In the mid-1980s I was managing a relatively large portfolio in the Pacific Basin ex Japan, one dwarfed by the Kuwaiti Investment Office, but not really anyone else. On the other hand, prospects for me to work on bigger markets were close to zero. One day I got a call from a much smaller, relatively obscure, firm looking for someone to turn around a train wreck of a global fund. I took the job.

My predecessor had left drawers full of antacid medication …and very little in the way of files on the fund’s holdings. Lots of charts, though.

It seems that his overriding investing idea was to buy companies whose stock had recently experienced an enormous collapse, based on reading the stock price chart. The files, which contained pretty much nothing but the charts, revealed what I think was the heart of his demise.

Brokers realized very quickly what he was looking for. So they fiddled with the X- and Y-axis of the charts he wanted–stretching out the Y and contracting the X–so that just about any company showed a massive stock price drop, followed by sideways movement. This motivated him to buy all sorts of junk.

I think this is an essential truth about charts: in a world where the SE or its foreign equivalent mandates that relevant data be disclosed and where audited financials are required, chart reading is at best a secondary skill. And you should at least have a minimum of awareness about how the charts are constructed.

(An aside: things ended up well for my train-wreck fund: one of the 30 or so dud stocks accidentally went up a lot on a legal change in Spain; I got to haggle with Li Ka shing in offloading another; a third, which would normally have taken years to unload, ended up as a key block in a weird foreign bank takeover… And the fund was small enough that mid-cap stocks in Hong Kong and Tokyo could make a big positive difference.)

There are two charting indicators that I think have merit, though:

–odd-lot short sales, which are a fabulous contrary indicator, and

–support and resistance, which are basically levels where there’s been lots of buying in the past (support) as well as levels where there’s been significant selling (resistance).

This has a bearing on IT stocks in today’s market. They’ve had massive selling over the past weeks. But just as trees don’t grow to the sky, they also don’t sink below ground level.

My guess is that what we’re seeing today is IT stocks, chip and other component stocks in particular, hitting support.

The original argument for private investing, as opposed to holding publicly-trades stocks and bonds, made by the Yale economics department a generation ago, was two-fold:

–universities with strong endowments were, in theory anyway, paying an unneeded extra premium for investments that had instant liquidity, the endowments had no need for. Sort of like going to a dealer and buying a car with a convertible top that you knew in advance you’d never use. Universities didn’t need instant liquidity. Therefore, it should be able to get higher returns by finding things to buy that weren’t that liquid. Arguably, too, companies without publicly traded equity should be willing to sell shares at a discount to their intrinsic worth

–arguably, early entry into companies with superior growth potential would pay off unusually well as they matured and either became more liquid by going public or were acquired at a premium price buy a larger rival

It isn’t a great stretch of the imagination for one to go from prime private equity assets to private debt and to private credit–and to argue by analogy (a weak way of operating, according to Aristotle) that the same kind of premium should accrue to them.

One of the main continuing attractions of private stuff is that there’s no requirement for their values to be calculated every day, based on the results of public trading. Under normal circumstances, if the S&P 500, a recession that pushes the S&P 500 down by, say, 25% over a number of months there would arguably be no need to mark down private equity/debt values as well.

Most entities other than governments and unions have dealt with ERISA rules on pensions by shifting from defined benefit plans to defined contribution–from a promise of a pre-determined level of payments by the pension sponsor, to a promise of steady contributions to a pool of money that becomes the employee’s on retirement.

Sponsors of traditional pensions know that public markets tend to yo-yo with the business cycle–in what we all hope with be a jagged upward path that may be +30% one year and -20% the next. But this also means that two down years in a row for the public markets can give the impression that the employee pension plan is seriously underfunded. The fact that private equity doesn’t make Mr. Market adjustments to the downside in these regularly occurring situations must be a considerable relief to politicians who might need to add funds to erase the appearance of weak solvency.

What I find most interesting about the private markets is that as the Trump administration has attacked higher education endowments–Yale, in particular (where I spent six years as a graduate student)–the plans have apparently found that their investments were unable to be sold at prices equal to or above their carrying values. Not necessarily a crisis, but food for thought.

The ERISA (Employee Retirement Income Security) Act of 1974 set down rules for how employee retirement pension and medical plans must be run.

In particular, it set rules on how traditional “defined benefit” must be run, including required contributions by the employer to ensure that the fund has the money needed to pay out promised benefits, professional management of the fund assets, and periodic reports to employees.

Two results:

–an explosion in size of the brokerage and investment management businesses, and

–a seismic shift by companies away from traditional promises of specified retirement benefits (like pension payments to retirees of a specified percentage of their salary while working) to defined contribution plans. In the latter case, the firm periodically pays a specified amount into a tax-deferred retirement account for the employee. This essentially transfers the economic uncertainty of an employee living an extra-long life from the firm to the employee. And it empowers/obligates the employee to take control of his own investment decisions.

The big exception to this shift is government entities, which by and large have retained traditional pension plans for their workers.

ERISA requires that pension providers make regular reports to plan participants on how well funded they are, meaning how much has the provider put aside as a percentage of what it calculates is needed to make the pension payments they are committed to. On average in the US, state plans are about 80% funded. In my home state of New Jersey, on the other hand, funding is somewhere in the 50%-60% range.

These figures can easily change with the ups and downs of the financial markets. And they have the potential to look ugly during a periodic economic downturn that can depress prices in public markets.

Hence, one of the big appeals of private investments–that there’s no Mr. Market pushing current prices down during recessions.

…everything meaning private equity, private debt and private credit. Private here means not traded on public securities exchanges like the NYSE, NASDAQ, COMEX or their equivalents anywhere else in the world.

The US pension law ERISA, the Employee Retirement Income Security Act of 1974, which applies to most of private industry, set standards for how employee pension plans must be run. It requires that they must operate competently, fairly and transparently–with full disclosure of benefits, costs and funding.

Whether well-foreseen or not, ERISA had gigantic economic impacts.

—suddenly, a career on Wall Street, formerly the refuge of D and below students, became an aspirational goal

—demand for professional corporate money managers, with their cadres of securities analysts, exploded

—a massive switch from defined benefit pension plans to defined contribution began (defined benefit = company promises a specified payment, typically a percentage of salary, adjusted annually for inflation, to the employee, starting at retirement and continuing until death; defined contribution = the company makes periodic payments to a pension account, where the employee chooses the general portfolio construction and withdraws money, subject to legal minimums, on retirement.

By and large, however, government entities retained the traditional defined benefit pension plan structure. I’m not sure why, other than it gave lawmakers continuing control over all payments into their pension plans. And maybe–I’m not sure why–the hope was to find superior managers whose prowess would mean less need to add funds to the pension pool.

more tomorrow

MU is one of the main global makers of memory semiconductors, the other key producers being the South Korean firms Samsung Electronics and Hynix.

The memory business is in many ways similar to mining, in that both industries are highly capital intensive, their products don’t have many unique characteristics to differentiate one from another, and there are enough makers that customers, particularly of base metals, often have considerable market power. So these businesses–and their stocks–are prone to booms and busts.

We’re now in boom–the midst of an AI-chip generated surge in demand for tech hardware in general and DRAM in particular, with memory prices up by at least 4x over the past 12 months.

The stocks of the big three DRAM makers skyrocketed starting in the second half of last year, as a looming DRAM shortage became apparent, as well as when the Nvidia-Broadcom frenzy that preceded the memory chip craze was beginning to lose steam.

(As it turns out, I bought MU in the portfolio I’m actively managing during 4Q2025 and sold the last of it in June. This was partly due to price, partly because I wanted to reduce my exposure to IT.)

The three manufacturers are already starting to do what commodity product producers always seem to do when they’re flush with cash–expand. Korea has announced it intends to double DRAM capacity through an investment of half a trillion dollars. MU is expanding as well. But it is also asking customers for take-or-pay contracts in order to reserve output from new plant.

Generally, these contracts are agreements requiring a given customer to purchase specified amounts of output at specified prices from the new MU plant. The customer must pay whether it takes output or not, although if it chooses not to take output, it will sometimes be able to get a discount on later purchases. Presumably, MU will use these contracts to get better financing terms from lenders for the new capacity.

Two thoughts:

–the massive increase in capacity planned by the global DRAM industry creates the worry that demand may not keep pace with this new supply–and that any overcapacity that emerges will cause a plunge in DRM prices, and

–the take-or-pay structure conjures up images of public utilities rather than of gold mines, dimming the future possibility of MU having the kind of through-the-roof pricing we’re seeing at present. Arguably, this places a hard cap on future PE multiple expansion–as well as the appeal to more speculative investors.

In any event, all this would argue that the best for all these firms is at least temporarily in the rear-view mirror.