July - September 2012 articles archive home
Smart things …
… you don’t need a tertiary education to learn: Without quality it doesn’t matter how good the ideas are. This is equally true for intangible plans. Imparting greatness requires a continuum of effort and attention, not just an initial brain-fuelled flurry to get exemplary ideas on paper.
Friday, September 28, 2012 ... more
Picking Stocks
Much of the excess returns from stock picking can, in reality, be attributed to prescient market timing. Thus, the warnings above concerning market timing apply to prospective stock pickers: The environment for stock picking is only truly propitious about 15% of the time. The rest of the time, by definition, it will be extremely difficult to find mispriced stocks.
Thursday, September 27, 2012 ... more
On rewarding stupidity
The market doesn't really discern whether you have used good logic or not in its rewards. Someone who bought XYZ, having spent days doing a 15-point analysis like the one advocated by Phil Fisher, is in the exact same boat as someone who said "These doughnuts are good," and bought the stock.
Wednesday, September 26, 2012 ... more
In reality
Try to count the number of traders over forty. You won’t find many. Partly this is because of mathematics. If the markets are mostly a zero-sum game, then the winners stick around and the losers find other things to do with their lives.
Tuesday, September 25, 2012 ... more
To the left
I am a friend of the Left and my politics has been on the Left, but sometimes it’s difficult to recognise what is Left, what is Right. I am in favour of fighting today’s battles rather than yesterday’s battles. I think this gut anti-Americanism … is a problem.
Friday, September 21, 2012 ... more
The financial markets generally are unpredictable. So that one has to have different scenarios. The idea that you can actually predict what's going to happen contradicts my way of looking at the market. - George Soros
Thursday, September 20, 2012 ... more
People absorb information about macro-economic themes every day without realizing they are doing so. Newspapers and web sites—financial and non-financial alike—are filled with stories about the over-arching macro trends unfolding all over the world.
Wednesday, September 19, 2012 ... more
Extracts …
… from the Columbia Business School April 2012 newsletter: The definition of a great investor is someone who starts by understanding the downside. You must make the judgment in advance as to how much downside risk you are willing to take. I knew that I could always survive the good days, but the critical element is to be able to survive when the market isn't doing well or the investment isn't performing.
Tuesday, September 18, 2012 ... more
When you’re 64
Go to Google and search for “asset allocation by age”. You will get a plethora of asset allocation calculators and heaps of advice on asset allocation based on your age. You will find a traditional rule of thumb: subtract your age from 100 and invest that percent of your assets in stocks, with the rest in bonds or cash.
Monday, September 17, 2012 ... more
Loeb's letter
In 2004, Dan Loeb's Edge Fund, Third Point, acquired a 7% stake in InterCept, following which he sent a letter to the chairman and CEO, John Collins, demanding that he resign, along with other board members. It was the type of letter that, at one time or another, most shareholders have probably wished they were in a position to write.
Friday, September 14, 2012 ... more
Investment insights …
… from legendary value investor Seth Klarman: When the market starts to go down a lot of people overreact and start to panic. For them it's fighting human nature. But if I can buy this thing for a huge fraction of what it's worth. What am I worried about if it goes down a little bit more?
Thursday, September 13, 2012 ... more
Frictional costs
People understand the magic of compounding returns. But few investors know about what I call the tyranny of compounding costs.... You put up 100% of the capital and take on all the risk ...
Wednesday, September 12, 2012 ... more
Essential attributes
Leon Cooperman, spent nearly 25 years at Goldman Sachs, before starting his own fund, Omega Advisors, in 1991. According to a 2012 report from Forbes he's now worth $2 billion. When asked what makes a good analyst or portfolio manager, Cooperman listed 14 attributes he thinks are absolutely necessary.
Tuesday, September 11, 2012 ... more
When, and before the end of this year, all the major Central Banks (Fed, ECB, China, England and Japan) make another desperate heave to stimulate their economies, so markets will rally and forecasts again improve; yet the peak rate of earnings growth has passed.
Monday, September 10, 2012 ... more
Honour yourself
Yes, it’s a bottom-line world out there, boys and girls. Everything – including education - has been commodified. Consequently, we think everything worth knowing is test-able, quantifiable, and measurable.
Friday, September 7, 2012 ... more
Not growth
You don't actually find a strong correlation between— top-line GDP growth and making money in the market. It seems like you should. The fastest-growing countries should give you the highest return. They simply don't.
Thursday, September 6, 2012 ... more
Lessons from the past
Beat-the-market investors have always been searching for investments with returns higher than risks. The World’s Work , a magazine published a century ago, warned investors away from the belief that they can easily find such investments.
Wednesday, September 5, 2012 ... more
As an individual investor …
… you’re not running a mutual fund that must own eighty or a hundred different names ... you’re free of the oversight of boards and committees ... you’re free to define yourself ...… and you’re free to approach trading through timeless truths.
Tuesday, September 4, 2012 ... more
Opinions & opportunities
First, Bernanke provided a very robust defence of what he’s done so far. Secondly, he told us problems were cyclical, not structural. And finally, he told us that costs are containable, they’re manageable. So, in my opinion, he is laying the ground for more activism from the Fed … but be careful to differentiate between his willingness, his ability and his effectiveness
Monday, September 3, 2012 ... more
While the past few years have seen important advances in the study of optimism, one enduring puzzle remained. How is it that people maintain this rosy bias even when information challenging our upbeat forecasts is so readily available?
Friday, August 31, 2012 ... more
Truth be told
Human beings are subject to wild swings in their levels of fear, risk tolerance and greed. That won’t change. The reason Shakespeare is still so relevant today is that his plays were all about human nature, and human nature never changes.
Thursday, August 30, 2012 ... more
Does Management Matter?
… management matters…. I do not think it takes a genius to understand that Jack Welch was a more insightful person and a better manager than his peers in other companies …. you do get an occasional opportunity to get into a wonderful business that’s being run by a wonderful manager.
Wednesday, August 29, 2012 ... more
Three Pervasive Myths …
… in the Trading World exposed by Brett N. Steenbarger: Myth #1: Emotions are at the root of trading problems. Myth #2: Anyone, with dedicated effort, can get to the point of trading for a living. Myth #3: The main cause of trading failure is a loss of discipline.
Tuesday, August 28, 2012 ... more
"The share price has risen 47% to R2.08 in the past year,” said Financial Mail, on Metrofile, at the beginning of last year, “so there might not be a lot of upside left, but that’s what we said when it was at R1.75. It’s worth taking a closer look.”
Monday, August 27, 2012 ... more
In every age …
… and at every time, there have been people who say we need more government. Sometimes they say we need it to protect exchange from corruption, to set the standards and police the rules – in which case they have a point, though often they exaggerate it.
Friday, August 24, 2012 ... more
Not fit
When the nightly news focuses on that day's movement in the Dow Jones Industrial Average or the financial supplements idolise the latest mutual-fund manager to shine, it is easy to forget what the main economic functions of the equity markets are supposed to be.
Thursday, August 23, 2012 ... more
A new and major element of speculation has been introduced into the common stock arena from outside the companies. It comes from the attitude and viewpoint of the stock buying public and their advisers
Wednesday, August 22, 2012 ... more
What it takes
Charlie Munger on what it takes to be a good investor: “It is remarkable how much of a long-term advantage people have gotten by trying to be consistently not stupid, instead of trying to be very intelligent”
Tuesday, August 21, 2012 ... more
Bad, good & ugly
Excellerate proposes to delist at 115c a share. It happens to be the lowest price at which it traded when it listed in May 1998. The highest price on the day was 139c. So, those who bought at 115c would have been very pleased with themselves. Not for long though.
Monday, August 20, 2012 ... more
It is a fundamental principle of economics that a person is always better off if they have more alternatives to choose from. But this is wrong. There are cases when I can make myself better off by restricting my future choices and commit myself to a specific course of action.
Friday, August 17, 2012 ... more
Gambit of emotions
Some traders will tell you that there are only two emotions to be overcome in order to succeed in the markets: fear and greed. Some will even tell you that the only emotion that they contend with is fear: fear of suffering a loss, and fear of missing out on an opportunity. However, the array of emotions that can severely impact on your ability to make rational decisions is far more complex than that.
Thursday, August 16, 2012 ... more
Thing about buy-backs
In theory, share buy-backs should make eminent sense; every time shares are bought back, not only the asset value, but also the earnings per share, is enhanced. Simple stuff.
Wednesday, August 15, 2012 ... more
What luck?
Jesse Livermore was happy to put some of his successes down to luck. Of his 1915/16 comeback from bankruptcy, he said: “I was very lucky. I was rampantly bullish in a wild bull market. Things were certainly coming my way so that there wasn’t anything to do but to make money …"
Tuesday, August 14, 2012 ... more
Why wait for better days?
If you're like every other investor, and I do mean every other investor," says Matt Koppenheffer in a Motley Fool article titled, Should You Buy Now or Wait for a Brighter Day? “a question that you are continually grappling with is whether you should have your money invested in the market right now or if you should wait.
Monday, August 13, 2012 ... more
How smart?
We tend to believe that smart equals rich. But there is a mountain of evidence suggesting that being extra smart doesn't necessarily lead to being extra rich. The collapse of all-star hedge fund Long-Term Capital Management gave us one object lesson.
Friday, August 10, 2012 ... more
An edge
Legendary traders like WD Gann and JM Hurst had an edge. Why? Because they took a unique approach. The unbeaten path. Because while the crowd was asking the same questions and looking for the same answers they created their own way of seeing how financial markets really work.
Wednesday, August 8, 2012 ... more
Diagnostic tool
Instead of relying on historical patterns for mechanical trading signals, you may want to use them as indications of how markets tend to behave under a given set of conditions.
Tuesday, August 7, 2012 ... more
Different dividend policies
Extracts from last week’s interviews with Butana Khoza, MD of Vunani Securities and Chris van der Merwe, CEO of Curro Holdings.
Monday, August 6, 2012 ... more
I revere them when they live in forests and groves. And even more I revere them when they stand alone. They are like lonely persons. Not like hermits who have stolen away out of some weakness, but like great, solitary men, like Beethoven and Nietzsche.
Friday, August 3, 2012 ... more
What Lynch looked for
From 1977 to 1990, Peter Lynch grew Fidelity’s flagship Magellan fund at an average rate of 29.2% per annum. Famous for preferring companies that had ‘business models he could draw with a crayon,’ Lynch encouraged investors to look for five things in a potential investment.
Thursday, August 2, 2012 ... more
Can’t be done
If you already know the futility of market forecasting but feel that you simply must predict the market, I will reveal at this time how you can be as good as the best market gurus.
Wednesday, August 1, 2012 ... more
What not to do
Buy low, sell high! That’s the shortcut to a fortune right? Wrong! It is just one of the many loss-causing clichés that the crowd chants as they lose money year after year.
Tuesday, July 31, 2012 ... more
Cash, Platinum or Prefs?
Sable Platinum recently announced that it will be reverse-listing into New Corpcapital. The proposal is straight forward. New Corpcapital will issue 180.3m new shares to acquire 100% of Sable Platinum, putting a value on Sable Platinum of R216.4m. Alternatively, you may want to take a look at the type ‘A’ and type ‘B’ preference shares to be issued by VICI Private Equity Fund.
Monday, July 30, 2012 ... more
Seventy years ago …
… Asimov created the “first law of robotics,” a rule rooted deep in their programming that “A robot may not injure a human being or, through inaction, allow a human being to come to harm.”
Friday, July 27, 2012 ... more
It’s never a good idea …
… to follow anyone in the market. Here is an old warning from the Wall Street Journal: Charles Glasgow had idolized Peter Lynch since the early 1990s, when he read his investment book "One Up on Wall Street."
Thursday, July 26, 2012 ... more
A reminder …
… from Seth Klarman on the impact of the inflationary environment on value investors: Trends in inflation or deflation also cause business values to fluctuate. That said, value investing can work very well in an inflationary environment.
Wednesday, July 25, 2012 ... more
Patience is integral ...
... to the value approach on many levels. As Ben Graham wrote undervaluations caused by neglect or prejudice may persist for an inconveniently long time, and the same applies to inflated prices caused by over-enthusiasm or artificial stimulants.
Tuesday, July 24, 2012 ... more
Absolutely no one
Did you believe those financial pundits in 2009 - 2010 that were saying it was a great time to buy? Or were you too pessimistic to even contemplate it? If so, you were not alone. There was no shortage of dark-side input to factor into your investment equation back then.
Monday, July 23, 2012 ... more
No such thing
We should wipe two words from our vocabulary: gratitude and charity. In real life, help is given out of friendship, or it is not valued; it is received from the hand of friendship, or it is resented. We are all too proud to take a naked gift: we must seem to pay it, if in nothing else, then with the delights of our society.
Friday, July 20, 2012 ... more
Not really
It should have been easy for investors to earn juicy returns: All they had to do was piggyback Corporate America in a diversified, low-expense way. An index fund that they never touched would have done the job. Instead many investors have had experiences ranging from mediocre to disastrous.
Thursday, July 19, 2012 ... more
Empirically, trickle-down economics has failed. Tax cuts for the rich have never once yielded more net revenue for the country. The 2008 crash and the Great Recession prove irrefutably how inefficient and irrational markets truly are.
Wednesday, July 18, 2012 ... more
More from Anand
Numbers frequently lie - especially in isolation. Say you spot a p:e ratio of eight. Sounds cheap! But is that industry's profitability rapidly deteriorating? Was there a one-time item that temporarily juiced the bottom line?
Tuesday, July 17, 2012 ... more
Why it's so hard
Anand Chokkavelu, at The Motley Fool, has compiled a list of the 100 things that he has learned in investing. Most of Anand’s list is dedicated to insights on beating the market, but his first item on the list is the warning that “it’s darn hard to beat the market.”
Monday, July 16, 2012 ... more
Getting it wrong
The drama and excitement of improbable events make them appear more common. After 9/11, 1.4 million people in the U.S. changed their holiday travel plans to avoid flying. The vast majority chose to drive instead. But driving is far more dangerous than flying.
Friday, July 13, 2012 ... more
According to Webster, the motive is the test by which we must distinguish between an investment and a speculative transaction. The man who bought United States Steel at 60 in anticipation of selling at a profit is a speculator …
Thursday, July 12, 2012 ... more
The 5W’s of bad investing
Winging it. A shocking number of investors have no financial plan. Without a clear understanding of what you’re investing for, it’s difficult to create a discipline that will allow you to reach those goals.
Wednesday, July 11, 2012 ... more
So which is it?
When asked to name the mistake he makes most frequently, Edwin Schloss confesses to buying too much of the stock on the initial purchase and not leaving himself enough room to buy when the price goes down. If it doesn’t drop after his first purchase, then he has made the right decision. But the chances are against him.
Tuesday, July 10, 2012 ... more
A great story
The dream of every small-cap investor is to buy into a ten-bagger – a stock that goes up ten times in value. But EOH Holdings has achieved much more than that. It became a ten-bagger in October 2006 when its share price broke through R6.70, from a low of 67c in October 2001. Since then it has risen to over R35.00 a share.
Monday, July 9, 2012 ... more
It’s all relative
We always seek to draw comparisons, and are often unaware as to how seemingly irrelevant factors such as the simple presentation of options, actually influence what we select. Thus, given three choices, A, B (different but equally as attractive as A), and A- (inferior to A), we will almost always choose A, simply because it is superior to A-.
Friday, July 6, 2012 ... more
Patterns in risk-taking
Investors hate risk and love it. They show clear evidence of both risk aversion and of risk seeking. Summing up the evidence, investors are generally risk averse but some are much more so than others; in fact, a few are risk neutral or even risk loving.
Thursday, July 5, 2012 ... more
The ultimate hackers
WSJ: What do you say to the argument that high-speed traders provide liquidity to markets and narrow spreads? The argument is that those benefits outweigh the negative side effects.
Wednesday, July 4, 2012 ... more
How others act
We overestimate our abilities, our uniqueness, and our objectivity, even more so when under emotional strain. We have all seen the studies: 90% of people say they are above average drivers. Rarely do people think those around them work harder or better than they do. And so on…
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Tuesday, July 3, 2012 ... more
How the Market's likely to react to news.
How the market reacts to news is a crucial question for investors as being able to classify news as good or bad is of no use if the market has already priced in the sentiment.
Monday, July 2, 2012 ... more
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