The mismanagement of SVB's balance sheet got me thinking about other times in the past,

investing through periods when asset prices felt inflated across the board.

Institutions strive to meet return hurdles pretty much year-in and year-out, but that's not

how markets work.

This blog discusses one of my favorite long-term investing disciplines, positioning portfolios

to play for opportunities yet to come. Playing for Tomorrow

What return was available on a five-year U.S. Treasury two years ago?

Observing market conditions, you might have said 0.8%. That was the paltry current yield on a five-year treasury at the time. But is that the answer?

Yield hungry investors like SVB thought so. They scooped up what yield was available and

extended duration to earn more, like doubling expected returns to the 1.6% yield on a 10-year.

They were wrong.

If we held cash in lieu of that tiny yield two years ago, waited for better opportunities, and bought a treasury

today, with three years of duration remaining until maturity, we could have earned 2.2%

over the full five years. That's zero for the first two years, and 3.6 for the next three.

Limiting an assessment of returns to only the market conditions in the moment

fails to consider the wide range of possibilities of what might happen in the future. The dramatic

change in recent market conditions reminded me of a piece I wrote back in 2006 about the

potential disappearance of the abundant liquidity available in markets at the time.

It proved prescient when the financial crisis froze credit markets two years later.

My favorite excerpt from the piece is a quote from Seth Carman at Bowpost, who brilliantly

articulated this concept in his annual letter 20 years ago.

Seth said, one of the biggest challenges in investing is that the opportunity set available

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