Capitalism brings economic progress that raises asset prices:
We participate through ownership of equities both private and public.
Volatility is a tax on smooth returns:
We utilize options to smooth or enhance returns in the portfolio dependent on market conditions.
Capital users will provide economic rent to capital providers:
We loan money through the purchase of bonds from public and private companies. Economic benefits such as liquidation preference, convertibility into equity at a discount to market and access to management are negotiated to create returns with substantial upside to plain vanilla bonds.
Volatility of price and dispersion of economic outcome are not the same:
Fundamental analysis is used to determine the dispersion of outcomes. Market performance is generated from mispricing due to volatility. Market expertise is the acceptance of volatility buffered by the analysis of the outcomes.
Winners matter!
One of the most overlooked realities of investing is that the skew (a few winners dominating results) is significant in performance attribution.
