On February 17, 2021, Malcolm Polley served as the guest lecturer for the Finance Seminar class. Malcolm is the president and chief investment officer of Stewart Capital Advisors in Indiana, Pa. Stewart Capital is responsible for asset management, research, performance evaluation, and asset allocation strategies. Polley has a segment on Asset TV, which can be accessed through Bloomberg.
Polley's interest in finance started at a young age when his mother introduced him to investing. His investment career started on October 19, 1987, or Black Monday. At the time Polley thought this was the worst time to start his career, but as time went on, he realized that this was the best time to start his career.
Polley started by talking about the decisions that must be made when it comes to asset allocation. Most of these decisions are made using long-term returns and variability data. Polley then went on to go through the average arithmetic and geometric historical returns of several investments, including large-cap stocks, three-month treasury bills, treasury bonds, and corporate bonds. Geometric returns differ from the arithmetic in how it is calculated because it takes into account compounding that occurs from period to period. Since 1946, the average returns of these different investments range from around 12 percent to around 4 percent, with large-cap stocks generating the highest return and three-month treasury bills having the lowest return.
Polley then went through how the number of asset categories was very limited before World War II. Due to the never-ending search for returns and diversification, the investment industry has added numerous investment categories. Since 2000 alone, 96 categories have been added to this list. Also, investment categories have been added more frequently since the end of World War II. For example, in the 1950s, six categories were added, and then in the 1970s, 14 categories were added. The explosion of investment categories started in 1981, as 74 categories were added in that decade alone followed by 53 categories in the next decade.
Then Polley dove into the trends of interest rates in the last century. We are currently at or very near the end of a 40-year down-cycle in interest rates. This has some huge implications for the professionals in the asset manager career spectrum. Since the rates have been declining for the last 40 years, most asset managers have never worked in a time of ascending interest rates. He then went into earning yields, which are also referred to as EP. EP has been well correlated to long interest rates since the 1960s with a correlation of 0.70. This means that as interest rates rise, one can infer that EP will rise, most likely resulting in its inverse, PE ratio, to decline.
Following Polley's presentation, the students were able to take part in a great question-and-answer session. There were a lot of great questions asked about the market and the operations of Stewart Capital. Most notably, Polley explained how he evaluated companies, but most importantly he expressed the importance of good management.
The students of the Eberly College appreciate the time that Polley took to spend with the students and to share valuable information about the finance and investment field.