the bottom line: 2016 articles archive home
 
When queuing
As we head towards the holidays more serious concerns than the run-o-the-mill investment matters invariably come to the fore. Such as how to deal with the long lines that customarily form at the checkout counters.
Tuesday, December 13, 2016 ... more
 
 
Bromides
In a letter to Oaktree Capital clients Howard Marks listed a number of time-honoured investment maxims that he then went on to argue were “time-honoured bromides” that ranged from (a) only effective part of the time to (b) just plain wrong.
Tuesday, December 6, 2016 ... more
 
 
Theories
Tread carefully with current investment methods. Our limitations in processing complex information correctly prevent their successful use by most of us, says David Dreman
Tuesday, November 29, 2016 ... more
 
 
Paradigms
Richard Driehaus points to a few investment paradigms that might be best avoided. As he explains: “Paradigms are beliefs that most people have. Unfortunately, they are often outdated and no longer true, yet people tend to hold on to them.
Tuesday, November 22, 2016 ... more
 
 
Not alone
...most of us grow up either hiding in a shell or learning how to manipulate others in self-defence. Acting independently does not feel natural to us,” says Mark Douglas in The Disciplined Trader, “but that is the only way to succeed in the market.”
Tuesday, November 15, 2016 ... more
 
 
Stories
Ever wonder what makes different people adopt different investment strategies? Why otherwise smart people would choose to follow an investment strategy that seems nonsensical to you?
Tuesday, November 8, 2016 ... more
 
 
News
James Montier was asked in an interview with Money Week what investors needed to know before making an investment decision. “Wall Street would have you believe that you need to know everything about everything before you make an investment,” he replied. “But in fact, to make an investment, what I need to know is relatively limited. I simply don't need to know everything about everything.
Tuesday, November 1, 2016 ... more
 
 
After 50 years
In his latest book, The Index Revolution: Why Investors Should Join It Now released this month, Ellis explains how over the span of fifty years he came to believe that the market “can’t be beaten.”
Tuesday, October 25, 2016 ... more
 
 
Starting over
If I wanted to become a tramp, I would seek advice from the most successful tramp I could find. If I wanted to become a failure, I would seek advice from men who had never succeeded. If I wanted to succeed in all things, I would look around me for those who are succeeding and do as they have done.  —  Joseph Marshall Wade
Tuesday, October 18, 2016 ... more
 
 
The sentiment game
What John Maynard Keynes called the Newspaper Beauty Contest is known to modern game theory as a variant of the Common Knowledge (CK) game. To illustrate how this game is played on a fundamental level, I’ll use another classic example: The Island of the Green-Eyed Tribe.
Tuesday, October 11, 2016 ... more
 
 
Market persona
Most of us are familiar by now with Benjamin Graham’s analogy of the market as a manic-depressive business partner whose estimate of the business's value goes from very pessimistic to wildly optimistic. Much like Warren Buffett’s moody farming neighbour who yells out a price every day at which he is willing to either buy Buffett’s farm or sell him his.
Tuesday, October 4, 2016 ... more
 
 
GAAP
Barry Melancon, president and CEO of the American Institute of CPAs, on being asked what kept him up at night replied, “My biggest worry is the relevancy of our core products.” That being the case, The End of Accounting, a new book written by Professor Baruch Lev and Feng Gu is likely to give him a few sleepless nights.
Tuesday, September 27, 2016 ... more
 
 
What good are shareholders?
As shareholders we like to think that our place is at the centre of the corporate universe, with managers putting our interests above all others. After all, if we’re not the owners of the business, entitled to everything that comes with ownership, who is? In legal terms though, shareholders don’t own the corporation. They own securities that give them a less-than-well-defined claim on its earnings.
Tuesday, September 20, 2016 ... more
 
Diverse ideas
Michael Mauboussin, Managing Director and Head of Global Financial Strategies at Credit Suisse, joined Bloomberg columnist Barry Ritholtz on Bloomberg Radio last month. The two have a reputation for being especially good at linking diverse ideas to investing. Amongst the things they discussed on this occasion:

The inside/ outside view

Ritholtz: In your book Think Twice you use the phrase counterintuition. What is counterintuition?
Tuesday, September 13, 2016 ... more
 
 
Fewer players
At the end of last year Seminole Capital Management, a hedge fund with an enviable long-term track record returned money to their clients after admitting that “the game had changed” and they lacked the confidence to maintain “historical-like returns.” Among the many reasons given for this – high frequency trading, the Federal Reserve’s low interest rate policy and so on – was the fact that there are now “fewer traders at the poker table to play against.”

This issue came up again last month when Barry Ritholtz interviewed Michael Mauboussin on Bloomberg radio...
Tuesday, September 6, 2016 ... more
 
What we can learn...
...about investing from spiders.Spiders set up their webs and then sit tight, waiting for the meal to show up. They are patient. They let their tools do the work. Bringing to mind Jesse Livermore’s revelation that, "It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling...
Tuesday, August 30, 2016 ... more
 
 
Alone
Those who think there are only two sides to every argument, two ways to interpret every data set, haven't had much to do with the stock market. In the market there are any number of factors at work, interest groups, and potential interpretations on the information that makes it through the screening, omissions, and exaggerations. And, most importantly, there is only one you. But it’s you that needs to filter and weigh the facts and opinions that reach your ears, discard the misleading, ignore the unimportant, and isolate the lies.
Tuesday, August 23, 2016 ... more
 
 
Economic possibilities
It's time to start preparing for a future where robots take most of our jobs says Rob Nail, the co-founder of Velocity11 — a company that builds automation equipment and robotics. "In a 20-year timeline, every physical task will be able to be taken over by robots," Nail told attendees at a two-day conference on AI and robotics sponsored by CNBC and Singularity University.

For those who worry about what that will mean, here are some excerpts from John Maynard Keynes’ essay, Economic Possibilities for our Grandchildren:
Tuesday, August 16, 2016 ... more
 
Strategy update
Martin Reeves, Senior Partner and Managing Director BCG Henderson Institute, gave a lecture on business strategy at WBS last week. We took the opportunity to ask how investors might go about analysing the competitiveness of companies in the complex business environment that we face today.

“Just as there is not one approach to strategy,” says Reeves, “there is not one approach to examining the competitiveness of companies. Step number one, therefore, is to look at the fundamental characteristics of each market that each part of the company is facing
Tuesday, August 2, 2016 ... more
 
 
2nd level thinking
In September last year Howard Marks sent a memo to clients of Oaktree Capital titled It’s Not Easy. It’s a great reminder that anyone who thinks it’s easy to achieve unusual profits is overlooking the way markets operate, and talks to the need for what Marks calls second-level thinking. It’s also 14 pages long, nevertheless here is an attempt to excerpt the essence of it.

Remember your goal in investing isn’t to earn average returns; you want to do better than average. Thus your thinking has to be better than that of others – both more powerful and at a higher level.
Tuesday, July 26, 2016 ... more
 
 
Pros & cons of short selling
The pros and cons of short selling from …Monish Pabrai: When you are long on a stock, as it goes down in price, the position is going against you and it becomes a smaller portion of your portfolio. In shorting, it is the other way around: if the short goes against you, it is going to become a larger position of your portfolio. When you short a stock, your loss potential is infinite; the maximum you can gain is double your value. So why will you take a bet where the maximum upside is a double and the maximum downside bankruptcy?”
Tuesday, July 19, 2016 ... more
 
 
Passive is dull
In his book, How I Made $2,000,000 in the Stock Market, Nicolas Darvas asks, “If you could play roulette with the assurance that whenever you bet $100, you could get out for $98 if you lost your bet, wouldn’t you call that good odds?" The answer has to be yes. So here’s another question: if you could double your money within 3 months or lose 25%, wouldn’t you call that good odds?

This is what a Dallas-based fund, After Hours Capital, is offering.
Tuesday, July 12, 2016 ... more
 
Why you don't get rich
Answers to the question: Why don’t you get super-rich when…

…you find that wonder stock (if ever)

Gravity defying super-stocks do come along from time to time, companies which happen upon some moat, establish their business and then successfully defend their margins against all and sundry. Of course, even they eventually run out of growth, but they can last for a very long time.
Tuesday, July 5, 2016 ... more
 
 
Brexit
I Thought Brexit was gonna be a funny footnote, like Kohoutek and Y2K. – Garret Martin

Turns out more than a few British voters weren’t too sure what they were doing when they voted to leave the EU last week. "Even though I voted to leave, this morning I woke up and I just — the reality did actually hit me," one woman told ITV News. "If I'd had the opportunity to vote again, it would be to stay." That confusion appears to have been reflected across the UK.
Tuesday, June 28, 2016 ... more
 
 
Limited
[There exists] a cognitive dysfunction wherein humans adhere to an ancient logic that has everything to do with survival and self-interest, but very little to do with allocating capital efficiently. Within this ancient logic is contained the fear of being inconsistent with a prior commitment, the fear of departing from a prior definition of self, and the discord attached to admitting failure - because in the struggle to survive, behaving in this fashion kept you in the game with still a chance of ultimate success … - Charlie Munger
Tuesday, June 21, 2016 ... more
 
 
Risk
“There is always the risk: something is good and good and good and good, and then all at once it gets awkward.” – John Green

For most of us, risk is bit like happiness; easier to determine in a broad sense than to measure with any accuracy. You might have a pretty good idea when you’re happy and when you’re not, but would be hard-pressed to pin it down to the nearest decimal. Likewise, when you can’t sleep at night worrying about the market, you’ve most likely taken on too much risk.
Tuesday, June 14, 2016 ... more
 
 
Trading by chance
When you read that Hetty Green opened her first bank account at eight and received much of her education reading the financial pages to her near-blind grandfather, that Warren Buffett did his first trade at 14, as did the ‘Boy Plunger’, Jesse Livermore, you start to wonder if there’s any hope of success for those of us who were struggling with our homework at that age.
Tuesday, June 7, 2016 ... more
 
 
Contrarians also fail
In his book, Investment Illusions, Martin Fridson quotes a trader friend as saying, “I gave up being a contrarian when
I discovered that everyone else was one, too.”

“Contrary to popular opinion, it’s not clear that you can strike it rich by simply going counter to popular opinion,” Fridson goes on to say. “Obviously overbought or oversold markets are not nearly as obvious as you might think.”
Tuesday, May 31, 2016 ... more
 
Lessons from the movies
In the classic film, Forrest Gump, the main character of the same name, takes us on a journey through middle to late 20th century America providing alternate perspectives on different events and lifestyles. It has a few lessons for investors: Forrest suddenly decides to start running and doesn’t stop for three years. No matter how bad the weather or how difficult the road gets. By simply putting one foot in front of the other, he gets where he wants to be. Nor did he wait for something to happen. He runs for the sake of running. It’s an approach that would serve investors well.
Tuesday, May 24, 2016 ... more
 
 
Not knowing
Except for the Hang Seng, which fell 2.8%, the markets didn’t really go anywhere last week. The FTSE went up one point, the JSE went up 0.3%, the Nikkei was up 1.1% and the Dow was down 1.2%.

It reminded me of a comment from Ralph Vince to a post by Alston Mabry at Daily Speculation. Mabry was looking at the consequences of missing the best and the worst days in the market (you don’t want to miss the one; you do want to miss the other).
Tuesday, May 17, 2016 ... more
 
 
Bears thinking about
Stanley Druckenmiller founded Duquesne Capital in 1981. He reportedly made $260 million in 2008, but closed the fund in August 2010 citing “the high emotional toll' of not performing up to his own expectations."

Druckenmiller is a top-down investor who adopts a similar trading style as Soros; holding stocks long, short, and using leverage to trade futures and currency. Last week he raged at the Federal Reserve's dire monetary policies.
Tuesday, May 10, 2016 ... more
 
 
At Berkshire's AGM
Buffett presided over his 51st Berkshire annual meeting in Omaha this weekend where he and Vice Chairman Charlie Munger fielded more than five hours of questions on such matters as Coca-Cola's sugary drinks, risks from derivatives and the need for money managers.

Buffett told shareholders that some of the keys to successful investing are avoiding envy and costly fees.
Tuesday, May 3, 2016 ... more
 
 
Vapid nonsense
When markets move sharply up, market commentators will say it has ‘surged ahead’ and happily attribute it to ‘waves of optimism’. When markets take a tumble they call it ‘a correction,’ and attribute it ‘profit taking’. So even the bad news is good.

Sure, stocks went down, but everyone made money, and that’s all that matters, right? Ever wonder who rushes out to ask who made a profit, who broke even and who made a loss after prices fell?
Tuesday, April 26, 2016 ... more
 
 
Gambling, speculating & investing
“We tend,” writes Nassim Taleb in his book, The Black Swan, “to underestimate the role of luck in life in general and overestimate it in games of chance.”

Is the stock market more like life or a game of chance? And how do we know when we’re dealing with chance? A good heuristic is to ask yourself if you can lose on purpose. If you can’t you’re likely far into the chance side of the skill versus luck continuum.
Tuesday, April 19, 2016 ... more
 
Aesop's lessons
The Mule: A mule, frolicsome from lack of work and too much corn, said to himself: "My father surely was a high-mettled racer, and I am his child in speed and spirit." The next day, being driven a long journey and feeling very wearied, the mule exclaimed: "I must have made a mistake; my father could have been only an ass."

Despite the substantial role of luck in the market, we invariably congratulate ourselves when things go well and blame ourselves when they don’t. As Mark Caney says, “The undisciplined mind confuses misfortune with mistakes.”
Tuesday, April 12, 2016 ... more
 
 
Believing what ain't so
A popular saying these days is that it’s not what you know that gets you into trouble so much as what you don’t know. That might be true, but what’s sure to get you into even more trouble – especially when it comes to investing - are the things you think you know, that just ain’t so.

People will tell you that it’s naďve to think the laws of supply and demand apply to the stock market; that it would make investing too simple. But that just ain’t so. People will tell you that ‘sitting in cash’ comes at a cost. But, while that may be true most of the time, it ain’t always so.
Tuesday, April 5, 2016 ... more
 
Investing in the future Monday, March 21, 2016
Ever wish you could be a cowboy? Tuesday, March 15, 2016
Evolution of Consumer Spending Tuesday, March 8, 2016
Irrefutable truths Tuesday, March 1, 2016
Metaphors Tuesday, February 23, 2016
In a down market Tuesday, February 16, 2016
What could be Tuesday, February 9, 2016
lessons in survival Tuesday, February 2, 2016
About Buffett Tuesday, January 26, 2016
Carried forward Tuesday, January 19, 2016
Some predictions for 2016 Tuesday, January 12, 2016
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