April - June 2009 articles archive home
Get rich slowly and don’t risk more than two percent
An amateur trying to get rick quick is like a monkey out on a thin branch. He reaches for a ripe fruit but crashes when the branch breaks under his weight. Institutional traders as a group tend to be more successful than private traders. They owe it to their bosses who enforce discipline.
Tuesday, June 30, 2009 ... more
How does a deliriously happy bunch of neurons in a vat sound?
In a New York Times article published in 2006 Sandra Blakeslee recounted how on a hot summer day in 1991 a monkey sat in a special laboratory chair waiting for researchers to return from lunch. Thin wires had been implanted in the region of its brain involved in planning and carrying out movements.
Friday, June 26, 2009 ... more
Lessons from Merrill's bears you probably won’t see on TV
Before resigning earlier this year as Merrill Lynch’s Chief Investment Strategist, Richard Bernstein, had gained a reputation as a ’Permabear’. He wasn’t alone. For years, Merrill's chief North American economist, David Rosenberg, who resigned about the same time, has argued that consumers were taking on more debt than they could reasonably hope to repay.
Thursday, June 25, 2009 ... more
The magic dragon isn’t the only thing that goes puff
Say that a hard-working pizza-delivery guy decides to buy stock, pays one pound more than the last fellow did, and the float (shares available for trading) for that stock is fifty million shares. Has he just created fifty million pounds of wealth? No. Yet a huge number of people think that this figure represents money in the stock market “bank”, so to speak, and that this money is available to them unless the stock price goes down. In fact, no such money exists.
Wednesday, June 24, 2009 ... more
The endowment effect: Why Johnny can’t sell
A loser cannot cut his losses quickly. When a trade starts going sour he hopes and hangs on. He feels that he cannot afford to get out, he meets his margin calls and keeps hoping for a reversal. His paper loss grows until what seems like a bad loss starts looking like a bargain Finally his broker forces him to bite the bullet and take his punishment. As soon as he gets out of a trade the market comes roaring back.
Tuesday, June 23, 2009 ... more
The Fortune teller’s Garden: today and tomorrow, like yesterday?.
A garden is so forward-looking that it resembles sometimes a family or a business enterprise. I’ve even heard someone liken it to a crystal ball, making it surely unique. Seeds are literally prophetic: tiny crystal balls. Within 12 to 18 months, you’ll have exactly what was foretold.
Friday, June 19, 2009 ... more
So what if the market’s not efficient and we’re not rational?
Wouldn’t it be great if we could go live in the academic world? I don’t mean as a faculty member, but in that construct that the theorists use to explain how things work in the real world. Because then we could rely on things like the Capital Asset Pricing Model for our investment decisions.
Thursday, June 18, 2009 ... more
As a result of the increasing popularity of Behavioural Finance …
… there is a growing awareness of the human flaws that play havoc with our investment decisions and explain certain market anomalies. The outperformance of value investing, for example, is now being ascribed to investor's’ irrational overconfidence ...
Wednesday, June 17, 2009 ... more
A 19th century view on punishment and public servants
It is an especially vicious extension of the false doctrine that criminals have some sort of a right against or claim on society. Many reformatory plans are based on a doctrine of this kind when they are urged upon the public conscience. A criminal is a man who, instead of working with and for the society, has turned against it and become destructive and injurious. His punishment means that society rules him out of its membership and separates him from its association.
Friday, June 12, 2009 ... more
What trading has in common with blackjack and dieting
In an article at TurtleTrader Michael Covel looks at some of the things that winning blackjack players have in common with successful market traders. “Successful blackjack players and great traders pursue their goals as a business, not as a leisurely pursuit.” Says Covel. “As a result, they take a completely different approach towards betting from people who play for the action, the excitement and, of course, the dream of winning big.”
Thursday, June 11, 2009 ... more
Those who say it can't be done shouldn't interrupt those doing it
In summary, people trade for both cognitive and emotional reasons. They trade because they think they have information when they have nothing but noise, and they trade because trading can bring the joy of pride.
Wednesday, June 10, 2009 ... more
Joel Greenblatt turns on the light in the dark hidden places.
Joel Greenblatt, who at one time achieved returns of 50% a year for more than a decade, advises concentrating your investment efforts on areas where bargains are more likely to occur.
Tuesday, June 9, 2009 ... more
Can't get started on that diet? You just need more points.
A chain of hamburger restaurants takes its name from Wimpy, Popeye’s portly friend with a voracious appetite but small exchequer, who made famous the line, “I’ll gladly pay you Tuesday for a hamburger today.” Wimpy nicely exemplifies the problems of “intertemporal choice” that intrigue behavioural economists like David Laibson. “There’s a fundamental tension, in humans and other animals, between seizing available rewards in the present, and being patient for rewards in the future,” he says. “People want instant gratification right now, and want to be patient in the future. If you ask them, ‘Which do you want right now, fruit or chocolate?’ they say, ‘Chocolate!’ But if you ask, ‘Which one a week from now?’ they say, ‘Fruit.’ Now we want chocolate, cigarettes, and a trashy movie. In the future, we want to eat fruit, to quit smoking, and to watch Bergman films.”
Friday, June 5, 2009 ... more
Something that's true, but can't be proved.
The Edge website is the home of what it’s founder has coined the third culture. “Those scientists and other thinkers who … render visible the deeper meanings of our lives, redefining who and what we are.” In its 2005 anniversary edition Edge asked them: What do you believe is true, even though you cannot prove it? Prompted by Nicholas Humphrey’s observation that: “Great minds can sometimes guess the truth before they have either the evidence or arguments for it.” The best answers from the most eminent contributors were subsequently published in a book. Here is Nassim Taleb’s response:
Thursday, June 4, 2009 ... more
It might pay you to know if you’re ‘active’ or ‘passive’
Jonathan Myers, in an article titled What Type of Investor Are You? says knowing what type of investor you are can often help you do better. “By highlighting deficiencies in investment style and behaviour” or how you “interact with the market - for example, trading too frequently, selling too early, inability to cut losses, or a failure to use information effectively.” And whilst every investor is different - with different goals, tolerance to risk, personal situation and desires – in the end it tends to boil down to “ a balancing act between risk and return.”
Wednesday, June 3, 2009 ... more
Guidelines from Richard Bernstein on his last day at Merrill Lynch.
Merrill Lynch's best-known strategist - and best-known pessimist – Richard Bernstein left the firm a few weeks ago, the latest to depart since the Bank of America takeover in January. Not everyone would have been sorry to see him go. As Igor Greewald put it in an article at Smart Money, his unvarnished views couldn’t have made pleasant reading for Merrill's 16,000-plus private client financial advisors. But Bernstein (49) started in the business before amateur hour truly arrived. Henry Blodget had not yet derided in private emails the same risky Internet stocks he was flogging on Merrill's behalf to Mom and Pop day trader. Jim Cramer was not yet tempting college kids into trying their luck against hedge funds.
Tuesday, June 2, 2009 ... more
Listening to the scratching on the known universe's utmost rim. Friday, May 29, 2009
Miller’s battered “Value” fund is again burying the Quants. Thursday, May 28, 2009
Gold: A kind of religion, either you believe in it or you don’t Wednesday, May 27, 2009
Five rules for success: Pat Dorsey’s guide to the markets. Tuesday, May 26, 2009
Criteria for a Good Death Friday, May 22, 2009
For those who can’t decide: something that won’t help. Thursday, May 21, 2009
If you have a plan, can keep your head and control your greed. Wednesday, May 20, 2009
Moscowitz’s advice: Limit your risk, maximize your upside Tuesday, May 19, 2009
Commanding a certain cold esteem, but not admiration. Friday, May 15, 2009
Will a 'Fool me once shame on you …' mentality creep in? Thursday, May 14, 2009
Tricks of the trade Wednesday, May 13, 2009
Nazy Massoud: The 10 major mistakes that traders make. Tuesday, May 12, 2009
There's no question more important Friday, May 8, 2009
Why it’s important to understand the prevailing mind-set. Thursday, May 7, 2009
Financial scams: A few of the more popular ones Wednesday, May 6, 2009
Don’t miss out, keep in touch and don’t get sentimental Tuesday, May 5, 2009
The trouble with Cramer and things that are still intact Thursday, April 30, 2009
Busted: Six commonly held myths on speculators Wednesday, April 29, 2009
Procrastination: the grave in which opportunity is buried Friday, April 24, 2009
Once again, talk of coming from and going to Thursday, April 23, 2009
Why we love penny stocks: A recipe for pump and dump Tuesday, April 21, 2009
Fear of success: Could it be you’re self-sabotaging? Tuesday, April 21, 2009
The importance of knowing what makes for good manners Friday, April 17, 2009
Investing Wisdom from Ken Fisher Thursday, April 16, 2009
Why government bonds may not be as good as their word Wednesday, April 15, 2009
The case of the forgotten man further considered. Thursday, April 9, 2009
Six good reasons for not investing in the U.S. right now Wednesday, April 8, 2009
How do you know when you’ve learnt something useful? Tuesday, April 7, 2009
Because life mentality and financial mentality are correlated. Friday, April 3, 2009
Why maybe there isn’t as much to worry about as you think Thursday, April 2, 2009
Morningstar stands by its value approach, despite the traps Wednesday, April 1, 2009
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