By William Davis


Pop Quiz: Who famously said: “If you want to have a better performance than the crowd, you must do things differently from the crowd.” Circle the correct answer.

A: Benjamin Graham

B: John Templeton

C: Warren Buffett

While each choice represents a great investor, a great value investor more specifically, market veterans will recall this line belongs to John Templeton, the Tennessee-born British investor and fund manager. Real old-timers might even remember when Sir John launched his Bahamas-based Templeton Growth Fund in 1954.

“But a pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons.”  Warren Buffett

We got to thinking about Mr. Templeton, described as “the greatest global stock picker of the century,” during the brief occasion of Kraft Heinz Co.’s recent takeover bid for Anglo-Dutch giant Unilever. Why? Because both companies represent, almost perfectly, the kind of value stocks a bargain-hunting manager like Templeton might seek — high-quality names with predictable earnings and strong cash flow that trade with lower-than-average volatility. “Low beta” in the modern jargon.

“The underlying principles of sound investment should not alter from decade to decade, but the application of these principles must be adapted to significant changes in the financial mechanisms and climate.” Benjamin Graham

There were a number of reasons why the Kraft Heinz/Unilever deal fell apart after just two days in the public eye. And it’s only coincidental that value stocks — which handily outperformed growth stocks in 2016 — have been just as handily underperforming in 2017. Which reminds us of something else Mr. Graham said — “To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.” Even if you’re doing it differently than the crowd.

What the markets have been doing…

Way to go Dow! Friday marked the old timer’s 11th consecutive record daily close — a streak the Blue Chips have not managed since the 1980s. Not to be outdone, the S&P 500 moved ahead nicely while continuing its run of record-low volatility — the market’s favorite benchmark has not experienced a daily swing of over 1% since mid-December. The NASDAQ also racked up some impressive gains, though it and other smaller-cap benchmarks gave up ground late in the period.

Economic data was generally favorable across the two-week stretch. Most notable, perhaps, was news on the housing front, where reports showed existing home sales reaching their highest level in nearly a decade. During the week, the Federal Reserve released the minutes from its latest policy meeting, which indicated that the continued improvement in the economy was encouraging the central bank to tighten monetary policy. While a hike by June seems almost certain, the likelihood of a March increase appears increasingly possible.

Index Friday’s Close Two-Week Point Change Year-to-Date Change
DJIA 20821.76 +552.39 +5.36%
S&P 500 2367.34 +51.24 +5.74%
NASDAQ 5845.31 +111.18 +8.59%

Treasury yields fell a bit across the period as bond prices rose. Most of the decline took place last week on reports of a decline in the University of Michigan’s consumer sentiment index. Investment-grade corporate prices also rose a bit, most likely due the ongoing strength in equities. High yields also got a boost from a rising stock market along with favorable corporate earnings reports for specific issuers. Municipal bonds traded mostly in line with Treasuries, thanks in part to a light new issuance calendar.


Fixed Income Yield Two-Week Yield Change
2-Year Treasury
10-Year Treasury 2.31% -(0.14)%
30-Year Treasury 2.95% -(0.09)%
30-Year Municipals 3.09% -(0.05)%


Donald’s got nuthin’ on Teddy…

Best stock market performance during a new administration’s first 30 days in office:

ELECTION WINNER                 YEAR                DJIA                 % CHANGE

Theodore Roosevelt                1905                81.13               6.55%

William McKinley                   1901                71.35               5.58%

William Taft                            1909                85.94               5.07%

Franklin Roosevelt                  1945                159.01             4.13%

George H.W. Bush                  1989                2324.82           4.00%

Donald Trump                         2017                20550.03         3.69%

Quote of the Week…

“It’s a tough market in which to be a disciplined buyer.” 

James Tisch, CEO of Loews Corporation

Number of the Week…


The strike price of options forgone by Bank of America executives. Top executives were sitting on the right to buy 400,000 shares of the bank’s stock at that price, a perk optimistically handed out by its board a decade ago. The stock options expired worthless on Wednesday.

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