The earliest writing on this site dates from 2007-08, during my career in institutional investment management. At that time my work was focused on structured finance: analyzing asset-backed and mortgage-backed securities and managing institutional fixed income portfolios comprised primarily of such securities. That early writing is mostly market commentary, written as the Financial Crisis was unfolding, about the securities at the epicenter of the crisis (subprime mortgages and auction-rate securities), about the investors, broker-dealers, and rating agencies that contributed to the crisis, and about the market failure that ultimately defined the nadir of the crisis.
You may be curious as to why my writing tapered off. In March 2008 — the same month Bear Stearns failed — I founded Aquifer Capital. And Aquifer expanded quickly thereafter. In April 2008, we signed our first institutional client. In October 2008, we launched our first alternative investment strategy, Absolute Alpha. In the Fall of 2010, we launched a quantitative global investment strategy for institutional clients, added a second institutional client, and formed Aquifer Fund Management as a fund management affiliate. In January 2011, we launched our first hedge fund, the Aquifer All Weather Fund. In April 2012, we commercialized the Absolute Alpha strategy with the launch of our second hedge fund, the Aquifer Absolute Alpha Fund. I founded Aquifer in the midst of the Financial Crisis and it grew rapidly during the most challenging investment environment in modern history. And so I had very little spare time for writing!
You may also be curious as to why I have left content written nearly two decades ago on my website. There are certain lessons that are clear in extremis, but that become obscured in more ordinary times. Lessons from the Financial Crisis, which emerge in many of the posts, provide an invaluable investment education for which many investors paid dearly. Those lessons include:
- Value is the primary determinant of long-run investment returns.
- “Risk” is not having money when you need it.
- Risk and the perception of risk are inversely related.
- Exogenous variables are only exogenous until they become endogenous.
- Liquidity is a mirage.
- Markets need not be short-run efficient, and can remain “irrational” longer than you can remain solvent.
- The principal-agent problem is more than an academic abstraction: distancing the risk-taker (agent) from the risk-owner (principal) distorts risk tolerance and asset pricing.
- Incentive structures established by principals are the primary driver of agent behavior.
- The “fine print” is the contract: the terms of an investment contain critical details that significantly alter outcomes under duress.
In his 1905 book The Life of Reason, George Santayana famously wrote, “those who cannot remember the past are condemned to repeat it.” My earlier writing remains available here because it is part of the historical and intellectual record of market events we are wise to remember and because it can teach invaluable lessons free of charge to aspiring investors who desire to learn.
My vantage point has changed a great deal in the nearly two decades since I wrote those early posts. After nearly a decade of building Aquifer Capital, I retired from professional investment management. I now serve a theological seminary and college, where I steward an institution and its capital, and I teach the rising generation to steward well.
Along with the change in my vantage point is a change in the focus of the Economics & Capital section of this website. Economics & Capital will address an expanded set of questions, most of which will press much deeper than current market events. What is the purpose of capital? What does Scripture teach about wealth (a relative abundance of capital) and poverty (an extreme deficit of capital)? What does faithful stewardship require of the individuals and institutions that own, control, and invest capital? How does capital relate to human flourishing, or “the good life”? I hope to explore these questions, and more. And I hope my explorations serve to help you better steward that with which you have been entrusted.