April - June 2017 articles archive home
Be wrong
According to Ray Dalio: “People are so attached to being right, and yet could so easily find out how they’re wrong. If they just said to themseves, ‘I’m not sure that I’m right, and let me go find people who have alternative point of views.’
Friday, June 30, 2017 ... more
Complex process
Friedrich Hayek said economic knowledge is never fully possessed by a single individual, but consists in dispersed and fragmentary titbits across thousands of people. This, he thought, was why centrally planned economies couldn't
Thursday, June 29, 2017 ... more
We might have long suspected that psychopaths congregate in business schools; that the more empathy-challenged among us are drawn to the corporate realm and tend to end up in senior management roles. And last year an Australian study
Wednesday, June 28, 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
The Big Board
The name of the book was The Big Board … It was about an Earth-ling man and woman who were kidnapped by extra-terrestrials. They were put on display in a zoo on a planet called Zircon- 212. These fictitious people had a big board
Tuesday, June 27, 2017 ... more
Ovarian lottery
Just imagine that it is 24 hours before you are born. A genie comes and says to you in the womb, you're going to emerge in 24 hours and it is an enormous responsibility I am going to assign to you — determination of the political, economic and social system into which you are going to emerge.
Friday, June 23, 2017 ... more
Rating agencies
The market perceives the rating agencies to be doing much more than they actually do. The agencies themselves don’t directly misinform the market, but they don’t’ disabuse the market of perceptions – often spread by the rated entities – that the agencies do more than they actually do.
Thursday, June 22, 2017 ... more
Research findings
Our paper explores the effects of behavioural biases, namely, disposition effect, herd behaviour, availability heuristic, gambler's fallacy and hot hand fallacy, on the mechanism of stock market decision-making, and, in particular
Wednesday, June 21, 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
Small advantage
While it might be true that there are advantages to being “small”, as the following extract from a report by Credit Suisse economists shows it’s hard to imagine how just being “small” could compensate for what the “big boys” bring to the game
Tuesday, June 20, 2017 ... more
The stock market is one of the world’s great aggregators of information. Scholars have been documenting its remarkable ability to sniff out and assess information about companies. Market prices react to news with staggering quickness
Thursday, June 15, 2017 ... more
Probably not different
It appears that asset markets are priced as if secular stagnation were a certainty. Certainty is a dangerous assumption when it comes to investing. As Voltaire stated, “Doubt is not a pleasant condition, but certainty is absurd.”
Wednesday, June 14, 2017 ... more
An issue of trust
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. Less trusting individuals
Tuesday, June 13, 2017 ... more
On the issue of trust …

… Stocks are traded based on information. And much of the trading that's done on the stock market is based on the financial results audited by the big accounting firms.
Tuesday, June 13, 2017 ... more
Problem with School
[Thankfully] most of what we learn before, during, and after school is learned without its being taught to us. A child learns how to walk, talk, eat, dress, and so on without being taught these things. Adults learn most of what they use at work or at leisure while at work or leisure.
Friday, June 9, 2017 ... more
Perma bulls & bears
No one knows what’s going to happen in the future, and there are people that look at both sides of an argument and make their decisions using realistic probabilities. The problem is that they tend to get drowned out by overconfident prognosticators
Thursday, June 8, 2017 ... more
Trouble with cash
If you view cash as simply a residual - what is left after making positive, “real” investments it makes sense to hold cash from time to time. Cash can play a number of roles but in the end they all bump up against the hard math of low returns.
Wednesday, June 7, 2017 ... more
Buffett vs academia
On the offensive is Michael Jensen, an influential University of Rochester professor, who’s there to stump for efficient markets, a near-unanimous academic consensus. On the defensive is Warren Buffett, Graham’s famous disciple
Tuesday, June 6, 2017 ... more
Research: How reliable?
April has historically been a good month for stocks, with the first two weeks in particular standing out. But looking at monthly returns going back to 1926, April is only the third best performing month, with an average growth of 1.5%.
Tuesday, June 6, 2017 ... more
Not dangerous
So-called thinking machines do not exist in nature. They are not created by evolution, competing to survive and reproduce. Life mostly seeks to sustain life, and so living things care about what happens. But computers don't care about anything.
Friday, June 2, 2017 ... more
For an investor who just began paying attention to markets in the last ten years, the extent of their context is that the S&P 500 is the only game in town, it always goes up, and dollars invested in anything else are wasted. Look out past this period however
Thursday, June 1, 2017 ... more
Plunge Protection Team
Renowned U.S. investor Asher Edelman was on CNBC’s Fast Money last week rehashing the old story about how a “Working Committee on Markets”, known as the Plunge Protection Team, established under President Reagan to” stabilise” markets
Wednesday, May 31, 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. It’s safer to assume
Tuesday, May 30, 2017 ... more
Bulls & risk
In bull markets – usually when things have been going well for a while – people tend to say ‘Risk is my friend. The more risk I take, the greater my return will be. I’d like more risk, please.’ The truth is, risk tolerance is antithetical to successful investing.
Tuesday, May 30, 2017 ... more
@ Meetings
Adapted from the Cooper Review, 10 things you can do to make yourself look smart in meetings: 1. Draw a Venn diagram. It doesn’t matter if it’s wildly inaccurate, in fact the more inaccurate the better. Even before you put that marker down, your colleagues will begin fighting about what exactly the labels should say, how big the circles should be, etc.
Friday, May 26, 2017 ... more
Last column
Jim Gallagher, who wrote a financial column for the St Louis Post-Dispatch for 23 years, had this to say in his final column:

Crack a book. It’s smart to study money. It will make you richer and harder to fool
Thursday, May 25, 2017 ... more
To be contrarian
Five prerequisites for being a contrarian investor: An inherent scepticism - the ability to question everything; The ability to understand history - its bubbles and mania; Understanding that simply saying something is a bubble
Wednesday, May 24, 2017 ... more
Sosnoff at Summit
The Exchange Africa: Trader Summit, held in Sandton, brought together a diverse group of traders to listen to a great line-up of speakers. The highlight of the afternoon though was online innovator and financial educator, Tom Sosnoff
Tuesday, May 23, 2017 ... more
Think about robo-advisors, think about automated trading, with the hundreds of millions of dollars, we could argue into the trillions of dollars, that are out there seeking minimal returns – the global return for risk-free [investments] is virtually zero
Tuesday, May 23, 2017 ... more
Never painless
So, if we can put a man on the moon, surely we can improve financial education enough to convince all investors to stop making poorly timed, ill-informed, and emotionally driven investment decisions. Right? “Wrong,” says Morgan Housel
Thursday, May 18, 2017 ... more
Can't unlearn
unlearning is not how life works. We don’t unlearn first, and then learn something new. Life is always engaged in learning. Period. Whether we are conscious humans or wondrously adaptive bacteria, we are always engaged in taking in information
Thursday, May 18, 2017 ... more
Benoit Mandelbrot in his book The (mis)Behavior of Markets talks about the emotional scars left on those who lived through the Great Depression: In the '60s, some old-timers on Wall Street – the men who remembered the trauma of the 1929 Crash
Wednesday, May 17, 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
In his book, The Art of Execution, portfolio manager Lee Freeman-Shor tells how he invested over a billion dollars with forty-five top investors. There was just one rule: They could only invest in their ten best ideas.
Tuesday, May 16, 2017 ... more
Need to lie
Make no mistake: Pathological dishonesty is harmful … but dishonesty isn’t a categorical evil in practice. Not only is it minimally problematic in small doses, but most of us know how it can even be useful, as the phrase “white lie” indicates.
Friday, May 12, 2017 ... more
From David Einhorn
For years I believed that I didn't need to take a view on the market or the economy because I considered myself to be a ‘bottom up’ investor. Having my eyes open to the big picture doesn't mean abandoning stock picking, but it does mean
Thursday, May 11, 2017 ... more
When wrong
One of the hardest parts of investing is finding the balance between riding out periods temporarily unfavourable to your views [and] realising your views are wrong and moving on. It's the difference between patience and stubbornness
Wednesday, May 10, 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
Not for him
“Am I the only value investor who thinks that going to Warren Buffett's annual shareholder meeting is a waste of time?” Asks Evan Bleker at metnethunter.com. “It's not because so many value investors get sucked into the Warren Buffett trap,” he says
Tuesday, May 9, 2017 ... more
Freud was fond of explaining the ego by way of analogy – our ego was the rider on a horse, with our unconscious drives representing the animal while the ego tried to direct it. Modern psychologists tend to use the word “egotist” to refer to someone
Friday, May 5, 2017 ... more
“Not all common stocks are equally common,” said Peter Lynch in a direct attack on the efficient-market dart board method of stock picking. Lynch went on to point out that smaller companies are totally ignored by most funds
Thursday, May 4, 2017 ... more
Nothing new
In 1688, Joseph de la Vega, a successful Dutch merchant, wrote Confusion De Confusiones, one of the earliest known books on stock trading. In the book he vividly describes excessive trading, over-reaction, under-reaction, and
Wednesday, May 3, 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
Market timing
Market timing gets a bad rap for good reason: it’s usually unsuccessful, says David Ott at Alpha Architect. As he then goes on to explain: “In 1966, Jack Treynor and Kay Mazuy were among the first academics to formally address whether
Tuesday, May 2, 2017 ... more
In progressive societies the concentration [of wealth] may reach a point where the strength of number in the many poor rivals the strength of ability in the few rich; then the unstable equilibrium generates a critical situation
Friday, April 28, 2017 ... more
Yale's outperformance
Yale University, one of the best-performing college endowments, defended the fees it pays to external managers, saying in an annual investment report that a low-cost passive strategy would have “short changed’’ the Ivy League school’s
Wednesday, April 26, 2017 ... more
From Morgan Housel - Pt2
Why Some Investors must fail.There is an unbreakable rule of financial markets: Some investors must fail. No amount of technology or education will change this. [And] It’s a question of perspective. Almost nothing in finance is clean cut
Tuesday, April 25, 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. According to … J.P. Morgan, 40% of stocks have suffered catastrophic
Tuesday, April 25, 2017 ... more
People don’t like detours. Throughout the world we search for the fastest route, the closest parking spot — we optimize. Incremental modification, followed by evaluation and readjustment, guides us to solutions that maximize a desired criterion.
Friday, April 21, 2017 ... more
Only a few
A lot of very smart people set out to do better than average in securities markets. Call them active investors. Their opposites, passive investors, will by definition [always] do about average - approximating those of an index fund.
Thursday, April 20, 2017 ... more
Over the 15 years ended in December 2016, 82% of all U.S. funds trailed their respective benchmarks, according to the latest S&P Indices Versus Active funds scorecard. This was the first year that the analysis included 15 years of data
Wednesday, April 19, 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
Words & phrases
Words and phrases only Wall Streeters understand:

"A clowngrade" When a sellside analyst upgrades or downgrades a stock for a stupid reason. As in "You see that Guggenheim analysts' Twitter clowngrade?
Tuesday, April 18, 2017 ... more
Any Holiday which starts with a “Good Friday” can’t be all bad.

Santa Claus and the Easter Bunny should take a few pointers from the mutual-fund industry. All three are trying to pull off elaborate hoaxes. But
Thursday, April 13, 2017 ... more
Fundamental vs technical
For value investors, fundamentals lead, and prices follow, albeit noisily. For technical investors, prices lead - fundamentals are not the core driver of stock movements. Contrast the technical analyst with the fundamental analyst
Wednesday, April 12, 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
Stops: How & where
The simplest way to avoid a large loss is to have a stop-loss order in place. The simplest of these are the fixed price stop and the trailing percentage stop. The problem with both, however, is deciding what price or percentage to use
Tuesday, April 11, 2017 ... more
People talk about the dangers of rose-coloured glasses, but let me tell you, the lenses of self-doubt are far worse. They are nasty. Thick and filthy… they’re covered in swamp scum and mould - there’s like a family of snails living on them. And they’re nearly impossible to see past…
Friday, April 7, 2017 ... more
Scared money
You have probably heard professional traders warn about trading with “scared money.” According to Mark Douglas at The Disciplined Trader, “In the market, the fear of losing one’s fortune is every bit as intense as the fear of losing one’s life
Thursday, April 6, 2017 ... more
EMs outperform
By the end of last week developing-market equities had achieved a 12.4% return this year, twice that of developed stocks. Their best start to a year since 2012. A gauge of local-currency emerging-nation bonds was up 7.4%
Wednesday, April 5, 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 that is. Specialists in behavioural finance have sketched out some of our more persistent mental mistakes
Tuesday, April 4, 2017 ... more
Lizard brain
Evolution created the amygdala’s instinctual survival flight response for lizards to avoid hungry hawks and humans to flee ferocious beasts. It’s a part of our selves that’s come to be known as the “lizard brain.” And while over time the threat of being eaten
Tuesday, April 4, 2017 ... more
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