April - June 2015 articles archive home
About risk
Dr Theo Kocken Professor of Risk Management for Institutional Investors at VU University Amsterdam was in the country last week promoting the film Boom Bust Boom that he made with Terry Jones of Monty Python fame. We took the opportunity to ask him to share some of his thinking with us.
Tuesday, June 30, 2015 ... more
Boom Bust Boom
The idea behind the film Boom Bust Boom came from a meeting between Monty Python's Terry Jones and Theo Kocken, Professor of Risk Management at VU University in Amsterdam and CEO of risk consultancy Cardano.
Tuesday, June 30, 2015 ... more
Not rational
In the next 10 years or so, neuroscientists and people from the behavioural disciplines will likely converge on a model of human decision-making that will picture people as inconsistent, unconscious, biased, malleable corks on a sea of fast-changing influences.

Friday, June 26, 2015 ... more
Poor decisions
Jack Zenger and Joseph Folkman writing in Harvard Business Review cite nine factors that lead to poor decision making. They include laziness, indecisiveness, over-dependence and isolation.
Thursday, June 25, 2015 ... more
Why investors can safely ignore those who provide ready explanations to daily market moves. why they find it hard to do that and why some just can't be saved.
Wednesday, June 24, 2015 ... more
Lessons from …
Lessons for investors from a failed climb on Everest, Swami Kuvalayananda, the big dawgs at the casinos and photo finishes.
Tuesday, June 23, 2015 ... more
In common with bees
Both bees and humans fall prey to something called a negative cognitive bias and what Charlie Munger calls say-something syndrome.
Tuesday, June 23, 2015 ... more
In a positive light
We want, and need, to see ourselves as good, worthwhile, capable people. The motive to see oneself in a positive light is powerful, pervasive, and automatic. It can blind us to truths that would otherwise be obvious.
Friday, June 19, 2015 ... more
Intuition's not enough
Not to say that quantitative techniques do not work, but in some instances, intuition may work just as well, or even better. Alternatively, a combination of both may be optimal.
Thursday, June 18, 2015 ... more
Some advice
Some advice: 1) Don’t invest in marginal companies they're seldom the source of great long-term profits 2) when you do invest - when you're convinced you're right - bet big. Big mispriced bets don’t appear very often and when they do people like Julian Robertson, George Soros and Stanley Druckenmiller bet big.
Wednesday, June 17, 2015 ... more
No other option
What we should perhaps be particularly worried about is that we will be less and less able to appreciate what we should really be worrying about or that our worries should do more harm than good.
Friday, June 12, 2015 ... more
Enemy within
There is no mental discipline more severe and exacting than that of speculation. There is no pursuit in which a man can less afford to indulge in whims, or prejudices, or pet theories, than that of stacking his money against the prospective changes in financial values.
Thursday, June 11, 2015 ... more
Soros on trends
I am often considered a contrarian. But I am very cautious about going against the herd; I am liable to be trampled on. According to my theory of initially self-reinforcing, but eventually self-defeating trends, the trend is your friend most of the way.
Wednesday, June 10, 2015 ... more
A new app
Ivan Missankov, who runs local investment management firm M1Capital, has developed a mobile app that provides greater insight into analysts’ estimates. Rather than the consensus, the app – called ReturnX - sources individual analyst earnings and dividend estimates, and based on a current share price and long term average PE, calculates an implied rate of return for the share based on each analyst estimate.
Tuesday, June 9, 2015 ... more
There are those who claim that we should eschew using forward earnings when trying to determine fair value, or what stock to own. But for those of us who think that both capital appreciation and dividend income determine stock prices, correctly estimating future earnings is an essential element of success. Nor can we guess, or simply play hunches.
Tuesday, June 9, 2015 ... more
Short pieces of advice
If you don’t know what CTRL + Z does, your life is definitely harder than it has to be. Notice how much you talk in your head, and try listening to your surroundings instead. You can’t do both at the same time.
Friday, June 5, 2015 ... more
Cutting out the noise
“We have to accept that noise is as much a part of investing as it is of everyday life,” says Nick Armet at Fidelity Worldwide Investments. “Information must be identified and processed to remove the noise and separate what is useful from what isn’t."
Thursday, June 4, 2015 ... more
What they want
Do you enjoy a lot of excitement? Would you prefer to have an interesting story more than a boring but winning trade? Do you find it hard to go your own way, as opposed to following the herd and the news? If you have any psychological flaws at all (and yes, we all have them) the markets will draw them out and exploit them for all their worth.
Wednesday, June 3, 2015 ... more
Not always a mistake
The problem is not in making mistakes. The problem is in not knowing when you’ve made a mistake and learning from it. As Jesse Livermore said, “If a man didn’t make mistakes he’d own the world in a month. But if he didn’t profit from his mistakes, he wouldn’t own a blessed thing.” George Soros is on record as saying: “the main reason I am rich is because I always knew when I was wrong. I have basically survived by recognizing my mistakes.”
Tuesday, June 2, 2015 ... more
From Mehrab Irani, General Manager – Investments with Tata Investment Corporation: 10 most common investment mistakes:

1 Trying to catch the top and bottom …not realizing that only fools think they can do this.

2. It will come back. If the price of a stock has gone up or gone down for a good reason there’s no point waiting for it to “come back”.
Tuesday, June 2, 2015 ... more
Better with bot than with Bob
Sociable technologies came onstage as toys, but in the future, they will be put forward as "better than nothing. And over time, robots will be presented as "better than something," that is, preferable to an available human being, or in some cases, to a living pet.
Friday, May 29, 2015 ... more
Financial innovations
There’s no longer any reason to believe that the wizards of Wall Street actually contribute anything positive to society, let alone enough to justify those humongous pay cheques … It was, we were told, a reward for their creativity — for financial innovation. At this point, however, it’s hard to think of any major recent financial innovations that actually aided society, as opposed to being new, improved ways to blow bubbles, evade regulations and implement de facto Ponzi schemes. – Paul Krugman.
Thursday, May 28, 2015 ... more
Requiring practice & study
Study and practice are the two things farthest removed from the minds of the majority of investors in the stock market. Everyone knows that people who engage in speculation for the first time do not want to bother with such details. The average man who comes to Wall Street comes to speculate. All he asks is to be told "something good." But that is not speculation ...
Wednesday, May 27, 2015 ... more
3 movie quotes …
… you might like from John Tuld in Margin Call, The narrator in Inside Job and Richard Fuld in Too Big To Fail.
Tuesday, May 26, 2015 ... more
In movies & books
Once you start playing the market it’s difficult to escape it. Even while watching a film or reading a book. What trader, watching Magnum Force, doesn’t feel a sudden pang of anxiety when Dirty Harry says to the bad guy: “A man’s got to know his limitations,” And when Harry asks, “Do ya' feel lucky, punk?” who doesn’t think to himself: that’s not a good enough strategy.
Tuesday, May 26, 2015 ... more
Generally speaking …
… when you look at the 20th century, it's the era of the masses, mass politics, mass economics. But in the 21st century, there is a good chance that most humans will lose, they are losing, their military and economic value.
Friday, May 22, 2015 ... more
Investing in art
Art has no intrinsic value. It has zero cash flow. And years from now, is likely to be worth less than what you paid for it.
Thursday, May 21, 2015 ... more
Versus robots
While robots have gotten hardwired to exchanges, we’re hardwired in our brains to believe that we can beat this uber-human system. It’s part of what behavioural economists call the ‘overconfidence bias’.
Wednesday, May 20, 2015 ... more
Beating your biases
You’ve analysed a company’s results, you’ve assessed its prospects. You’ve ticked all the boxes. There are no red flags. On paper it’s a buy. And yet something doesn’t feel right. You can’t put your finger on it — but something’s holding you back. What should you do?
Tuesday, May 19, 2015 ... more
The idea that emotions are the root of trading problems - and that successful traders eliminate their emotions - is one of the great myths in the field.
Tuesday, May 19, 2015 ... more
By the middle of the seventeenth century it had come to be understood that the world was enclosed in a sea of air, much as the greater part of it was covered by water.
Friday, May 15, 2015 ... more
Rational beliefs
The current bull market will change to a bear precisely when enough investors change their beliefs about the underlying fundamentals, not when the fundamentals themselves change
Thursday, May 14, 2015 ... more
Gross profit
Financial economist Robert Novy-Marx says a company’s gross profitability does as good a job of predicting its future returns as conventional value metrics like book-to-market.
Wednesday, May 13, 2015 ... more
Nicolas Darvas
How to start? How to find what stocks to buy? You could not pick them out with a pin. You must have information. That was my major problem: how to obtain it. I now realize that this is, in fact, impossible for the ordinary man.
Tuesday, May 12, 2015 ... more
What Darvas learnt
One of the quickest ways to lose money in the market is to listen to others and their so-called expert opinions. Follow your own strategy.
Tuesday, May 12, 2015 ... more
Whoever saw a frisky dog in a gloomy family, or a sad dog in a happy one? Your perspective on life comes from the cage you were held captive in.
Friday, May 8, 2015 ... more
Sense of ending
A “sense of an ending” has been frequently mentioned in recent months when applied to asset markets and the great Bull Run that began in 1981.
Thursday, May 7, 2015 ... more
Don't lose money
Not losing money is a critical part of the investing process. The great investors say it in different ways, but the point is always the same.
Wednesday, May 6, 2015 ... more
A good place for investors to look for wisdom and insights is in the ‘classics’ - the books, written by the greatest speculators and investors in history, that have withstood the test of time.
Tuesday, May 5, 2015 ... more
More Livermore
when asked the direction you think the market is headed. Simply say: “The line of least resistance is either upward or downward at this time.” Remember, don’t fight the tape!

Tuesday, May 5, 2015 ... more
…types of people to ignore when it comes to financial advice: Dishonest people, politicians, cheer leaders - who say things like, “As long as the music is playing, you have to get up and dance.” - attention seekers, scientists and celebrities.
Thursday, April 30, 2015 ... more
10 commandments
From Manufactured Luck: Ten Commandments: 1. Capital Preservation takes precedence over capital maximisation. 2. It is more important to finish the race as opposed to winning it. 3. Mr. Market is ...
Wednesday, April 29, 2015 ... more
China is not threatening your portfolio, nor is the price of oil or the level of the Fed Funds rate. What’s threatening your portfolio is the way in which you may react to any of these items, plain and simple.
Tuesday, April 28, 2015 ... more
From an investor’s perspective, markets require uncertainty to function. Indeed, they thrive on doubt, imperfect information and a lack of consensus.
Tuesday, April 28, 2015 ... more
It's not what you say out of your mouth that determines your life, it's what you whisper to yourself that has the most power!
Friday, April 24, 2015 ... more
Efficient and not
In his telling of the Mr. Market parable, Warren Buffett explains that Mr. Market has “incurable emotional problems. But, in fact, there are plenty of days when Mr. Market is doing fine.
Thursday, April 23, 2015 ... more
Rules of the game
Mastering a game requires you to do the exact opposite of what everyone else does. Since 99.99% of people won’t master a game you need to do the reverse to conquer them.
Wednesday, April 22, 2015 ... more
Facts are friendly
Suppose we were mistaken in our views! Suppose our opinions were not justified! At such times, as I look back, it seems to me that I regarded the facts as potential enemies, as possible bearers of disaster.
Tuesday, April 21, 2015 ... more
Planning and predicting
No one wants to be a forced seller in a panic,” says investment professional David Merkel at the Aleph blog. “So how does anyone get into that situation?” The answer: Bad planning and a bad scenario.
Tuesday, April 21, 2015 ... more
The attitude now …
… towards disease and old age and death is that they are basically technical problems. It is a huge revolution in human thinking.
Friday, April 17, 2015 ... more
Ray Dalio: Prerequisites
Ray Dalio is the founder of Bridgewater, the world’s largest hedge fund. In his book he cites five prerequisites for success.
Thursday, April 16, 2015 ... more
Chinese Bubble
After languishing for the first seven months of 2014, Chinese stocks have since been on an incredible tear, ending 2014 up a remarkable 49% in USD terms, even outstripping the c.28% annual return posted by Bunds.
Wednesday, April 15, 2015 ... more
Thinking about ...
... how we talk about risk as if it’s something we’re happy to take on or would prefer to avoid for its own sake, we'd rather than be right, we prefer not to be wrong and presume that we are efficient information processors.
Tuesday, April 14, 2015 ... more
Trying too hard
Trying harder in the markets doesn’t usually lead to better results. More often than not, it leads to a worse performance. Markets don’t always cooperate when you try to hit a certain target either.
Tuesday, April 14, 2015 ... more
Different kind of luck
You might think someone with a lucky nose wouldn’t roll up their sleeves to work hard – why bother? – but here’s another cultural difference in perceptions of luck.
Friday, April 10, 2015 ... more
Virtually every investment expert’s public assessment is that he is above average, no matter what the evidence to the contrary …
Thursday, April 9, 2015 ... more
Peter Cundill on the worst investment he ever made " ... their accounting was flawed to say the least and they became obsessed by a technological dream" and scepticism "... but be a sceptic, not an iconoclast."
Wednesday, April 8, 2015 ... more
Finding growth
To succeed as an investor, you have to find an ‘edge’, and that usually means taking the road less travelled; investing in younger, less well-known companies and stocks with the potential for growth.
Tuesday, April 7, 2015 ... more
There’s the claim that stocks are a hedge against inflation. But, they are and they aren't. Depending on how you look at it.
Tuesday, April 7, 2015 ... more
Leland Filch
Yeah, I remember Buffett, too. That kid had the damnedest luck. He'd buy a newspaper with a two-dollar bill and get back $15,000 in change.
Thursday, April 2, 2015 ... more
From the 2014 letter
If an investor fears price volatility, erroneously viewing it as a measure of risk, he may, ironically, end up doing some very risky things.
Wednesday, April 1, 2015 ... more
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