the bottom line: 2017 articles archive home
2018 predictions
Goldman Sachs released its 2018 stock market forecast last week. In a note to clients David Kostin and the equity strategy team at Goldman said they expected the S&P 500 to rise 11% in 2018 to hit 2,850 by year-end.
Tuesday, December 19, 2017 ... more
Markets will ...
Markets will … test you. Most financial advice, especially on TV and the Internet, suggests that investing is an endless race to beat the market. If anyone else wins, it seems, you lose. But investing isn't about beating others at their game.
Tuesday, December 12, 2017 ... more
Detective work
Investing involves a great deal of detective work, so it might be an idea to see what we can learn from the great fictional detectives – the likes of Sherlock Holmes, Hercule Poirot, Miss Marple, Veronica Mars and Columbo.
Tuesday, December 5, 2017 ... more
Illusion of Control
The illusion of control is the tendency for people to overestimate their ability to control events; it occurs when we feel a sense of control over outcomes that we demonstrably don’t influence. Illusions of control can be especially problematic for traders.
Tuesday, November 28, 2017 ... more
Some time ago Howard Marks sent a memo to clients of Oaktree Capital, titled It’s Not Easy, in which he listed “a collection of time-honoured bromides that range from (a) only effective part of the time to (b) just plain wrong.” It went something like this ...
Tuesday, November 21, 2017 ... more
Should be exciting
Let’s face it, passive investing is boring. It makes a lot of sense – it’s low cost, it saves you the bother of trying to beat the markets – but what if that’s not all you’re after?
Tuesday, November 14, 2017 ... more
Not what they do
Plenty of high profile people are more than happy to share their views on the state of the market and give advice on the best course of action. But, much of the time what they say in public has little-to-no bearing on how they manage their own portfolio.
Tuesday, November 7, 2017 ... more
How useful's value?
"Given the performance of certain stocks, we wonder if the market has adopted an alternative paradigm for calculating equity value," writes David Einhorn in the latest Greenlight Capital letter to clients.
Tuesday, October 31, 2017 ... more
What it takes
The stock market is nothing if not a place of pure deception. Just when you think you have it figured out it changes course leaving you scratching your head in frustration. Just when it seems to make sense it makes no sense at all - which would appear to be the case most of the time.
Tuesday, October 24, 2017 ... more
Richard Thaler
Last week Richard Thaler of the University Of Chicago Booth School Of Business was awarded the Nobel economics prize for documenting the way people's behaviour does not conform to economic models that portray them as perfectly rational. In so doing Thaler has helped change the way economists look at the world.
Tuesday, October 17, 2017 ... more
When to run
One of the more pertinent market analogies for today’s markets is George Goodman’s comparison of high-flying markets with “A wonderful ball where the champagne sparkles in every glass and soft laughter falls upon the summer air.”
Tuesday, October 10, 2017 ... more
In a crisis
The old trading adage to, “buy on the sound of cannons, sell on the sound of trumpets” is often attributed to London financier Nathan Rothschild who supposedly made ‘millions’ after the battle of Waterloo by using his early knowledge of the English victory to deceive bond traders on the stock exchange.
Tuesday, October 3, 2017 ... more
6 Options
In the low-return world I described in the memo, the options are limited: 1. Invest as you always have and expect your historic returns. 2. Invest as you always have and settle for today’s low returns. 3. Reduce risk to prepare for a correction and accept still-lower returns ...
Tuesday, September 26, 2017 ... more
Don't just read
"A single conversation across the table with a wise man is better than ten years mere study of books, said Henry Wadsworth Longfellow. Can that be true? Can a single conversation about investing be better than ten years of reading on the subject? It seems unlikely. But ...
Tuesday, September 19, 2017 ... more
Dow 20,0000
In the abstract to the paper he published earlier this year, Narrative Economics, Nobel Prize-winning economist Robert Shiller points out that we have always been highly tuned towards narratives, whether factual or not, to justify ongoing actions, even such basic actions as spending and investing.
Tuesday, September 12, 2017 ... more
advise & timing
Guru investors can have the effect of artificially running prices up or down to the indirect benefit of the few. Regarding the broader market, the artificial nature of this impact means that the accuracy of gurus' advice – the gains that are initially on offer - decreases as consensus increases.
Tuesday, September 5, 2017 ... more
Need to know
Although we exhibit lots of individual and cultural variations, humans are animals, and like all animals we have idiosyncrasies, quirks and characteristics that distinguish us as a species. Anthropologists have identified many “human universals”.
Tuesday, August 29, 2017 ... more
Mark Twain once famously quipped “buy land, they’re not making it anymore” in the general belief that houses rarely lose money. But analysis shows that house prices can fall for prolonged periods, and that we tend to under-estimate the financial risks associated with buying a home.

Tuesday, August 22, 2017 ... more
Thematic investing
Investors are constantly looking for new and promising ideas in order to capitalize on themes that will drive tomorrow’s markets. Their search is popularising thematic strategies. The idea is not entirely new, some investors have been deploying thematic strategies for years in an attempt to generate superior returns, and evolve traditional index investing.
Tuesday, August 15, 2017 ... more
Warren Buffett is often quoted as saying "be fearful when others are greedy”. Warning us to be careful of high-flying assets coming crashing down. It begs the question: are ‘others’ being greedy now? With the Dow breaking through 22,000 and the growing disconnect between our market and our economy it seems a good time to ask.
Tuesday, August 8, 2017 ... more
Investment advice
The problem with trading and investing advice, what often renders it useless, is that while it might apply to one situation it seldom applies to another. It then becomes the wrong advice.
Tuesday, August 1, 2017 ... more
Why passive?
If you have the facts on your side, pound the facts. If you have the law on your side, pound the law. If neither are on your side, pound the table." It’s a legal dictum that the active lobby has taken to heart says Chris Veegh
Tuesday, July 25, 2017 ... more
In a way, index investing is the ultimate piggyback ride on the coattails of the active management community. If you think about it, the selection of stocks that are included within the major indices is solely due to the discerning opinion of the active management community.
Tuesday, July 18, 2017 ... more
SA Mining
Once the darling of the South African economy, the local mining sector seems to be digging itself deeper and deeper into a dark hole – and the revised mining charter isn’t likely to do it any favours.
Tuesday, July 11, 2017 ... more
About penny stocks
The term "penny stock" generally refers to low-priced speculative securities of very small companies. To quote the US Securities and Exchange Commission: "Investors in penny stocks should be prepared for the possibility that they may lose their whole investment."

Tuesday, July 4, 2017 ... more
Learning from others
You can often learn more from studying the investing failures than the investing greats. Besides, mistakes in the market are invariably costly. So, what better way to learn then than through other people’s mistakes? To this end Jack Schwager’s interviews with stock market wizards is as good as place as any to go in search of a few examples.
Tuesday, June 27, 2017 ... more
Not so smart
The consequences of our actions reinforce certain behaviour. If the consequences were rewarding, our behaviour is likely to be repeated. Rewards can be anything from health, money, job, reputation, family, status, or power. In all of these activities, we do what works. This is how we adapt.
Tuesday, June 20, 2017 ... more
An issue of trust
We study the effect that a general lack of trust can have on stock market participation. In deciding whether to buy stocks, investors factor in the risk of being cheated. The perception of this risk is a function of the objective characteristics of the stocks and the subjective characteristics of the investor.
Tuesday, June 13, 2017 ... more
Research: How reliable?
April has historically been a good month for stocks, with the first two weeks in particular standing out. But when he went to look at monthly returns going back to 1926, he found April to be only the third best performing month, with an average growth of 1.5%. The best performing month is July with an average gain of 1.8%, followed by December with 1.7%.
Tuesday, June 6, 2017 ... more
Not you
It feels pretty good when things go your way in the markets. And it would be nice to assume that it’s due to your intelligence and your skills as an investor, but that’s unlikely to be the case in the wake of a bull market.
Tuesday, May 30, 2017 ... more
Sosnoff at Summit
The Exchange Africa: Trader Summit, held in Sandton last Saturday, brought together a diverse group of traders and do-it-yourself investors to listen to a great line-up of speakers, which included Tom Sosnoff.

Tuesday, May 23, 2017 ... more
Better ignored
As The Reformed Broker, Joshua Brown, once pointed out, one of the reasons pundits keep coming up with explanations for market moves is because it’s what people think they need. They see the market go up or down or both in the course of the day
Tuesday, May 16, 2017 ... more
Berkshire AGM
For years the Berkshire Hathaway Annual meeting was basically a non-event, just 23 people attended in 1981. Buffett first put in a plug for the gathering in his 1984 letter to shareholders. He acknowledged that "many annual meetings are a waste of time"
Tuesday, May 9, 2017 ... more
Diversify & stay
Horizon Research Group wrote a paper a few years ago about a small handful of art dealers who ended up with huge collections of masterworks by Picasso, Matisse, and Klee, worth hundreds of millions of dollars. Question is: How did they know that’s what these would be worth one day?
Tuesday, May 2, 2017 ... more
From Morgan Housel - pt1
From Morgan Housel, a partner at The Collaborative Fund and former columnist at The Motley Fool and The Wall Street Journal: some statistics, a little advice and a few market truisms.
Tuesday, April 25, 2017 ... more
What if
Ben Carlson at a Wealth of Common Sense says he often finds himself saying ‘Only on Wall Street’, which got him thinking about what it would be like if other areas of life operated like Wall Street.
Tuesday, April 18, 2017 ... more
Stop losses
Whether you’re a new or experienced investor, the hardest lesson to learn is that you’re simply not going to be right all the time. And if you don’t cut every loss quickly, sooner or later you’ll suffer some very large losses.
Tuesday, April 11, 2017 ... more
Often wrong
Investors often make foolish financial decisions. We’re all a little irrational, and lots of folks are trying to figure out why. Specialists in behavioural finance have sketched out some of our more persistent mental mistakes. Now, some experts are turning to evolutionary psychology to explain how we come to be this way.
Tuesday, April 4, 2017 ... more
Don't agree on much
Losses must always be cut,” says Gerald Loeb. “Cutting losses is the one and only rule of the markets that can be taught with the assurance that it is always the correct thing to do". But, not everyone agrees.
Tuesday, March 28, 2017 ... more
As John Templeton observed, it is impossible to produce superior performance in the stock market unless you do something different from the majority.
Tuesday, March 14, 2017 ... more
Reason to be afraid
So far the dire predictions about a market crash have proven to be wrong. After Trump’s speech to Congress last week the Dow broke through 21,000. It cleared 20,000 three weeks ago, making this the fastest rise between 1,000 milestones since 1999. The Trump presidency, it seems, can do no wrong on Wall Street.
Tuesday, March 7, 2017 ... more
The bet
The following extracts are taken from a section of Warren Buffet’s 2017 letter to Berkshire Hathaway shareholders titled “The Bet” (or how your money finds its way to Wall Street).
Tuesday, February 28, 2017 ... more
Different games
In Confusion of Confusions, one of the oldest books written on investing in the stock markets (1688) Joseph de la Vega differentiated between the wealthy investors which he called “the financial lords,” and the “persistent speculators” or the “gamblers.”
Tuesday, February 21, 2017 ... more
Emotional finance
If you think of reading today’s newspaper, pick it up and start reading it, there seems little doubt your consciousness is in charge and guiding your actions. But, in fact, picking up the newspaper is not a simple conscious act; many nonconscious aspects lie beneath.
Tuesday, February 14, 2017 ... more
Great investors
Last year Michael Mauboussin at Credit Suisse published a piece entitled Reflections on the Ten Attributes of Great Investors. To summarise, Mauboussin believes great investors: 1. Understand numbers (and accounting). To be a successful investor, you have to be comfortable with numbers.
Tuesday, February 7, 2017 ... more
I began to realize that the big money must necessarily be in the big swing. From then on I began to think of basic conditions instead of individual stocks,” says Jesse Livermore in Edwin Lefevre’s Reminiscences of a Stock Operator. “I promoted myself to a higher grade in the hard school of speculation.
Tuesday, January 31, 2017 ... more
Trump: Uncertainty
Donald Trump was sworn in as the 45th president of the United States last Friday. Whenever there’s a new president, you get a lot of breathless commentary about how he’ll ruin or save the markets. What follows is our pick of these
Tuesday, January 24, 2017 ... more
Novice mistakes
In his book, How to Make Money in Stocks, William O'Neil dedicates an entire chapter to the common blunders and misapprehensions of novice investors. These can be boiled down to a list of about eighteen.
Tuesday, January 17, 2017 ... more
Lessons from 2016
After the worst start to the year ever the U.S. stock market surged to new highs in 2016. All the major indexes rebounded to records and defied the doomsday forecasts that preceded events like Brexit and Donald Trump's election.
Tuesday, January 10, 2017 ... more
Valuation, history shows, is an awful tool for market timing. Equity cycles persist, and selling just because price-earnings ratios are high has repeatedly proven a mistake. But what if the persistence starts pushing up against history?
Tuesday, January 3, 2017 ... more
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