January - March 2017 articles archive home
Why trade
Comparative advantage is an important idea, that can be hard to grasp. To illustrate the point, consider the economist’s device of simplifying matters to see the underlying point. You and I are on a desert island, harvesting coconuts and catching fish
Friday, March 31, 2017 ... more
Deep risk
In his book, Deep Risk, William Bernstein describes two different types of risks: “shallow risk,” a loss of real capital that recovers relatively quickly, say within several years; and “deep risk,” which is the permanent loss of real capital.
Thursday, March 30, 2017 ... more
Market timing
Alex Gurevich, CIO at HonTe Advisors, thinks that making the correct calls when it comes to market timing is a matter of luck and the long term performance of those who have got it right can't be too great as there are so few of these calls they can make.
Wednesday, March 29, 2017 ... more
Jim Cramer, the "Mad Money" host believes the key to success in the stock market involves discipline. And he believes no discipline is more important than diversification. In his words; "This is the single most important concept in investing."
Tuesday, March 28, 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
In the real world
So, what’s it like in the real world? Well, the food is better, but beyond that, I don’t recommend it .. work is hard. Change is hard. Taking a long look in the mirror is hard.
Friday, March 24, 2017 ... more
What we want
We are intelligent, neither irrational nor insane. We are ‘normal smart” at times and “normal stupid” at other times. We do our best to increase the ratio of smart behaviour to stupid behaviour, but we do not have computers for brains
Thursday, March 23, 2017 ... more
Investing isn’t simple enough to be boiled down to a punchy quote. Boiling something down to a single sentence makes it appear as a universal truth. It’s a great way to reduce critical thinking. After all, if George Soros said something, it must be true
Wednesday, March 22, 2017 ... more
One of the most understated effects in all cognitive science is the psychology behind why negative events, emotions, and thoughts trump by a wide margin those that are positive. Negative stimuli command more attention than positive stimuli.
Friday, March 17, 2017 ... more
Stock options
To say “stock-based compensation” is not an expense is cavalier. CEOs who go down that road are, in effect, saying to shareholders, “If you pay me a bundle in options or restricted stock, don’t worry about its effect on earnings
Thursday, March 16, 2017 ... more
Sitting tight
“My main strength was in my ability to take a position and stick with it," said Arthur Cutten, the commodities trader from the 1920's. A reporter once asked me what were my most important attributes as a speculator. I replied, 'Nerve
Wednesday, March 15, 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
Business Advice from George Horace Lorimer in Letters from a Self-Made Merchant to his Son: ON DECISIVENESS “The man who can make up his mind quick, makes up other people’s minds for them. RULES “Some men think
Friday, March 10, 2017 ... more
From Warren Buffett’s letter to shareholders: Discussions about share repurchases often become heated. But I’d suggest that participants in this debate take a deep breath: Assessing the desirability of repurchases isn’t that complicated
Thursday, March 9, 2017 ... more
From Jason Zweig in the WSJ: A study published in the journal Current Biology found that the value you place on something is likely to go up when other people tell you it is worth more than you thought, and down when others say it is worth less.
Wednesday, March 8, 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
Tuesday, March 7, 2017 ... more
One-liners from Buffett
One-liners from Warren Buffett’s 2017 letter to Berkshire Hathaway shareholders: # As is the case in marriage, business acquisitions often deliver surprises after the “I do’s.” # Every decade or so, dark clouds will fill the economic skies
Tuesday, March 7, 2017 ... more
Space debris
The clutter in low-earth orbit has grown rapidly over the past decade. In January 2007, the Chinese government destroyed an aged weather satellite in a missile test, creating what was estimated to be 2,500 pieces of new debris.
Friday, March 3, 2017 ... more
Television is not the truth! Television is a God-damned amusement park! Television is a circus, a carnival, a traveling troupe of acrobats, storytellers, dancers, singers, jugglers, side-show freaks, lion tamers, and football players.
Thursday, March 2, 2017 ... more
One liners
Any dead fish can go with the flow. It takes a strong fish to swim against it. What seems hard at the time is usually, over time, right. Sell when you can, not when you have to. Wishful thinking can be detrimental to your financial wealth.
Wednesday, March 1, 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
The rich
When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. My regular recommendation is that large and small investors stick with low-cost index funds
Tuesday, February 28, 2017 ... more
Not natural
The two rules for what lived and died, over the long term, were pretty clear: natural selection and random mutation. But over the last century or two, and especially over the last decade, humans fundamentally altered these rules.
Friday, February 24, 2017 ... more
Albert Einstein, famously said, “If I had one hour to save the world, I would spend 55 minutes defining the problem and five minutes implementing the solution.” [But] many investors have an unstoppable inclination to jump right into the market
Thursday, February 23, 2017 ... more
Daily speculations
Contributions from Jeff Watson, Russ Sears and Ralph Vince at Daily Speculations looking at how waves are eventually measured in terms of fear, the recent change in strategy by Warren Buffett and the reasons that markets keep rising.
Wednesday, February 22, 2017 ... more
Different games
In Confusion of Confusions, one of the oldest books written on investing in the stock market (1688) Joseph de la Vega differentiated between the wealthy investors he called the financial lords, and the persistent speculators or gamblers
Tuesday, February 21, 2017 ... more
The word “speculation” is often applied to risky investments while “risky” is usually used to describe investments in assets of low quality or uncertain outlook. But “high quality” and “favourable outlook” are in not synonymous with "good investment"
Tuesday, February 21, 2017 ... more
Epictetus thought that every mischance in life was an opportunity to behave well, an opportunity to learn something, and your duty was not to be submerged in self-pity but to utilize the terrible blow in a constructive fashion
Friday, February 17, 2017 ... more
Unhappy speculator
During my trading career involving many hundreds of billions of dollars and at least 5,000 separate days of entering the fray, I have not had one satisfactory day. When I make money, I always want to kick myself
Thursday, February 16, 2017 ... more
A falstaffian joke
"The Stock Exchanges appear to me chiefly as a John Bunyan type of Vanity Fair, or a Falstaffian joke, that frequently degenerates into a madhouse," said Benjamin Graham. "A tale full of sound and fury, signifying nothing." A huge laundry in which institutions
Wednesday, February 15, 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
Not just IQ
How much is success determined by innate intelligence? Economist James Heckman says it’s not what people think. He likes to ask how much of the difference between people’s incomes can be tied to IQ. Most guess around 25%, even 50%, he says
Tuesday, February 14, 2017 ... more
What to read
There are two kinds of authors: those who write for the subject’s sake, and those who write for writing’s sake. The first kind have had thoughts or experiences which seem to them worth communicating, the second kind write for money.
Friday, February 10, 2017 ... more
Ed Thorp
Edward Thorp is a well-known figure on Wall Street. He's spent time as a mathematics professor, hedge fund manager, blackjack player, and author. Marketfy's Tim Melvin recently caught up with him to discuss his outlook on investing.
Thursday, February 9, 2017 ... more
Signs of a bear
Cash is usually regarded as a very undesirable asset. As a result, the cash balances of institutional and private investors will usually be at very low levels. American fund managers describe the mood well: ‘cash is trash’. Value will be hard to find
Wednesday, February 8, 2017 ... more
Great investors
Michael Mauboussin at Credit Suisse wrote a piece entitled Reflections on the Ten Attributes of Great Investors. To summarise, he believes great investors: 1. Understand numbers (and accounting). "You have to be comfortable with numbers
Tuesday, February 7, 2017 ... more
Smart people
In his book Annals of Gullibility Stephen Greenspan a professor of psychology explained why we allow other people to take advantage of us and discussed gullibility in finance, academia and the law. He also gave advice on becoming less gullible
Tuesday, February 7, 2017 ... more
Ever felt an irrational distrust of a stranger on a bus? It could be because your unconscious is constantly making fast judgements. And they are often pretty accurate. Our subconscious mind spends a great deal of time analysing the world
Friday, February 3, 2017 ... more
From Peter Lynch
The extravagance of a corporate office is directly proportional to management's reluctance to reward shareholders. Excellent companies are thrifty. They seek to maximize returns by running their operation efficiently and being the best at what they do
Thursday, February 2, 2017 ... more
Getting out
Price can impact fundamentals just as much as changes in fundamentals can impact price. Sustained lower stock prices eventually lead to worse fundamentals in many cases. Low P/Es today often foreshadow lower earnings in the future
Wednesday, February 1, 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
Tuesday, January 31, 2017 ... more
Don't care
Accepting that you don’t know — and can’t know — what the future holds should be liberating, not frustrating. But you must also not care that you don’t know. If not being able to know the financial future bothers you, then you will never be at peace with your ignorance
Tuesday, January 31, 2017 ... more
The ego we see most commonly goes by a more casual definition: an unhealthy belief in our own importance. Arrogance. Self-centred ambition. It’s that petulant child every person, the one that chooses getting his or her way over anything or anyone else.
Friday, January 27, 2017 ... more
From John Kay
John Kay’s Business economics: 1. Myth – ‘Profits are higher in fast growing industries.’ They’re not. Because everyone else knows they are fast growing. Returns are often higher in unfashionable activities. Best are industries that grow faster than expected
Thursday, January 26, 2017 ... more
From Peter Lazaroff, three answers to the question: What issue in the world of finance isn’t getting enough attention? 1) Probably the effect that investor preference is having on the way the market behaves. 2) personal finance and all it entails
Wednesday, January 25, 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
Economy & markets
In an article published in 2004 Forbes showed that there seems to be little correlation between economic performance and the market. Under Ford, for example, the economy was middling but the market enjoyed a 17% total annualized return.
Tuesday, January 24, 2017 ... more
Cancer is often described as a sped-up version of Darwinian evolution. Through a series of advantageous mutations, the tumour becomes fitter and fitter within your body. Some mutations are inherited others arise spontaneously
Friday, January 20, 2017 ... more
Trump index
There is a better way to allocate your assets. Direct your attention to the relentless tweeting of the man who will soon be president. There is valuable information in those 140 characters that can move markets and alter perceptions of fundamentals
Thursday, January 19, 2017 ... more
From The Art of Speculation by Philip Carret (1930): Even in the highest-grade securities there is a certain inescapable speculative risk. It is not decreased by burying one’s head in the sand like an ostrich and saying, “I never speculate.”
Wednesday, January 18, 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
The popular advice, “do your homework” is misguided when it refers to stock specific research – learning all you can about a stock. This type of research is mostly a waste of time, especially the study of numbers and ratios. - Dick Davis
Tuesday, January 17, 2017 ... more
The media
As the Washington Post's Executive Editor, said in reflecting on the problem, "If you have a society where people can't agree on the basic facts, how do you have a functioning democracy?" Distorted pictures lead us to make bad decisions
Monday, January 16, 2017 ... more
Something to say?
I remember reading once that some fellows use language to conceal thought; but it's been my experience that a good many more use it instead of thought. A business man's conversation should be regulated by fewer and simpler rules
Friday, January 13, 2017 ... more
Selling: An analogy
Fred C. Kelly provides the best example I know of how the typical investor procrastinates when it comes to making a selling decision. A man has rigged up a turkey trap with a trail of corn leading into a big box with a hinged door
Thursday, January 12, 2017 ... more
Market timing
The costliest mistake 2% investors make is timing the market. They sell after losses and buy back only when the coast is clear. The problem is not just the money you leave on the table, these mistakes leave scar tissue that compounds in our brains
Wednesday, January 11, 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
What they said
The Reformed Broker Joshua Brown made a list of some of the smart things his friends said in 2016, amongst my favourites: Bulls make money, Bears make money, but investors without a flexible process get slaughtered. - Ari Wald (Oppenheimer)
Tuesday, January 10, 2017 ... more
Worry about
Most worst case scenarios for 2017 share a common theme that involves WMDs, a crippling Cyber Attack of some sort and something to do with Pyongyang or The Taliban. As horrific as these would be in retrospect it’s often something unpredictable
Friday, January 6, 2017 ... more
Alfred T Mahan
Contemporary investment strategists can profit from studying the lessons of Alfred Mahan says Charles Ellis in Lessons in Grand Strategy. A navy is by nature an attacking arm, and so is an investment portfolio
Thursday, January 5, 2017 ... more
Best & worst
Some of the best- and worst-performers in 2016: It was a particularly bad year for any currency called the pound; Brazil's Ibovespa stock index was the best performer in 2016; Natural gas was a standout, up more than 60% in 2016
Wednesday, January 4, 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
Giving advice to a driver from the backseat of a car is easy enough and for some enjoyable. Whether that individual is qualified to give advice is another issue. In the financial blogosphere and media there is an unending mass of backseat drivers
Tuesday, January 3, 2017 ... more
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