January - March 2018 articles archive home
Daniel Kahneman says he doesn’t invest in stocks because he feels he is genetically wired to be pessimistic. In his book, The Undoing Project: A Friendship That Changed Our Minds, Michael Lewis reveals that while Kahneman is a pessimist
Thursday, March 29, 2018 ... more
Why we believe
People listen to financial forecasts because: 1) The stakes are high. An accurate investment forecast can earn or cost you a fortune. Your future goals could depend on it. 2) Markets and economies are confusing. Why things happen is often unknown
Wednesday, March 28, 2018 ... more
Machine learning
There is a lot of buzz around the emerging technologies of artificial intelligence and machine learning — so much so that these terms often get used interchangeably. Even “robotics” gets thrown in the mix. But what does each really mean, and how are they related?
Tuesday, March 27, 2018 ... more
Investors wanting to future-proof their portfolio should take a look at Robotics, Automation, and Artificial intelligence (RAAI). The multi-decade transition to advanced robotics is still in its infancy, but the ingredients for a major breakthrough
Tuesday, March 27, 2018 ... more
The big error with information has been mistaking the container for the content. When we started turning information into a product post-Gutenberg, it was easy to think that the product was the book; dealing with it like other manufactured goods
Friday, March 23, 2018 ... more
In his 1997 book, You Too Can Be A Stock Market Genius, Joel Greenblatt made one thing perfectly clear: ““The facts are overwhelming, stocks of spinoff companies significantly and consistently outperform the market averages.”
Thursday, March 22, 2018 ... more
Can't sleep
Things they’ve said that keep me awake at night: There is nothing new in Wall Street (everything's been done before); You are the easiest person to fool; your own thoughts are not your own, and; he who lives by the crystal ball soon learns to eat ground glass
Tuesday, March 20, 2018 ... more
Have to wait
As long as no one cares there is no trend. You can’t be short just because you think fundamentally something is overpriced … all you can do is wait until people start to care. You want to be selling at 4,000, but only after it has gone to 5,000
Tuesday, March 20, 2018 ... more
The first psychological fallacy regarding risk is the tendency to overvalue wagers involving a low probability of a high gain and to undervalue wagers involving a relatively high probability of low gain. The second is a tendency to interpret
Friday, March 16, 2018 ... more
The latest scientific research on dopamine has implications for investors. First, it shows that our brains love long shots. The less likely or predictable a reward, the more active our dopamine neurons become and the longer they fire
Thursday, March 15, 2018 ... more
Where to look
Five Places to Search for Hidden Profits: 1. Cyclical Businesses – Where there are no structural issues affecting the company, but the business is deeply cyclical. At the low point in the cycle, the company’s then-current profit levels will be
Wednesday, March 14, 2018 ... more
Q & A
Q: Why is stock market investing so difficult? A: [Because] it mixes high stakes with strong emotions, intelligence with luck, and long-term innovation with short-term trading. – Morgan Housel.
Tuesday, March 13, 2018 ... more
The battleground is no longer having access to information. That was yesteryear’s investing. Today’s investing is about asking the right question. You’re no longer going to be a good database. You’re going to be a good search engine
Tuesday, March 13, 2018 ... more
According to Hugh Thomas, author of 'A History of the World', the greatest medical advance in history has been garbage collection. The greatest psychological advance in history is just around the corner and will also have to do
Friday, March 9, 2018 ... more
Going short
When you are long on a stock, as it goes down in price, the position is going against you and it becomes a smaller portion of your portfolio. In shorting, it is the other way around: if the short goes against you, it is going to become a larger position
Thursday, March 8, 2018 ... more
In investing, you want to do something that no one else is doing or that very few others are doing. But not just because there is no one else is doing it, but also because it makes sense to do. Value has worked historically because it is
Wednesday, March 7, 2018 ... more
Austin Edwards, writing in the Motley Fool, noted that whereas most of us turn to sulking, worrying, and even panicking when things go sour, the tougher, smarter, and more successful people do something different when things go wrong
Tuesday, March 6, 2018 ... more
Why now
Something worth remembering when you ask yourself: Should I buy now or wait for better days? In 2012 Matt Koppenheffer warned, in the Motley Fool, that keeping $100,000 out of the market, could end up costing you almost $200 per day
Tuesday, March 6, 2018 ... more
Bad ideas
I'm very busy destroying bad ideas because I keep having them. It's hard for me to just single out one from such a multitude. But I actually like it when I destroy a bad idea because... I think it's my duty to destroy old ideas. I know so many people
Friday, March 2, 2018 ... more
The bright continent
Africa has long been the Cinderella of the so-called Emerging Markets. But there are now three short-term trends in play to the benefit of the leading African markets in 2018. One: African nations – together with other EMs – are benefiting
Thursday, March 1, 2018 ... more
2018 letter
In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on net tangible assets needed to operate the business; opportunities for internal growth
Wednesday, February 28, 2018 ... more
Magic formula
If someone offered you a magic formula for making ‘easy’ money in the market, would you use it? Would you even bother to look at it? Or, would you look at it and try to improve on it? And what would that tell us about investors’ response to a sure thing?
Tuesday, February 27, 2018 ... more
Abstract concept
An investor who is looking to buy undervalued stocks might select one with a low price-earnings ratio. The implicit hope is that the price will rise such that its price-earnings ratio will rebound to a level more in line with its peers. However, research
Tuesday, February 27, 2018 ... more
Need to reframe
Global warming is… like the extinction problem: If you don’t have a way of reversing it, then you’re fighting a losing battle. Whether it’s solar panels, or not using your SUVs as much, or having smaller houses
Friday, February 23, 2018 ... more
Mark Mobius
After retiring from Franklin Templeton last month, Mark Mobius, who will be 82 in August, announced this week that he has applied to launch a new fund aiming to bring ESG improvements to companies in the developing world
Thursday, February 22, 2018 ... more
The first type of bubble is what might be called the “Fad” or the “Mania.” This is truly a bubble of belief. In this type of bubble, people really do believe that this time is different, that a new era has been begun. These are the great bubbles of history
Wednesday, February 21, 2018 ... more
Ad hoc explanations
An Ad hoc explanation isn't an explanation. It’s a way of coming up with a story that “fits” what’s happened, usually without any evidence that it's correct. Jane is dating Joe, who is very much like her. Jane’s friend explains the pairing by saying
Tuesday, February 20, 2018 ... more
Markets don't know
Especially during downdrafts, many investors impute intelligence to the market and look to it to tell them what’s going on and what to do about it. This is one of the biggest mistakes you can make ... Market participants have limited
Tuesday, February 20, 2018 ... more
Reason to doubt
George Orwell, identified the problem in Politics and the English Language in 1946 when he wrote that political language “is designed to make lies sound truthful” and consists largely of “euphemism, question-begging and sheer cloudy vagueness.”
Friday, February 16, 2018 ... more
Learning to lose
Apparently people have at least some knowledge about making money in the markets. However, since most people have lost more money than they have made, it is equally apparent that they lack knowledge about not losing money
Thursday, February 15, 2018 ... more
Risk & reward
The years ahead will occasionally deliver major market declines – even panics – that will affect virtually all stocks. No one can tell you when these traumas will occur – not me, not Charlie, not economists, not the media. Meg McConnell aptly describes
Wednesday, February 14, 2018 ... more
Sitting in cash
In hindsight, sitting in cash waiting for a correction wasn’t the smartest thing you could have done over the last few years. But that’s with the benefit of hindsight. As the saying goes, good decisions can lead to bad outcomes
Tuesday, February 13, 2018 ... more
Bad news bears
If this seems unlikely Keep in mind the correlation between unemployment and credit panics with bear markets. Other contingencies may not be as correlated, but the odds of them happening when the stock market is down are still positive
Tuesday, February 13, 2018 ... more
Ben Carlson at a Wealth of Common Sense says that, while both are necessary components for long-term success, it’s important to understand the difference between investment management and financial advice.
Friday, February 9, 2018 ... more
Academics, Lu Zhang, Kewei Hou and Chen Xue published a paper last year that challenges much of the research on market “anomalies.” Titled Replicating Anomalies, it is the result of nearly three years spent compiling and replicating
Thursday, February 8, 2018 ... more
Why do cycles occur? Why doesn’t the U.S. economy just grow at the average rate of 2-3% every year? And since the average return on the S&P 500 is in the range of 9-11%, why isn’t the return between 9% and 11% every year and why does
Wednesday, February 7, 2018 ... more
Cryptos crash
Schadenfreude - the pleasure or self-satisfaction that comes from learning of or witnessing the failure or humiliation of others – is something many a “wise” investor will have experienced as the cryptocurrency market came crashing down last week.
Tuesday, February 6, 2018 ... more
Bubbles are OK
Investors who lost a pile of money in the 2008 crash will find it hard to agree but at the time Sumit Paul-Choudhury, technical editor at New Scientist magazine, wrote a piece in which he argued that speculative bubbles are a good thing.
Tuesday, February 6, 2018 ... more
Minority rule
Whereas we tend to think that markets are the result of aggregated preferences, actually, a small minority of people who veto something can have a surprisingly large effect on a marketplace if the people who are non-vetoers are happy
Friday, February 2, 2018 ... more
Whenever a shocking event occurs we rush to find the wise few who saw it coming, anoint them oracles, and ask them to reveal what will come next. It’s an understandable reaction to surprise and uncertainty. It’s also an embarrassing failure
Thursday, February 1, 2018 ... more
No idea
The four most important words in investing are probably, 'I have no idea.' I have no idea what the market will do next. I have no idea if we'll have a recession this year. I have no idea when interest rates will rise. I have no idea what the Fed will do
Wednesday, January 31, 2018 ... more
At Davos 2018
Scott Minerd the investment chief at $242 billion Guggenheim said in a letter from Davos that he’s troubled by the euphoria. “Two years ago, when I last attended, a growing consensus saw the global economy at the brink of recession,” wrote Minerd
Tuesday, January 30, 2018 ... more
A non-paradox
As Branko Milanovic points out, the plutocrats at Davos who preside over massive inequality “speak the language of equality, respect, participation, and transparency … are loath to pay a living wage, but will fund a philharmonic orchestra
Tuesday, January 30, 2018 ... more
Can't fail
Complex systems don't have causes. There are just patterns and at any point one's state of health can move randomly onto a new path. It is not the particular path that one should think about. You move over an ensemble of possible paths
Friday, January 26, 2018 ... more
It’s earnings that count one need only compare total stock market returns over the past 130 years with the returns created by corporate earnings growth and dividend yields to see the truth of that statement. While in the short run stock prices may
Thursday, January 25, 2018 ... more
Being wrong
The odds are that an investor's great ideas will lose money. As such, before you invest a cent, it is imperative to have a plan of action as to what you will do if you find yourself in a losing position. When losing, the successful investors
Wednesday, January 24, 2018 ... more
… Stanley Druckenmiller: ”It takes courage to be a pig.” I’m here to tell you I was a pig. And I strongly believe the only way to make superior long-term returns in our business
Tuesday, January 23, 2018 ... more
In a letter to a business associate in1934 John Maynard Keynes showed how, in addition to favouring long term investments, he liked to limit these to a small number of enterprises. “As time goes on,” he wrote, “I get more and more convinced
Tuesday, January 23, 2018 ... more
The luck of being born in the first place—the ratio of how many people could have been born to those who actually were—is incalculably large, not to mention the luck of being born in a country with a stable political system, a sound economy
Friday, January 19, 2018 ... more
Extensive analysis requires time, energy, and motivation. As a consequence, its impact on our decisions is limited by the rigor it requires. If we don’t have the wherewithal to think hard about a choice, we’re unlikely to deliberate deeply
Thursday, January 18, 2018 ... more
The problem of “p-hacking,” or dredging through an ocean of data until you find a pattern you can present as statistically significant, is endemic to research in finance. You should approach all claims of market-beating patterns with extreme scepticism
Wednesday, January 17, 2018 ... more
Adapted extracts from last year’s Q2 & Q3 Hedge Fund letters that might impact on your thinking for 2018 … From IP Capital Markets: “Among the companies with the highest share price increases in the past twelve months, we unsurprisingly
Tuesday, January 16, 2018 ... more
Rate of return
From an NBER paper published in December by Òscar Jordà, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan M. Taylor, The rate of return on everything. This paper answers fundamental questions that have preoccupied
Tuesday, January 16, 2018 ... more
Capitalism, with its reliance on endless GDP growth – on ever-increasing levels of extraction and production and consumption - is in need of an upgrade. Unfortunately, it has become a dogma, and dogmas die very slowly and very reluctantly
Friday, January 12, 2018 ... more
What to read
“The advent of financial news TV mastered the art of saying a tremendous amount of something when nothing needs to be said,” says Morgan Housel at Collaborative Fund. Here is his advice for making sense of the overwhelming financial content
Thursday, January 11, 2018 ... more
From Sam Zell
Conventional wisdom is nothing to me but a reference point. In fact, I believe it can be a horribly debilitating concept. I spend almost my entire day listening to other people, I ask questions, I probe, I raise possibilities, and if something's not clear
Tuesday, January 9, 2018 ... more
The rating agencies
The rating agencies remind me of the department of motor vehicles in that they are understaffed and don’t pay enough to attract the best and the brightest. The market perceives the rating agencies to be doing much more than they actually do.
Monday, January 8, 2018 ... more
Enemy of freedom
In a society in which nearly everybody is dominated by somebody else's mind or by a disembodied mind, it becomes increasingly difficult to learn the truth about the activities of governments and corporations, about quality or value
Friday, January 5, 2018 ... more
3 techies
To succeed as a trader, one needs complete commitment… Those seeking shortcuts are doomed to failure. And even if you do everything right, you should still expect to lose money during the first five years. These are cold, hard facts
Thursday, January 4, 2018 ... more
Traditional systems often get mocked for being slow. T+3, for example, means that if you sell a stock the cash will only appear in your account three days after the trade. In an age where mail is delivered in milliseconds, this seems terribly old fashioned
Wednesday, January 3, 2018 ... more
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