Desk Note: Credit Market, Stocks

Desk Note: Credit Market, Stocks

By Julien B. Booth

February 6, 2018

I hope this note finds you well.

When we are talking with clients re: risk we often use the metaphor of salt.  Easy to get into your portfolio, very hard to get out.

2017 was a wonderful year in our Total Return and Income portfolios and we fully expected some type of mean reversion – one should have similar expectations for the stock market, Bitcoin et al.

The timing is always the hard part.

In September we published a note, The Tyranny of Mathematics (  As investors somewhat obsessed with Capital Preservation, we are often a bit early. However, grey hair, reckless investment behavior, “financial innovations”, and severely stretched valuations create a healthy respect for risk control.  An excerpt:

We are not recommending any dramatic portfolio action, merely an appreciation of what has already occurred and a prudent eye to where we stand today. For the past 7+ years the Federal Reserve/ECB/BankJapan have essentially manufactured a new America (by creating $19 Trillion of new $$$ via Quantitative Easing/QE). This effort has grossly elevated financial asset values.  The US Federal Reserve has just embarked on QT – the slow reversal of this process.  I am not confident anyone knows how it ultimately plays out.  

When markets are elevated and fraught with the enthusiasm of wonderful past returns investors often take on more risk – a true paradox to those focused on risk-controlled behavior.

Always respect capital we encourage.  The Pain always arrives…eventually.

There is inherent durability to cash flow.  We prefer monthly, if not quarterly cash flow.  The more frequent, the greater the compounding rate over time.  Compound interest is a free lunch.

We invest across the capital structure (bank loans through common stock).  Fortunately, during this dislocation (fancy word for losing$), our positions in structurally senior positions have a cash-flow preference.

Given a robust economic environment, we have little concern about underlying quality.  Pricing will remain bumpy, but all the better for reinvesting cash flow.

Thank you for your interest in Forest Capital.  If you have questions regarding your portfolio please contact me at