Q&A with Michael Lebowitz

Below is an article by Michael Lebowitz of Real Investment Advice and 720 Global. In addition to asking several questions related to absolute return investing, Michael discusses the common sense approach of buying low and selling high. I always find it fascinating how such a simple and logical investment approach can sound so contrarian, especially during market extremes.

Although buying low and selling high may appear easy, in practice it is very difficult. When prices are low and declining, fear can overwhelm investors, causing them to freeze. Conversely, when prices are high and rising, greed and adrenaline can work like a drug, causing investors to become hooked and wanting more. In effect, it is fear and greed that make buying low and selling high so difficult and surprisingly unique.

While buying low (taking risk) and selling high (avoiding risk) is an important part of my process, to be clear, I am not a market timer. My buy and sell decisions are determined by the value, or lack thereof, within my opportunity set. In other words, portfolio cash levels are valuation-based and built from the bottom-up (individual security research and selection).

Currently, valuations within my 300-name possible buy list are very expensive and in my opinion, do not provide adequate future returns relative to risk assumed. Therefore, I’ve decided to hold cash instead of what I believe are overvalued small cap stocks.

With that, I’d like to thank Michael for his interest in absolute return investing! I hope everyone enjoys our discussion.

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