April - June 2018 articles archive home
False consensus
People tend to evaluate their thoughts and behaviours based on other people. Consequently, what we believe is often heavily influenced by what we think others believe, and our interpretation of the social environment
Friday, June 29, 2018 ... more
Forget self
To make the greatest success it is necessary for the trader to forget entirely his own position in the market, his profits or losses, the relation of present prices to the point where he bought or sold, and to fix his thoughts upon the position of the market.
Thursday, June 28, 2018 ... more
One's not enough
In the first few editions of my book, I proclaimed price-to-sales to be the “King of Value Factors.” At the time, I only looked at individual factors and price-to-sales proved itself to be head-and-shoulders above all the others. With hindsight
Wednesday, June 27, 2018 ... more
“Ask an Englishman how wealthy someone is, and you’re likely to hear a response like, ‘He’s worth 20,000 per year,’ says William Bernstein. “This sort of answer usually confuses the less sophisticated, but it is an estimable response, because it says something profound about wealth: it does not consist of inert assets but, instead, a stream of income.
Tuesday, June 26, 2018 ... more
Earnings before interest, taxes, depreciation, and amortization - EBITDA - has become a popular standard by which to measure business performance. Listed companies use it on earnings calls to demonstrate achievement and some use it
Tuesday, June 26, 2018 ... more
Thinking less
Don’t always consider all your options. Don’t necessarily go for the outcome that seems best every time. Make a mess on occasion. Travel light. Let things wait. Trust your instincts and don’t think too long. Relax. Toss a coin. To thine own self be true
Friday, June 22, 2018 ... more
Not the shorts
Jamie Powell at FT Alphaville came out in support for the shorts this week after Elon Musk suggested in a letter to Tesla employees that they might be behind “a rat in the ranks who has conducted quite extensive and damaging sabotage
Thursday, June 21, 2018 ... more
Decision regret
One of the hardest parts of the decision-making process in most endeavours stems from the fact that you can’t simply run a simulation and create a decision tree to show how different decisions and variables would affect the outcomes
Wednesday, June 20, 2018 ... more
Have you ever seen those TV commercials for people selling gold? The sales pitch usually says something about the uncertainty of the global financial system, the risks of financial assets and the erosion of your purchasing power. But the weird thing is
Tuesday, June 19, 2018 ... more
3 myths
Cullen Roche at Pragmatic Capitalism has written a number of articles that challenge various myths about investing. Including the myths that investors in the stock market are in fact “investing”, that the stock market is a place you go to get rich
Tuesday, June 19, 2018 ... more
Anthony Bourdain, chef, travel host and writer, was found dead last Friday at age 61 in what CNN described as a suicide. Bourdain rose from what he called a low-level line cook in his late 30s to a celebrity TV host in one of the most memorable
Friday, June 15, 2018 ... more
At the extremes
There’s a strong tendency in the financial markets to live in the extremes. That is, we often draw a line in the sand. You’re either bullish or bearish. You’re in or you’re out. But like most things in life, the best place to be is often somewhere in the middle
Thursday, June 14, 2018 ... more
You know who made the most impactful mistakes leading up to the financial crisis? People with experience! You know who has made the most impactful mistakes since the financial crisis? I think you can see where I’m going with this
Wednesday, June 13, 2018 ... more
Big mistakes
In his new book, Big Mistakes: The Best Investors and Their Worst Investments, Michael Batnick recounts stories from the likes of Warren Buffet, Bill Ackman, Jack Bogle, John Maynard Keynes, Michael Steinhart
Tuesday, June 12, 2018 ... more
Not to be missed
A few things you might have missed last week: From the Economist, a case for owning euro-zone shares; from Bloomberg, Bernanke’s warning that the U.S. Economy faces a ‘Wile E. Coyote’ moment in 2020; from the Institute
Tuesday, June 12, 2018 ... more
Easy decisions
Many of the most successful people adopt simple, versatile decision-making heuristics to remove the need for deliberation in particular situations. One heuristic might be defaulting to saying no, as Steve Jobs did. Or saying no to
Friday, June 8, 2018 ... more
Volatility's not risk
Volatility-based frameworks are omnipresent. Portfolio risk is measured using Value-at-Risk (VAR) models that attempt to capture the volatility of a portfolio, and specify probable losses with varying degrees of statistical confidence
Thursday, June 7, 2018 ... more
Finding an advantage
Adding value involves forecasting changes in what Keynes called the state of long-term expectation. We do that by trying to narrow the cone of uncertainty that inevitably widens as one extends time horizons. Market prices reflect
Wednesday, June 6, 2018 ... more
Hard to face
Hard things for investors to deal with: New things, experts, optimism, chaos, emotions, the unexpected, being wrong, reality and indifference. Warren Buffet once famously opined that when the automobile was invented, the sensible investment
Tuesday, June 5, 2018 ... more
Always force yourself to move towards discomfort! Trading success cannot come from actions that make you comfortable. Buying or holding when stocks are high (because you cannot abide ‘missing the action’) is a comfort-seeking decision
Tuesday, June 5, 2018 ... more
Uncomfortable truth
Whether you vote or not will almost certainly have no influence on the outcome of an election. Nor will the amount of carbon you personally put into the atmosphere make a difference in the fate of the planet. And perhaps it really should be
Friday, June 1, 2018 ... more
PCM & Apple
In 2004, a hedge fund called Private Capital Management made a massive bet. They found a company they liked, and they decided to invest most of their portfolio in it. They had never made a bet this big... paying on average, about $12 a share
Thursday, May 31, 2018 ... more
Facts & beliefs
Facts and beliefs rule the markets but produce different effects. Facts are things that are. A fact affects everyone in the same way. Beliefs are ideas about facts, and only affect some people some of the time. It’s important to differentiate between them.
Wednesday, May 30, 2018 ... more
Turning quant
A question we should all be asking ourselves is whether we have the know-how to properly deal with risk. When it comes to knowing how much to bet on an outcome, for example, how many of us can come up with an answer?
Tuesday, May 29, 2018 ... more
Traders and quants are different species. Traders pride themselves on being tough and forthright while quants are more circumspect and reticent. These differences in personality are reflections of deeper cultural preferences. Traders
Tuesday, May 29, 2018 ... more
As things are
What was after the universe? Nothing. But was there anything around the universe to show where it stopped before the nothing place began? It could not be a wall; but there could be a thin line there all around everything ...
Friday, May 25, 2018 ... more
Every so often, not so rarely, prices change dramatically, and today prices move much more quickly and these changes are much more important. But it has always been like that. There are stories in the Merchant of Venice by Shakespeare
Thursday, May 24, 2018 ... more
Index funds
Today, index funds account for 43% of all stock fund assets, and are expected to reach 50% in the next three years. In total, there’s almost $7 trillion in U.S. funds that don’t have a manager actively evaluating its holdings. The problem
Wednesday, May 23, 2018 ... more
Looking back
In the first week of April 2000 some 8.4m shares in Scharrig Mining changed hands at between 14c and 15c a share. In November that year the company embarked on a share buy-back programme at more than twice that price. If our April buyers
Tuesday, May 22, 2018 ... more
Well chosen example
In his book The New Market Wizards Jack Schwager shared one of his pet peeves, “the well-chosen example”. A term that refers to a chart pattern or trading strategy that has been taken from an isolated scenario in the past and presented as though
Tuesday, May 22, 2018 ... more
The stock photograph of a smiling couple was meant, presumably, to bring comfort to the viewer. If the faux couple being paid to grin while staring slightly off to the right could be happy, so could you. ― Mandy Ashcraft
Friday, May 18, 2018 ... more
Half in
Why is it so easy to start with a half-sized position and then go full-sized later? What is later? Is it when the stock is down, and you get to average down? Or is it after the next positive quarterly earnings report, when the stock’s moved higher?
Thursday, May 17, 2018 ... more
de la Vega
Joseph de la Vega was a successful Jewish merchant, speculator, philanthropist, and poet. In 1688, he wrote "Confusion of Confusions," one of the first books on the subject of speculation. A great takeaway from the book
Wednesday, May 16, 2018 ... more
Mental models
In a famous speech in the ‘90s, Charlie Munger explained his approach to gaining practical wisdom. “The first rule,” he said, “is that you've got to have multiple models because if you just have one or two that you're using
Tuesday, May 15, 2018 ... more
Five popular myths that Ken Fisher debunks in his book, Debunkery: Learn It, Do It and Profit from it – Seeing Through Wall Street’s Money-Killing Myths: 1. Bonds are safer than stocks. People assume bonds circumvent short-term
Tuesday, May 15, 2018 ... more
Why live
At the beginning of his book, Enlightenment Now: The Case for Reason, Science, Humanism, and Progress, Steven Pinker tells the story of a student who, after a lecture, asked him, “Why should I live?” On realising that this was not a case of
Friday, May 11, 2018 ... more
Needs time
Names change. Industries change. Styles come in and out of fashion, but the underlying characteristics that identify a good investment remain the same. Each era has its own group of stocks that people flock to, usually those with the most intoxicating story
Thursday, May 10, 2018 ... more
I'd like you to imagine that at that time (March 1942) you'd invested $10,000 … in an index fund ... that $10,000 would now be worth $51m. And you wouldn't have had to do anything, you wouldn't have to understand accounting, you wouldn't have to
Wednesday, May 9, 2018 ... more
Against bubbles
If betting against bubbles, do it carefully,” warns John Authors “Note that this means departing from the 'Invisible Hand', as fund managers, who make up the vast majority of capital in stock markets, would follow their own interests
Tuesday, May 8, 2018 ... more
Shorting a bubble
A bubble will eventually pop. Does it make sense, then, to sell short? Not according to Rob Arnott , Shane Shepherd and Bradford Cornell at Research Associates. “Even when virtually assured an eventual profit,” they say
Tuesday, May 8, 2018 ... more
“Wisdom is a practical ability,” says Rolf Dobelli in his book The Art of the Good Life. “It’s a measure of the skill with which we navigate life. Once you’ve come to realise that virtually all difficulties are easier to avoid than to solve
Friday, May 4, 2018 ... more
A game
Graham Duncan, the co-founder of East Rock Capital says he’s interviewed and assessed thousands of investment managers and what he’s learnt in that process is what separates the great ones from the rest. “The great ones view it as a game
Thursday, May 3, 2018 ... more
Wrong question
Andy Tanner at Rich Dad says he’s constantly being asked if it’s a bad idea to buy stocks right now. His answer: “That’s the wrong question to ask. Here’s why: at every point in time, an investor can ask that. When you look at a chart in hindsight
Wednesday, May 2, 2018 ... more
Technical Analysis
There are thousands of difficult-to-understand mechanisms that lead the market, which come into play before the news reaches some poor trader sitting at his desk. But the one thing that does hit the market is a huge sale or purchase. Isn't that
Thursday, April 26, 2018 ... more
Smoke & mirrors
The magician distracts the eye with one hand while he does his manipulation with the other. Wall Street has mastered this move even beyond the wildest dreams of Houdini. Investors have become so mesmerized by the smoke and mirrors that
Wednesday, April 25, 2018 ... more
Simple & low risk
Joel Greenblatt has published several books on value investing. The Big Secret for the Small Investor published in 2011, was described by the Financial Time as The best book on the subject in years. It should be mandatory reading for all serious investors
Tuesday, April 24, 2018 ... more
From Joel Greenblatt
Many studies over the years have confirmed that value-oriented strategies beat the market over longer time horizons. Several different measures of value have been shown to work. These strategies include, but are not limited to, selecting stocks
Tuesday, April 24, 2018 ... more
We rarely recognize that most investment debates – debates that literally make markets – are just a reflection of people making different decisions not because they disagree with each other, but because they view investing with a different
Friday, April 20, 2018 ... more
Joseph effects – seven fat years here, seven lean years there – occurred when markets were evolving gradually and continuously. Noah effects were cataclysms – the Flood, or the week of September 11 2001, when the
Thursday, April 19, 2018 ... more
“I have two views on diversification,” says Warren Buffett. “If you’re a professional and have confidence, then I would advocate lots of concentration. For everyone else… participate in total diversification. But if
Wednesday, April 18, 2018 ... more
Market animals
Stock market analysts, commentators and other pundits have come to rely on the traits of familiar animals to describe the different “species” of market participants and capture the “animal spirit” that drives them – albeit, not always
Tuesday, April 17, 2018 ... more
Ducks, cats, dogs ...
A trader or investor who makes poor trades and ends up with heavy losses or is bankrupted by the market is considered a "lame duck”. The phrase, said to have originated from the London Stock Market during the 1700s, basically describes ineffective
Tuesday, April 17, 2018 ... more
Millionaire mindset
A special class of self-help gurus - none of whom were rich until they developed this particularly grift - have dedicated themselves to convincing people that if you only believe it, it can happen; that the main thing that separates the rich from the poor
Friday, April 13, 2018 ... more
Data analysis
There are limits to data and some people rely on it too heavily. Analysing it correctly is difficult, and it is dangerous to assume that you always know what it means. It is very easy to find patterns in data. Instead, think of data as one way of seeing
Thursday, April 12, 2018 ... more
You should be afraid of failure. I know. Everyone tells you to embrace failure, it's a wonderful thing. But, let's get real. Failure sucks.The goal in investing is never , and that means never, ever, to fail. The goal is to succeed
Wednesday, April 11, 2018 ... more
Hard truths
Some things that may be hard for investors to hear:If you think you’re contrarian, you’re much like everyone else. Your eyes might not lie, but your brain certainly does. Try as you might, you probably won’t beat the market
Tuesday, April 10, 2018 ... more
Markets lead
No discussion of the interrelation of stock prices and business conditions would be complete without emphasizing that in the clash of speculative forces on the exchange, emotions play a part which is not paralleled in commerce and industry
Tuesday, April 10, 2018 ... more
Moving Forward
I realized then that the universe is governed by laws, and that the human being, along with society itself, was not exempt from these laws. Then came the crash of 1929, which began with what we now call "The Great Depression." I found it difficult
Friday, April 6, 2018 ... more
Going up
It is a fair thing to say of a piston, an elevator, or a golf ball at a certain moment that it is "going up." This suggests not only that it has been going up, but that it will probably continue to go on up, for a little time at least, because whatever impulse started it
Thursday, April 5, 2018 ... more
Long term
From 1928-2017, the S&P 500 showed an annualized average return of roughly 9.6% per year. From 2009-2017, the S&P 500 showed an annualized average return of roughly 15.1% per year One of these data points is unsustainable
Wednesday, April 4, 2018 ... more
Where next?
This was the quarter when investors were reminded that stocks don't go up forever. Some of the optimism that has carried the U.S. market higher and higher came to an end in the last three months. It was a turbulent quarter that featured
Tuesday, April 3, 2018 ... more
Robo Bear
South Africa’s first machine-learning powered asset manager – NMRQL Research – said yesterday that the aggregate Uncertainty Metric of its investment algorithms was at levels only seen a handful of times historically
Tuesday, April 3, 2018 ... more
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