October - December 2020 articles archive home
Giants & windmills
When confronting something which may be either a windmill or an evil giant, what question should you be asking? There are some who ask, "If we do nothing, and that is an evil giant, can we afford to be wrong?" These people consider themselves brave and vigilant. Some ask "If we attack it wrongly, can we afford to pay to replace a windmill?"
Tuesday, October 27, 2020 ... more
Dead end?
“I personally think that indexation, which has really been a 20-25-year phenomenon in terms of raising assets and becoming unquestionably the dominant investment strategy, is just about ready to come to its end,” says Murray Stahl
Tuesday, October 27, 2020 ... more
Bias from liking distortion, including the tendency to especially like oneself, one’s own kind, and one’s own idea structures, and the tendency to be especially susceptible to being misled by someone liked, and not to learn from someone disliked.
Friday, October 23, 2020 ... more
Low value
The fundamental error in defaulting to low valuation is best explained if one imagines the stock market as a retail store. You speak to the salesperson and they say to you, “OK, we have 1000 different things you can buy. These 800? They’re all
Thursday, October 22, 2020 ... more
Quality is seductive. Few would complain if you labelled their business or strategy as ‘quality’. But as Mr Drucker (the father of modern management theory) points out it’s also elusive and ambiguous. You may know it when you see it,
Wednesday, October 21, 2020 ... more
How changed?
“It’s always tempting at a time of upheaval to imagine that society will be changed forever,” says Seth Klarman, CEO of the Baupost Group, in a letter to Limited Partners. “In the depths of the 2008-2009 financial crisis, it was easy to imagine
Tuesday, October 20, 2020 ... more
Long term
The problem in trying to value rapidly growing companies is that we can't really know whether the crisis has merely brought forward their future growth (which was arguably already embedded in investor expectations and thus in the stock price), or
Tuesday, October 20, 2020 ... more
Physician, Atul Gawande, in his commencement address at California Institute of Technology in 2016 noted that a belief in science, “has allowed us to nearly double our lifespan during the past century, to increase our global abundance, and to
Friday, October 16, 2020 ... more
Bag holders
I would submit the only reliable method of allocating capital — by either business operators or investment managers — is to know what one is allocating capital to. This seemingly obvious statement gets to another problem with indexing
Thursday, October 15, 2020 ... more
Does value investing still work? “We hold the view that value investing certainly works,” says Francis Chou in the Chou Funds Semi-Annual Report 2020, “but only when executed properly. Sometimes it is easier to blame the market than
Wednesday, October 14, 2020 ... more
Alpha & beta
Alpha and beta are two key coefficients in the capital asset pricing model used in modern portfolio theory. An asset's exposure to unsystematic risk is measured by its beta (β). Indicating whether it's more or less volatile than the market
Tuesday, October 13, 2020 ... more
Sigma etc
It would indeed be useful to know just how risky your fund is, but this number won’t tell you. Nor will any of the other quantities spewed out by the pseudoscience of finance: standard deviation, the Sharpe ratio, variance, alpha, correlation, value at risk
Tuesday, October 13, 2020 ... more
Daniel Kahneman famously remarked that if he had a magic wand that could change one thing about human psychology he would eliminate our superiority complex. Now new research by Joey Cheng, an assistant professor of psychology
Friday, October 9, 2020 ... more
vs gold
I am often asked if cryptocurrencies will replace gold. I highly doubt it. Yes, like gold, a cryptocurrency has a limited supply. However, cryptocurrencies in aggregate have unlimited supply. Since cryptocurrencies compete with
Thursday, October 8, 2020 ... more
If there were no booms and busts, no bear markets or wild bubbles, no unexplained sell-offs, and stocks casually drifted upward year after year, something inevitable would happen: Everyone would put all their money into stocks
Wednesday, October 7, 2020 ... more
“Let’s stipulate that neither I nor anyone else has privileged access to the future,” says Bill Miller in his Q2 letter to shareholders, “so no one knows for sure what is going to happen to stocks in the coming weeks and months. Still, there are some things that might help us sort through the differing opinions and probabilities. First, stocks go up most of time because the economy grows most of the time, about 70% for both time series.
Tuesday, October 6, 2020 ... more
Bull market
The problem with those who believe the market is disconnected with economic reality because the economic numbers still to come will be dreadful is that those numbers report the past and the market looks forward. The belief
Tuesday, October 6, 2020 ... more
Church going
Once I am sure there's nothing going on I step inside, letting the door thud shut. Another church: matting, seats, and stone, And little books; sprawlings of flowers, cut For Sunday, brownish now; some brass and stuff Up at the holy end; the small neat organ; And a tense, musty, unignorable silence, Brewed God knows how long. Hatless, I take off My cycle-clips in awkward reverence...
Friday, October 2, 2020 ... more
Midyear view
The policy revolution was essential. It is a near term positive for risk assets – but is unlikely to be the prelude to the type of policy-driven, decade-long bull market that followed the GFC. Rates are near their effective lower bounds
Thursday, October 1, 2020 ... more
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