading →

Having Faith in Sensible Investing

By Devesh Shah

Retail investors or advisors serving retail investors can choose to keep it simple with portfolios that follow a handful of easy-to-grasp rules:

  1. Buy assets where there is a genuine underlying source of return (corporate earnings, interest income, and rental income).
  2. Diversify across asset classes so that you don’t depend on any one stream of returns.
  3. Choose asset weights that reflect the investor’s different needs: Income, Growth, Safety, Speculation
  4. Reduce unneeded fees
  5. Be strategic about the impulse to buy and, especially, to sell so that you can keep capital gains taxes reasonably low.
  6. Rebalance across the asset classes when one of the asset classes moves too much.
  7. Hold the portfolio of these diversified assets for decades.

Continue reading →

An Investor’s Journeys, In Body and Mind

By Devesh Shah

Hope your road is a long one.
May there be many summer mornings when,
with what pleasure, what joy,
you enter harbors you’re seeing for the first time;
may you stop at Phoenician trading stations
to buy fine things,
mother of pearl and coral, amber and ebony,
sensual perfume of every kind—
as many sensual perfumes as you can;
and may you visit many Egyptian cities
to learn and go on learning from their scholars.

Continue reading →

To Win Today, Embrace Powerlessness and Dive Deep into the Portfolio

By Devesh Shah

“Be careful what you wish for because it might come true” – someone wise

In this article, I lead by laying out the irony in today’s Federal Reserve behavior and the financial markets. Acknowledging a tough year for the 60/40 portfolio, I look at the worst of historical drawdowns in down market cycles. I benchmark my own expectations for the 60/40 in the current cycle and invite readers to do their own work. Finally, Continue reading →

To Win Tomorrow: Question Everything

By Devesh Shah

There is a risk that 2022 is just the beginning of a treacherous investment decade. If so, it may be time to question what we know about conventional investment practices. In this article, I first highlight the so-called risk of a lost decade of real returns. Then, I raise 4 Questions we need to ask ourselves:

(1) what should be the mix between risky and riskless assets
(2) what about the active vs passive debate
(3) which assets work well during inflation
(4) which investment habits might we want to leave behind if the returns are slim.

After proposing some answers, I suggest Continue reading →

On Active vs Passive Equity Mutual Funds

By Devesh Shah

When I came across a quote by Peter Lynch on how passive fund investors were making a mistake, I had two choices: to sweep his comments under the rug or evaluate the validity of them. In the article below, we will look at:

    • Lynch’s argument
    • My researched reasons for preferring passive investing.
    • The role of confirmation bias and how it can hurt or help investors.
    • The results of a careful analysis of the performance of Mr. Lynch’s preferred funds
    • Finally, a few conclusions.

The takeaway: Outperforming MFs do exist but their taxable distributions are a larger drag than expected.

We’re inviting you to Continue reading →

Overcoming Drawdowns

By Devesh Shah

My “Thoughts on Inflation Protection” essay, which appeared in MFO’s February 2022 issue, focused primarily on the role of different major asset classes in providing an inflation buffer for your portfolio. The article was focused in particular on the performance of funds and ETFs with substantial exposure to TIPS (Treasury Inflation-Protected Securities) and similar products. I highlighted the promise of short-duration TIPS funds.

In passing, I also noted the long-term potential role of domestic stocks and Equity REITS in protecting against inflation, while mentioning their two main drawbacks. One, they do not Continue reading →

Thoughts on Inflation Protection

By Devesh Shah

An entire generation of investors has come of age without needing to learn how to protect portfolios and their wealth from Inflation. The mantra, three or four years ago, was “inflation is dead.” When inflation finally appeared last year, the Federal Reserve Chair declared it to be merely “transitory.” Sticky and low inflation for years has permitted the Fed to keep interest rates at historically low levels – a development which some fear has underwritten federal deficits, emboldened stock speculators, and punished savers. Increasingly, it appears that Continue reading →

What is Your Edge?

By Devesh Shah

Many people are heartsick after watching the stock market’s gyrations. Some of the people who are queasiest are the young investors who thought, “this is so easy!” as they booked a year’s worth of profit in a single morning, trading meme stocks or NFTs or cryptos or any of a dozen other securities they could barely explain, much less analyze. More will find their moment of reckoning as they confront Continue reading →