tag:blogger.com,1999:blog-40576853796275683452024-02-02T10:08:23.244-08:00Psychology and InvestingBlog and Discussion on the Psychology of Investing & Trading, Personal Development as an Investor, Reviews of Books on Investing.
#investment, #trading, #stocks, #market, #spy, #qqq, #dow, #investor, #trader, #money, #psychology, #psychAnonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.comBlogger29125tag:blogger.com,1999:blog-4057685379627568345.post-68945389621563270552015-11-08T19:05:00.000-08:002015-11-08T19:05:30.293-08:00Australian Property and Dire Straits! How being a contrarian saves you from crazy bad IPO's<br class="Apple-interchange-newline" /><span style="background-color: white; color: #404040; font-family: Roboto, arial, sans-serif; font-size: 13px; line-height: 18.2px;">Australian Property and Dire Straits! How being a contrarian saves you from crazy bad IPO's</span><br style="background-color: white; color: #404040; font-family: Roboto, arial, sans-serif; font-size: 13px; line-height: 18.2px;" /><a class="ot-anchor aaTEdf" dir="ltr" href="https://www.intelligentinvestor.com.au/heres-proof-property-has-peaked" jslog="10929; track:click" rel="nofollow" style="background-color: white; color: #427fed; cursor: pointer; font-family: Roboto, arial, sans-serif; font-size: 13px; line-height: 18.2px; text-decoration: none; transition: color 0.218s;" target="_blank">https://www.intelligentinvestor.com.au/heres-proof-property-has-peaked</a><span style="background-color: white; color: #404040; font-family: Roboto, arial, sans-serif; font-size: 13px; line-height: 18.2px;"></span><br />
<span style="background-color: white; color: #404040; font-family: Roboto, arial, sans-serif; font-size: 13px; line-height: 18.2px;"><br /></span>
<span style="background-color: white; color: #404040; font-family: Roboto, arial, sans-serif; font-size: 13px; line-height: 18.2px;">Property tops.... Australian Economy drops .... Bank default rates increase .... Aus banks cut dividends ....</span><br />
<span style="background-color: white; color: #404040; font-family: Roboto, arial, sans-serif; font-size: 13px; line-height: 18.2px;">Aus banks drop. No saving from China this time!</span>Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-22311005587384280192015-07-29T21:21:00.000-07:002015-07-29T21:21:04.922-07:00Macau/China's Fragility<div class="p1">
<span class="s1">I had not been to Macau in two years even though it's only 50 miles away, but as evident today, they are still building at their fastest rate including an Eiffel Tower in third or half scale, a Colossus, and a Massive land reclamation. I see probably a dozen mega casinos being worked on still. Macau loves creating Fragility!</span></div>
<div class="p1">
<span class="s1">Or is it just another big Gamble!?</span></div>
<div class="p2">
<span class="s1"></span><br /></div>
<br />
<div class="p1">
<span class="s1">8 years ago this was a quant Portuguese - local Chinese mix with great food and meandering back alleys. All gone except a few of the restaurants. </span></div>
<div class="p1">
<span class="s1"><br /></span></div>
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Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-16363869957530000782015-06-04T22:05:00.000-07:002015-06-04T22:05:09.620-07:00Where is the Optimism in the economy or stock markets?<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEisD6VxuMezEWTKv4opuRWzaCtCU6SUYNadIPmI-jiROZRtKIFeEZnVh8uf7He6Z9EpuDdWOkOslAuWS5I1iaVd2RjvetJV9FJTWzs-oLEl9nqW25KcsnUMOIkhClehDeM50Tip4HT6mD0/s1600/8efc0e3ca273984007055385e1a4eb42.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="228" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEisD6VxuMezEWTKv4opuRWzaCtCU6SUYNadIPmI-jiROZRtKIFeEZnVh8uf7He6Z9EpuDdWOkOslAuWS5I1iaVd2RjvetJV9FJTWzs-oLEl9nqW25KcsnUMOIkhClehDeM50Tip4HT6mD0/s320/8efc0e3ca273984007055385e1a4eb42.jpg" width="320" /></a></div>
<br />
<br />
Morgan Stanley recently produced a report saying that there have been net OUTFLOWS in equities from 2010-2015 essentially, EVEN AS THE SPX rose as much as it has.<br />
<br />
(see chart of equity flows since 2010 in particular - with few inflow weeks since then).<br />
http://www.businessinsider.com/us-equity-mutual-fund-inflows-2014-8<br />
<br />
http://www.morganstanleyfa.com/public/projectfiles/a4da036b-5f43-4891-a27d-ee518764b497.pdf<br />
http://marketrealist.com/2015/04/us-equities-consolidate-current-levels/<br />
<br />
<br />
Recently the data has included some net inflows into the ETFs and equity market especially when a new high in SPY is hit, but also into high yield bonds!<br />
<br />
To me i would ask WHERE IS THE OPTIMISM SO FAR? I say nil to minimal. <br />
<br />
My Reason: Even if the trend of inflows into equities continues we are just at the beginning of optimism, but there is still<br />
a search for yield/risk aversion leading to bond inflows at the same time somewhat negating that.<br />
<br />
I think it will be interesting if this trend is a crossover point ... TBA i guess? But I am still bullish stocks, and bearish bonds.<br />
<br />
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<br />Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-33817403105780144332015-04-13T08:18:00.001-07:002015-04-13T08:20:17.780-07:00Will the Chinese RMB replace the USD as reserve Currency?<br />
<a class="bbcode_url" href="http://blog.mpettis.com/2015/04/will-the-aiib-one-day-matter/" rel="nofollow" target="_blank">blog.mpettis.com/2015/04/will-the-aiib-one-day-matter/</a><br />
<br />
An excellent, though long post by Michael Pettis from his blog, where he begins to look at the new AIIB, and continues with a review of past challenges for reserve currency status. Particularly the section from the following paragraph through to the end is an excellent review of history, and likely modern parallels. <br />
<br />
<em>"There have been four times in the past 100 years, in other words, in which we were more or less certain (absolutely certain in the cases of the US in the 1920s and Japan in the 1980s, very certain about the USSR in the 1950s, and arguably certain about Germany in the 1930s) that a country would become the dominant economic and geopolitical power, and only once did this turn out to be true. Anyone old enough to remember the 1980s will remember that we were even more certain about Japan’s rise in the 1980s than we are about China’s rise today, but in the Japanese case, as in every other case, we were flabbergasted by how difficult the economic adjustment turned out to be, which suggests at the very least that we might want to wait to see how Beijing manages China’s rebalancing before we insist that this time is indeed different." (continues to the end of the blog).</em><br />
<em></em><br />
The question is not whether China can force this to occur, or even when. But there are serious challenges that they must face for quite some time before the RMB can even vie for equal footing with the USD. The only time in history where reserve currency status actually changed, essentially took 40 years of USA economic leadership first, and 2 World Wars with the resulting economic decline of England.<br />
<br />
It reminded me of a blogpost I made comparing Japan in their bubble years to the US.<br />
<a href="http://investingpsychologyblog.blogspot.com/2014/11/kamikaze-capitalism-its-correlation-to.html">http://investingpsychologyblog.blogspot.com/2014/11/kamikaze-capitalism-its-correlation-to.html</a><br />
<br />
Back then, claims were made of the Yen replacing the USD too.<br />
<em></em><br />
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Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-23159944546435443312015-04-06T06:50:00.000-07:002015-04-06T06:50:43.515-07:00China & Hong Kong - Property Bubbles and Euphoria.<br class="Apple-interchange-newline" />
Recently I noticed that a long established photography shop in Central HK had closed down, and within a week had been replaced with a fully functioning new……<br />
shock horror…. real estate agency! (I was not at all surprised).<br />
<br />
This is in an area where there has to be at least one retail real estate agent every 60-70 metres along all the main roads of Midlevels, Central, Sai Ying Pun, Pokfulam, The Escalator, and Causeway Bay (well - all of the north of HK Island actually).<br />
<br />
For those that live there, this is often so annoying as to draw comments along the lines of; “That could have been a nice coffee shop/martket/restaurant/creche/<insert a desirable alternative> instead.” <br />
<br />
In fact, it seems that real estate agents are competing to rent the spaces that they should be trying to rent out to good shop tenants!<br />
<br />
Is this the proof that there is a property bubble in HK/China? Not necessarily I think. <br />
Is this proof that there has been bubble like behaviour occurring with respect to property, and the marketing of property to as many people as possible? Yes I believe so, and its been occurring for years.<br />
<br />
Too many times discussing HK property with colleagues, I have heard the standard response of “HK property always goes up” / “It will stay up as long as the Mainlanders are buying, and have so much money,” etc.<br />
But people have already forgotten (unless they were hurt), by the huge reduction of prices when SARS hit HK in 2003, and it took Ten Years for their equity to be regained.<br />
<br />
Why? Because SARS caused a surge of fear that was unheard of previously. Were they scared of SARS destroying their property though? I don’t think so - they were scared of the collapse of the property market that was occurring due to Fear becoming contagious in HK. SARS after all is a respiratory illness that cannot hurt a property itself.<br />
<br />
So can HK property collapse again as much as it did in SARS? Sure, just add fear. Fear of recession, fear of a hike in interest rates and loan servicing ability (we are pegged to the USD and their low rates in HK), fear of a pullout of money from Chinese Mainland investors, fear of job losses, fear of currency devaluation or depeg, But one thing is for certain, there will be less real estate agents after that, and maybe a few good coffee shops finally.<br />
<br />
I don’t know if it will happen or when, but its certainly interesting walking around HK, looking in agents windows, were a tiny unit can cost as much as several dozen acres in the USA, and where rent can easily outpace the actual full salary of a professional employee.<br />
<br />
{My main road up the right hand side - 7-8 agents in three minutes walk}<br />
http://postimage.org/][img]http://s16.postimg.org/4wgf7hm7p/HK_Caine_Road_60405_ppt.jpg<br />
<br />
<br />
{$6-10 Million HKD for 830 square feet - any takers?}<br />
http://postimage.org/][img]http://s14.postimg.org/bj93zq8ld/130821091829100311_676x450.jpg<br />
<br />
<br />
{Competition among agents for a rental placement is fierce}<br />
http://postimg.org/image/inutzkhjf/full/][img]http://s1.postimg.org/6lzg5f8b3/17228536.jpg<br />
<br />
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<br />Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-82620150652573208392015-03-07T02:09:00.001-08:002015-03-07T02:09:26.187-08:00Physical Gold – Why Bother?<div class="MsoNormal">
Below is the sad story of the pensioner in France that has
his Gold bars stolen by well-informed thieves.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
It begs me to ask, Gold – Why Bother?</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I don’t disagree with the value of holding some physical
Gold, either in the home or elsewhere.<span style="mso-spacerun: yes;">
</span>But certainly, if in the home, not too much that you are destroyed by
its loss.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The reasons for this, to me are simple:</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
1. Holding Gold to me is cataclysm type event
protection.<span style="mso-spacerun: yes;"> </span>If it’s just as an
investment, or to hedge inflation, buy GLD the ETF.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
2. In a cataclysm type event, any Gold you own will be ripe
for the taking as soon as it is known that you have it.<span style="mso-spacerun: yes;"> </span>So you better have it well hidden and
protected with security. (i.e. guns and bullets).<span style="mso-spacerun: yes;"> </span>You will need them!<span style="mso-spacerun: yes;">
</span>(The most amusing thing about “Doomsday Preppers”, is that they go on
TV, showing us what they have and often where.<span style="mso-spacerun: yes;"> </span>This is totally is defeatist in intent).</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
3. Big value, one kilogram Gold bars are next to useless
when you need to live on them.<span style="mso-spacerun: yes;">
</span>Coins are definitely better.<span style="mso-spacerun: yes;">
</span>I would argue Silver coins are better again, as they have lower value
per coin.<span style="mso-spacerun: yes;"> </span>Gold coins if you needed
to travel would work fine however to move wealth.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
4. In a cataclysm type event, Gold ownership is likely to be
made illegal, as during the Depression era of the 1930’s in the USA.<span style="mso-spacerun: yes;"> </span>(In this case physical Gold in vaults
is even more at risk.<span style="mso-spacerun: yes;"> </span>Penalties
after the fact of hoarding it could be severe too.</div>
<div class="MsoNormal">
http://en.wikipedia.org/wiki/Executive_Order_6102</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
5.<span style="mso-spacerun: yes;"> </span>You can’t
eat Gold, meaning that someone with land, water, defense, crops, and some
source of power is more likely to be useful and thrive.<span style="mso-spacerun: yes;"> </span>They simply wouldn’t need your Gold
necessarily.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
6. If I need Gold THAT badly, in an end-game scenario,
without the things listed in point 5, I am not sure I would even want to be
around!</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
7.<span style="mso-spacerun: yes;"> </span>Finally
there is an opportunity cost in holding large amounts of Gold.<span style="mso-spacerun: yes;"> </span>What is the probability that the world will
put us in a position to NEED it?<span style="mso-spacerun: yes;"> </span>I am certain there will come a time of high
inflation where owning Gold as an investment makes sense again.<span style="mso-spacerun: yes;"> </span>I am not certain that I will ever need
it as a physical asset to trade to live.<span style="mso-spacerun: yes;">
</span>(But it’s pretty and nice to have a bit – until the thieves come).</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Below the article on the theft:</div>
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<o:Company>Lemon Valley Orchards</o:Company>
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<a href="http://www.zerohedge.com/news/2015-02-19/gold-bars-france-worth-500000-robbed-pensioner-fake-cops">http://www.zerohedge.com/news/2015-02-19/gold-bars-france-worth-500000-robbed-pensioner-fake-cops</a></div>
Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-33012508933974398242015-02-05T19:39:00.000-08:002015-02-05T19:39:37.507-08:00The U.S. Economy and OilVery interesting historical perspective on the "common job" in each state over time. But what got to me was the dependence on trucking and delivery as an industry, vocation, and owner-driver type of career.<br />
<br />
How can the US NOT benefit from lower oil prices when so many rely on it as a major necessity and also a liability in their business? The stock market can go do whatever it wants, but consumer confidence is likely to keep on rising as the cost of transport falls, and ALL those truck drivers out there benefit.<br />
<br />
<br />
http://www.npr.org/blogs/money/2015/02/05/382664837/map-the-most-common-job-in-every-state?utm_source=facebook.com&utm_medium=social&utm_campaign=npr&utm_term=nprnews&utm_content=20150205<br />
<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh340jazACoPCu4tGG_JJmb7jnOXAtAhkIDagEsloVHzuA-xgf0yVML9PU9ZGrvNnMT-BSl9KEbCalGyRiH-N9t0eQIAprKlwUF72tI0dOLVesrBoATSzddtzKZ5aFibvmj-wzUB7hHQ70/s1600/Screen+Shot+2015-02-06+at+11.30.56+am.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh340jazACoPCu4tGG_JJmb7jnOXAtAhkIDagEsloVHzuA-xgf0yVML9PU9ZGrvNnMT-BSl9KEbCalGyRiH-N9t0eQIAprKlwUF72tI0dOLVesrBoATSzddtzKZ5aFibvmj-wzUB7hHQ70/s1600/Screen+Shot+2015-02-06+at+11.30.56+am.png" height="428" width="640" /></a></div>
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<span style="color: red;">USA - Keep on Truckin!</span></div>
<br />Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-14776505635297028092015-01-18T08:46:00.001-08:002015-01-18T08:49:04.010-08:00Ka-Boom!!! The Swiss go to War on Currency - CHFRecently I wrote a post looking at Leverage and Trading success that I came across, and the observation that the best performers limited their max drawdown percentage risk to less than 50%. Further the greatest number of net profitable traders held less max drawdown percentage risk at around 30%.<br />
<br />
http://investingpsychologyblog.blogspot.hk/2014/12/leverage-bringer-of-destruction-risk-vs.html<br />
<br />
"Humans have a great awareness of risk through survival instincts, but this does not seem to translate into the markets!"<br />
<br />
I certainly didn't predict the move the SNB made to unpeg, but the observations seem to be borne true, especially when you consider that FXCM users owe FXCM over $300 Million, forcing FXCM itself to seek a bailout to satisfy their fiduciary obligations.<br />
<br />
FXCM had even been one of the champions of allowing greater leverage use by traders to the US Commodity Futures Trading Commission review.<br />
<br />
http://www.bloomberg.com/news/2015-01-16/fxcm-lobbied-against-leverage-limit-before-franc-trades-went-bad.html<br />
<br />
I had a bit of a loss on the USDCHF move, saved largely by stoplosses limiting my risk, but I also learnt a couple of lessons as a result of the "close-call."<br />
<br />
1. I will from now on keep my option and any spot positions separate in another account. Whilst I didn't suffer any option liquidations, I would have been VERY annoyed if those long term options had been closed on me.<br />
<br />
2. EVERY Spot position needs a solid stop loss. Fortunately I had that. The danger with Risk, is that is is unknowable until you suffer its effects.<br />
<br />
3. Forex options are a better alternative to Spot. These are still alive at least, and not subject to leveraged margin calls.<br />
<br />
4. Leverage must be watched like a Hawk, and controlled to levels that allow survival in surprise events, as proven in the chart of trading success and leverage above.<br />
<br />
5. VOLATILITY + LEVERAGE = DYNAMITE<br />
<div>
<br /></div>
<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigG9QJ11_IWLFBFzATxyc5X_99QMEYl3A7b-d38BVHm-U5CekGCgk9vO355ECgJzcg9HAYl1MYjR1qPFF6dx2El2pfBi3bTsp7mZQSBAsQIkUNtHIgGe1y_ZyM1zQPCabDm-s3Mo23BpY/s1600/sign_USD_CHF_b.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigG9QJ11_IWLFBFzATxyc5X_99QMEYl3A7b-d38BVHm-U5CekGCgk9vO355ECgJzcg9HAYl1MYjR1qPFF6dx2El2pfBi3bTsp7mZQSBAsQIkUNtHIgGe1y_ZyM1zQPCabDm-s3Mo23BpY/s1600/sign_USD_CHF_b.jpg" /></a></div>
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<br />Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-16628381529216035022015-01-08T20:26:00.000-08:002015-01-08T20:26:42.762-08:00Stock Market Noise and B-S.<div class="MsoNormal">
It took me a few days to finally decide on my New Years
Financial Resolution for 2015.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Just one, its pretty simple – “Avoid listening/reacting to
all the Noise and BullS$@t.”</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Jan 9<sup>th</sup> and the market is in an uptrend, booming
strongly again, despite fears just days before in the media of the Greek Exit
from the Euro (Grexit - stupid catchcry legitimizing media name for something that
hasn’t ever happened), more of Putin’s games, unrest in the USA, Oil up or down
a dollar today,<span style="mso-spacerun: yes;"> </span>etc etc.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
It doesn’t really matter if you think that the market is manipulated
or not, but its very easy to believe that retail investors are heavily
manipulated.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
“They”, whoever “they” are, those men in dark suits, the
Fed, Politicians, Wall Street etc, have that mastered to an art form.<span style="mso-spacerun: yes;"> </span>Washington DC and most political
centers around the globe operate on a 24-hour news cycle.<span style="mso-spacerun: yes;"> </span>That keeps the public listening to what
the politicians have to say about how great they are doing.<span style="mso-spacerun: yes;"> </span>It is of course no different in finance
and the markets.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Short news cycles keep the investor herd running from side
to side in a state of flurry, boosting commissions to Wall Street, and
destroying investor long term trades, allowing Investment Professionals to keep
all the bigger gains.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Buying where you think it’s low, and selling where you think
it’s high, or at fear of going lower – essentially buying wrong and selling
wrong.<span style="mso-spacerun: yes;"> </span>Simple.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b style="mso-bidi-font-weight: normal;">How can investors
avoid this trap of Masterful Psychological Manipulation?<o:p></o:p></b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
First, is refuse to participate.<span style="mso-spacerun: yes;"> </span>If you are not a deliberate day trader, watching CNBC or
Bloomberg is really not going to help, unless you have the discipline to not
make ANY trade decision on what you see or hear.<span style="mso-spacerun: yes;"> </span>Better to leave it off.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Second, is to not make a trade based on a stock pick.<span style="mso-spacerun: yes;"> </span>If it’s on telly – it’s too late more
often than not.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Thirdly, and I think most importantly – There seems to be
long-term macroeconomic shifts at play.<span style="mso-spacerun: yes;">
</span>These are the trades to make. <span style="mso-spacerun: yes;"> </span>A strenghtening US dollar, the coming of increased interest
rates, a stronger US economy, weaker emerging markets, and even longer term is
a recovery In Europe.<span style="mso-spacerun: yes;"> </span>None of
these are affected in the long term by whatever they decide to sell you in the
media today.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Remember the media’s only job is to get you to watch and
read regularly, to view or click on the ads that appear – not provide ANY sound
advice.<span style="mso-spacerun: yes;"> </span>Even worse than that is
that it can become addictive!<span style="mso-spacerun: yes;"> </span>So
well are we conditioned and targeted towards emotional responses, cultivating a
fear of missing out (FOMO) need to continue watching even if it is to our
disadvantage.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
“Its just noise and B-S.”</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
“What’s just noise?”</div>
<div class="MsoNormal">
<br /></div>
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<div class="MsoNormal">
“It ALL is.<span style="mso-spacerun: yes;">
</span>Except for the part that is B-S!”</div>
<div class="MsoNormal">
<br /></div>
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<br /></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhLC8rUIFVgRhZ3ExtoNwpE26x5XWpL273VoiMxAUoLqQvH0RPRyfrFBbwtrYdMalXfvVQffpQIHM8AyiUIb6fKkDD4y_TnSHyiLHeB68JVJmUpno9kkE0yqh-zZMLzo4bzsHdpjxOVOFM/s1600/1breakingnews.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhLC8rUIFVgRhZ3ExtoNwpE26x5XWpL273VoiMxAUoLqQvH0RPRyfrFBbwtrYdMalXfvVQffpQIHM8AyiUIb6fKkDD4y_TnSHyiLHeB68JVJmUpno9kkE0yqh-zZMLzo4bzsHdpjxOVOFM/s1600/1breakingnews.jpg" height="146" width="320" /></a></div>
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Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-42849518406938533692014-12-23T19:16:00.000-08:002014-12-23T19:16:37.263-08:002015, Risk and the MoonBeing prepared for when things do not work out as planned is important. But planning for failure, is not planning to fail.<br />
<br />
"Fate has ordained that the men who went to the moon to explore in peace will stay on the moon to rest in peace."<br />
<br />
This is the opening of the speech President Nixon would have given the world, had the Apollo moon landings failed in 1969. At the time it was one of the most complex endeavours humans had ever attempted, with high risk, but an immense preparation for these risks, and the many measures to control them.<br />
<br />
I hope 2015, brings you the best of outcomes, from the risks you choose to take, in full knowledge that they may not work out as perfectly as planned. But being prepared to minimise these bad events, will make the chance of many more good outcomes likely.<br />
<br />
Its always good to shoot for the stars. But be ready and able to have the resources for a second and third Shot!<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiqMARdS28ShNc7p04Y7dIaS5cpxmeFkTftjk7DTtTvrlCzOsNiaRqkRGdrDo1p3jWPnHMJLPttt-xXSpQx8Njql-RNgIVPhS4FJ4-yR1JoitHL_cI3PRWyawwS__0MPIRiOJUWLc3ROPE/s1600/apollo-11.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiqMARdS28ShNc7p04Y7dIaS5cpxmeFkTftjk7DTtTvrlCzOsNiaRqkRGdrDo1p3jWPnHMJLPttt-xXSpQx8Njql-RNgIVPhS4FJ4-yR1JoitHL_cI3PRWyawwS__0MPIRiOJUWLc3ROPE/s1600/apollo-11.jpg" height="320" width="320" /></a></div>
<br />Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-57229289070672498362014-12-18T19:33:00.001-08:002014-12-18T19:34:18.015-08:00Leverage – The Bringer of Destruction. Risk vs Return.<div class="MsoNormal">
I recently saw this chart of “Max Drawdown % Risk” verses “Return
%”, of a large number of traders on the SaxoBank website.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi0SA3CcvcZeZqIhxTdg2UnupdbEw2h3yjCKurLpCY180WKyx0YNyJpW5OjEcIt2dzrg4aF6EZNWA3U9ru7fup9kSfKVqVXc0lhptm1UOx-GTWHU4AUhyF_29gjCwlI2Ru1Xe0w39VgwgQ/s1600/Trading+risk.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi0SA3CcvcZeZqIhxTdg2UnupdbEw2h3yjCKurLpCY180WKyx0YNyJpW5OjEcIt2dzrg4aF6EZNWA3U9ru7fup9kSfKVqVXc0lhptm1UOx-GTWHU4AUhyF_29gjCwlI2Ru1Xe0w39VgwgQ/s1600/Trading+risk.jpg" height="162" width="400" /></a></div>
<br />
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Interesting!</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Firstly and obviously, zero risk is zero return.<span style="mso-spacerun: yes;"> </span>Returns rise from this point until the
number of 50% return-makers flatlines from 8% - 30% max drawdown risk, (lower horizontal
green line).<span style="mso-spacerun: yes;"> </span>It then seems to
start to fall along the top of the cluster above the red trend.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As risk increases, the red trend is far more significant to
the downside in an almost linear relationship.<span style="mso-spacerun: yes;"> </span>Over 80% max drawdown risk seems to imply a return
approaching 100% loss.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
If you look at the overall cluster running along the top of
the red line, it seems safe to say, that increasing risk does not constitute
increasing returns for most traders.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The top performers (who must take some risk to generate a return)
sit in the 40-55% max drawdown risk range.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
No-one with 75% max drawdown risk or more has doubled their
money.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The greatest cluster of 100% return-makers, sits somewhere
around the 20-30% max drawdown risk range, (upper horizontal green line). This
seems to be a reasonable place to be when you include the possible returns
below it as well.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Importantly, these are just subjective eyeball observations,
and the traders here are most likely using a variety of strategies, and are of
varying skill/experience.<span style="mso-spacerun: yes;"> </span>A bigger
sample size would also be great to have, (820 on the website).</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Humans have a great awareness of risk through survival
instincts, but this does not seem to translate into the markets!</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<a href="https://www.tradingfloor.com/posts/how-much-trading-leverage-is-too-much-2940875">https://www.tradingfloor.com/posts/how-much-trading-leverage-is-too-much-2940875</a></div>
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Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-54701939844328724012014-12-14T04:49:00.001-08:002014-12-14T04:49:58.433-08:00China – Causes for Concerns.<div class="MsoNormal">
A few weeks ago I wrote a blog about the parallels between
The Japanese Bubble Economy of the 90’s and how I see China now.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<a href="http://investingpsychologyblog.blogspot.com/2014/11/kamikaze-capitalism-its-correlation-to.html">http://investingpsychologyblog.blogspot.com/2014/11/kamikaze-capitalism-its-correlation-to.html</a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Today another concern to add to the list popped up, after
the recent run-up of the Shanghai Exchange.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
China is adding money to its financial system to fuel
growth, as forecast growth rates continue to fall.<span style="mso-spacerun: yes;"> </span>While doing this, China’s leaders and state media are using
the statement of a “new normal” of slower growth as expectation management on investors’
appetites.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I love the term “new normal” as a contrarian signal, telling
me that it will not end anywhere like what is being expressed in relation to
it.<span style="mso-spacerun: yes;"> </span>(As example: a “new normal” of
low volatility from now on – I would see as high volatility to come!)<span style="mso-spacerun: yes;"> </span>The more “new normal” talk there is,
and belief in the concept – the more it is impossible to be true.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
A new normal of “slower, high quality growth,” is coming to
China.<span style="mso-spacerun: yes;"> </span>Uhuh-sure!<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
When you pump money into banks to ensure liquidity, as
recent history shows, its usually too late to save a bad outcome.<span style="mso-spacerun: yes;"> </span>And I don’t think anyone knows the
depths to how bad the banking and property sectors are in China really – not
even the government.<span style="mso-spacerun: yes;"> </span>There
seems to be way too much regional government intervention and corruption for
that.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Share buybacks, and state-owned company share investments,
that were “encouraged” by the authorities, have pushed up stock prices enticing
local and now foreign investors into the share market at elevated prices.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Due to this recent run in Chinese stocks (17% this month,
35% this year), China banks have suffered investor withdrawals to fund their
entry into the stock market.<span style="mso-spacerun: yes;"> </span>Much
of that has then been leveraged.<span style="mso-spacerun: yes;">
</span>Margin use in total trading has almost doubled since May, and non-bank
trust companies are lending up to 300% of capital!</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Loose margin requirements, which have not been tightened
recently despite liquidity concerns, threaten only to cause more big drops
similar to the decline Tuesday, that was the biggest one-day drop since the GFC,
on fears of tightening requirements for margin credit.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Japanese use of margin at ridiculous levels, especially in
property prices tells us that this kind of leverage is unlikely to lead to “slower
but quality growth.”</div>
<div class="MsoNormal">
<br /></div>
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<div class="MsoNormal">
This “new normal” could just be masking the high volatility
to come.<span style="mso-spacerun: yes;"> </span>Clearly, investors do not
seem to learn from history.<span style="mso-spacerun: yes;"> </span>Nor
consider the psychological implications of a run of margin calls as banks with
liquidity problems tighten up.</div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5GmcFCKDZu9yQysZM6qRoHmZM9NLuQBp1Mwqex8MzsR6H6kSyJUhSMh5BfdeWpcY-9cC-rQuBLr2hyphenhypheniQSWetkEVDiMyZD6DYAs63JwrOSNlgr18EE4kTgR73ZEFygLmtJCMjRZYaIfFU/s1600/china-slow-down-red-flag-sign6.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5GmcFCKDZu9yQysZM6qRoHmZM9NLuQBp1Mwqex8MzsR6H6kSyJUhSMh5BfdeWpcY-9cC-rQuBLr2hyphenhypheniQSWetkEVDiMyZD6DYAs63JwrOSNlgr18EE4kTgR73ZEFygLmtJCMjRZYaIfFU/s1600/china-slow-down-red-flag-sign6.png" height="320" width="316" /></a></div>
<div class="MsoNormal">
<br /></div>
Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-88827958788427735862014-12-09T04:48:00.001-08:002014-12-09T04:53:29.099-08:00Taleb’s “Alternative Histories” and Investing.<div class="MsoNormal">
<i style="mso-bidi-font-style: normal;">“Clearly my way of
judging matters is probalistic in nature; it relies on the notion of what could
have probably happened….</i></div>
<div class="MsoNormal">
<i style="mso-bidi-font-style: normal;"><span style="mso-tab-count: 1;"> </span>If
we have heard of {histories greatest generals and inventors}, it is simply
because they took considerable risks, along with thousands of others, and
happened to win.<span style="mso-spacerun: yes;"> </span>They were
intelligent, courageous, noble (at times), had the highest possible obtainable culture
of their day – but so did thousands of others who live in the musty footnotes
of history.”<span style="mso-spacerun: yes;"> </span></i>(Taleb, Fooled by
Randomness).<i style="mso-bidi-font-style: normal;"><o:p></o:p></i></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Julius Caesar was a fantastic general, yet was amazingly
lucky (until he was not), whereas Erwin Rommel, also a fantastic general was
plagued by bad luck on multiple occasions, (with a random and erratic Commander
in Chief not helping).</div>
<div class="MsoNormal">
What other outcomes for these generals could have
happened?<span style="mso-spacerun: yes;"> </span>And, would they be
judged by history differently for their decisions, despite no change in their
skills?</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<a href="http://www.jstor.org/discover/10.2307/3290595?uid=2134&uid=2487545583&uid=2&uid=70&uid=3&uid=2487545573&uid=60&purchase-type=none&accessType=none&sid=21105412931033&showMyJstorPss=false&seq=1&showAccess=false">http://www.jstor.org/discover/10.2307/3290595?uid=2134&uid=2487545583&uid=2&uid=70&uid=3&uid=2487545573&uid=60&purchase-type=none&accessType=none&sid=21105412931033&showMyJstorPss=false&seq=1&showAccess=false</a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<a href="http://www.military.com/Content/MoreContent1/?file=dday_leaders4">http://www.military.com/Content/MoreContent1/?file=dday_leaders4</a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<i style="mso-bidi-font-style: normal;">“Every once in a
while, someone makes a risky bet on an improbable or uncertain outcome and ends
up looking like a genius,”</i> (Marks, The Most Important Thing),<span style="mso-spacerun: yes;"> </span>… or a fool.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
But how do I picture these alternative histories that could
have occurred but did not?<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
(I saw this graph somewhere but couldn’t re-find it, so
recreated it below).</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
At point X now, current conditions are known (as best as
available information can be utilized).<span style="mso-spacerun: yes;">
</span>The correct decision (always) to take is the one that is logical, intelligent,
and informed “<i style="mso-bidi-font-style: normal;">at that time”</i> (Marks).</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
At point X now, all red outcomes are “possible” and unknown,
but some are more “probable” than others.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
At point Y later, only a single red outcome has eventuated.<span style="mso-spacerun: yes;"> </span>At which point it often becomes
hard to imagine that any of the others were “possible” to begin with.</div>
<div class="MsoNormal">
<span style="mso-no-proof: yes;"><br /><!--[endif]--></span>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiaYTHaobEhBBWLkGXbRbiEkIqXkqmdMXH3MW1RItw3KUJXUTteKdSnfvvZd61lFKMny_yM2OzK4aMP1fnUQvo5G7LZhBw43hgsL1_3ZU1khhLsPnkiNMeM9Y-bUlk4csDJZWqk0HvABIs/s1600/Alternative+Histories.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiaYTHaobEhBBWLkGXbRbiEkIqXkqmdMXH3MW1RItw3KUJXUTteKdSnfvvZd61lFKMny_yM2OzK4aMP1fnUQvo5G7LZhBw43hgsL1_3ZU1khhLsPnkiNMeM9Y-bUlk4csDJZWqk0HvABIs/s1600/Alternative+Histories.jpg" height="320" width="320" /></a></div>
<span style="mso-no-proof: yes;"><br /></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
(Note: The distribution in reality may be skewed towards one
side of possible outcomes.<span style="mso-spacerun: yes;"> </span>This is
more to highlight the concept of possible and probable only, not the
mathematics).</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
When things go as predicted (luck playing a role), people
tend to look like geniuses for their correct actions.<span style="mso-spacerun: yes;"> </span><i style="mso-bidi-font-style: normal;">“Coincidences look
like causality.<span style="mso-spacerun: yes;"> </span>A lucky idiot
looks like a skilled investor.”</i> (Marks).<span style="mso-spacerun: yes;"> </span>However, the correctness or quality of a decision
cannot be judged by its outcome, especially if randomness is involved.<span style="mso-spacerun: yes;"> </span>For this reason correct decisions based
on a sound process are often wrong, and the macro events that may have caused
it, beyond anticipating.<span style="mso-spacerun: yes;"> </span>Incorrect
decisions and processes can also be <i style="mso-bidi-font-style: normal;">seen</i>
as correct, with an unanticipated event causing the outcome you wanted.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Whilst the mean is the most “probable” outcome (reversion to
the mean?), it is not at all certain, as for any individual situation, all
outcomes are “possible”.<span style="mso-spacerun: yes;"> </span>In fact
the collective likelihood of all the other outcomes is higher than the one we
think is most probable!</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The most extreme outliers at +3<span style="font-family: Symbol; mso-ascii-font-family: Cambria; mso-ascii-theme-font: minor-latin; mso-char-type: symbol; mso-hansi-font-family: Cambria; mso-hansi-theme-font: minor-latin; mso-symbol-font-family: Symbol;"><span style="mso-char-type: symbol; mso-symbol-font-family: Symbol;">s</span></span> and - 3<span style="font-family: Symbol; mso-ascii-font-family: Cambria; mso-ascii-theme-font: minor-latin; mso-char-type: symbol; mso-hansi-font-family: Cambria; mso-hansi-theme-font: minor-latin; mso-symbol-font-family: Symbol;"><span style="mso-char-type: symbol; mso-symbol-font-family: Symbol;">s</span></span> can be the black swans (good and
bad). (Maybe there should be black swans AND white knights?).</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
At least by having a good process at X, we can limit the
pain of black swan events and not necessarily experience account destruction
when they do occur.<span style="mso-spacerun: yes;"> </span>We must trade
based on what we think are probable outcomes, while not doing too much damage
or loss in the rest that occur.<span style="mso-spacerun: yes;">
</span>We need to cut off the bad tails effect on us, or limit it.<span style="mso-spacerun: yes;"> </span>Fortunately options do that, yet expose
us to the full range of favorable possibilities.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This does not mean to imply not trading a contrarian
strategy, or positioning to get lucky etc.<span style="mso-spacerun: yes;"> </span>Its what we think are probable and possible, based on our
analysis, not probable as in the herd thinks it likely.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I think understanding that we can’t know the outcome of all
that is possible, but can try to understand what is probable and position
accordingly, whilst protecting the risk of severe damage to my account, is the
best thing I have learnt in 2014.<span style="mso-spacerun: yes;">
</span>(Possibly! Probably!)</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Clearly some “alternative histories” would have been far
worse than the one we know.<span style="mso-spacerun: yes;"> </span>But in
1940, <i style="mso-bidi-font-style: normal;">our </i>now known outcome was
nowhere near certain, and one could argue improbable.<span style="mso-spacerun: yes;"> </span>The things that HAVE happened in the world are just a <i style="mso-bidi-font-style: normal;">“small subset of the things that COULD have
happened.”<span style="mso-spacerun: yes;"> </span></i>And finally,<i style="mso-bidi-font-style: normal;"> “ensure survival” </i>(Marks).</div>
<div class="MsoNormal">
<br /></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhe_Hh9qAmZdTFGxedMCMdhvXmBXFUMe9u5RCA9XEOdt_t1QUVMDdUTZgU9aFN2wYpLKnK7zHWc8P2jrx3p2BQwOI9k8L2tnpTlMyr_kK1wPEMfzbXi0d0K7V2cBfbJ5tRJBifjD64RB80/s1600/dads_army_2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhe_Hh9qAmZdTFGxedMCMdhvXmBXFUMe9u5RCA9XEOdt_t1QUVMDdUTZgU9aFN2wYpLKnK7zHWc8P2jrx3p2BQwOI9k8L2tnpTlMyr_kK1wPEMfzbXi0d0K7V2cBfbJ5tRJBifjD64RB80/s1600/dads_army_2.jpg" /></a></div>
</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
(If you want to think more about alternative histories, watch
the <i style="mso-bidi-font-style: normal;">Back to the Future </i>movies!)</div>
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Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-19376262986345562422014-12-05T03:31:00.000-08:002014-12-05T03:31:32.479-08:00The Importance of Reversion To the Mean in Investing. (Part 2)<div class="MsoNormal">
The Three Illusions of Reversion to the Mean. (Part 2)</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Reversion to the mean creates three illusions - cause and
effect, feedback and declining variance, (Mauboussin, The Success Equation).</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
1.<span style="mso-spacerun: yes;"> </span>Illusion of
Cause and Effect – The human mind has an innate programming to want to explain
occurrences by finding the cause of them, even if there isn’t one.<span style="mso-spacerun: yes;"> </span>Yet, reversion to the mean is a
“statistical artifact,” that our minds try to interpret with a cause that often
is not there, (Mauboussin).</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Reversion to the Mean “happens without the need of a
cause.”<span style="mso-spacerun: yes;"> </span>This is problematic to our
minds with that need to assign one, even if it causes an error.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
“The DOW fell 2% on the back of weak employment data.”<span style="mso-spacerun: yes;"> </span>No – it probably just regressed back
towards its 50 day Moving Average, more likely.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
2.<span style="mso-spacerun: yes;"> </span>Illusion of
Feedback – The idea here is that after an event, you take an action and believe
that this causes the next event to occur as a result of that, even though reversion
to the mean might be all that is occurring.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Mauboussin’s example of doctors is: You have higher blood
pressure than your last consultation, which the doctor treats with a drug.<span style="mso-spacerun: yes;"> </span>Blood pressure subsequently lowers
towards the average at the next consultation, which the doctor believes is due
to his treatment (which it may, or may not be).<span style="mso-spacerun: yes;"> </span>But in the whole population, everyone’s blood pressure would
revert towards the mean with or without treatment.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The illusion of feedback will persuasively suggest that the
treatment was the cause and lower blood pressure the effect,” (Mauboussin).<span style="mso-spacerun: yes;"> </span>Clearly the illusion of feedback plays
right into the hands of the illusion of cause and effect, and the narrative
produced can be a strong and highly erroneous belief.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
3.<span style="mso-spacerun: yes;"> </span>The illusion
of Declining Variance – (the hardest to conceptualize) is the illusion that as
something moves to its average, the variation in the numbers shrinks.<span style="mso-spacerun: yes;"> </span>This is not necessarily the case, and
sets a trap in our analysis.<span style="mso-spacerun: yes;"> </span>In
other words as stock price reverts to its mean, it does not imply that the individual
prices observed will cluster closer together around the mean, as would be
evident by a closer standard deviation.</div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhYfFerD6rJMsJt0Dk7ZbbplkP65F6INyrwiG8fEn3uHLQo74X0yXY-8rqFUrbL4dp_yRRBOaH_13m00I8hNX8Qqz9Gwl8we0k4y1Y_QHfe6CHDsGRYVIX-ypfwe-JiILQKuoC18CkPiI/s1600/image011.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhYfFerD6rJMsJt0Dk7ZbbplkP65F6INyrwiG8fEn3uHLQo74X0yXY-8rqFUrbL4dp_yRRBOaH_13m00I8hNX8Qqz9Gwl8we0k4y1Y_QHfe6CHDsGRYVIX-ypfwe-JiILQKuoC18CkPiI/s1600/image011.gif" height="110" width="320" /></a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<a href="http://www.psychology.nottingham.ac.uk/staff/pal/stats/C82MST/C82MST%20Lecture%202a%20Notes_files/image011.gif">http://www.psychology.nottingham.ac.uk/staff/pal/stats/C82MST/C82MST%20Lecture%202a%20Notes_files/image011.gif</a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The chart below shows how price reverts to its mean at P
from Po, variance increases initially as price begins to move, but then
stabilizes, yet does not contract, as the illusion would dictate.</div>
<div class="MsoNormal">
Also, reversion to the mean occurs even when the statistical
properties of the distribution remain unchanged (Mauboussin).<span style="mso-spacerun: yes;"> </span>According to Bob Jensen at Trinity
University it looks like this:</div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhqL6sU7uJ1Ng3m3KgNnAaLK9gAPkD-vaheQPoGHXNxHPrxAOIEP6DraJcrfM79FLDkwc2c6rBlP43LreFbAyiN5FuzSHein9YoJzt3L9iQDLMMwDN2s0DUwTkSX4_DpchEernQPnEzncY/s1600/rev-dis1.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhqL6sU7uJ1Ng3m3KgNnAaLK9gAPkD-vaheQPoGHXNxHPrxAOIEP6DraJcrfM79FLDkwc2c6rBlP43LreFbAyiN5FuzSHein9YoJzt3L9iQDLMMwDN2s0DUwTkSX4_DpchEernQPnEzncY/s1600/rev-dis1.gif" height="276" width="320" /></a></div>
<div class="MsoNormal">
<span style="mso-no-proof: yes;"><br /><!--[endif]--></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<a href="http://www.cs.trinity.edu/rjensen/readings/realoptions/faqs/FAQ%20Number%206%20Risk%20premium%20for%20mean%20reversion%20and%20jumps.htm">http://www.cs.trinity.edu/rjensen/readings/realoptions/faqs/FAQ%20Number%206%20Risk%20premium%20for%20mean%20reversion%20and%20jumps.htm</a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<a href="http://www.cs.trinity.edu/rjensen/readings/realoptions/faqs/FAQ%20Number%206%20Risk%20premium%20for%20mean%20reversion%20and%20jumps_files/rev-dis1.gif">http://www.cs.trinity.edu/rjensen/readings/realoptions/faqs/FAQ%20Number%206%20Risk%20premium%20for%20mean%20reversion%20and%20jumps_files/rev-dis1.gif</a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The red line can be flipped to show a declining price
reversion to the mean with similar variance results.</div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrIiTFQMzx5Ki2mLNZDyHStFXTOQFCcwbG7Y5lC-7A0wZFgCCfV5s7hblZ1FSfDjVmL8Jao9_zg_fizcXecgLEZgczgJhU5FcHdnqj3qKZ7jBp2pqZ78Z5itz-47JDb4ONuZotyXdSgCI/s1600/rev-dis2.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrIiTFQMzx5Ki2mLNZDyHStFXTOQFCcwbG7Y5lC-7A0wZFgCCfV5s7hblZ1FSfDjVmL8Jao9_zg_fizcXecgLEZgczgJhU5FcHdnqj3qKZ7jBp2pqZ78Z5itz-47JDb4ONuZotyXdSgCI/s1600/rev-dis2.gif" height="278" width="320" /></a></div>
<div class="MsoNormal">
<span style="mso-no-proof: yes;"><br /><!--[endif]--></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<a href="http://www.cs.trinity.edu/rjensen/readings/realoptions/faqs/FAQ%20Number%206%20Risk%20premium%20for%20mean%20reversion%20and%20jumps_files/rev-dis2.gif">http://www.cs.trinity.edu/rjensen/readings/realoptions/faqs/FAQ%20Number%206%20Risk%20premium%20for%20mean%20reversion%20and%20jumps_files/rev-dis2.gif</a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Mauboussin’s final point on the Illusion of Declining
Variance offers the warning that; “None of this is to say that results cannot
exhibit a decline in variance over time… But just because you observe reversion
to the mean, that’s doesn’t suggest that individual outcomes are converging
toward the average.”</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Summary:</div>
<div class="MsoNormal">
Reversion to the Mean does not need a cause.</div>
<div class="MsoNormal">
We fail to predict to an adequate amount its effect when
making predictions about the future.</div>
<div class="MsoNormal">
Reversion to the Mean is most pronounced at extremes.<span style="mso-spacerun: yes;"> </span>Things that are great won’t stay that
great, things that are terrible rarely stay that terrible.</div>
<div class="MsoNormal">
When a lot of luck is involved Reversion to the Mean is
stronger, and inevitable.</div>
<div class="MsoNormal">
The paradox of skill, (increases in the skills of investors
and access to information, has narrowed the skill variation in the population,
making luck more important in success), has lead to an increase in the power of
Reversion to the Mean, (Mauboussin).</div>
<div class="MsoNormal">
<br /></div>
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<br /></div>
Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-9722613436772687312014-12-01T05:19:00.001-08:002014-12-01T05:19:48.441-08:00The Importance of Reversion To the Mean in Investing. (Part 1)<div class="MsoNormal">
The definition at least, is simple: When something happens
that is not average, the following event is likely to be closer to the average.
<span style="mso-spacerun: yes;"> </span>But, the outcome is
difficult to predict, understand and prone to illusions.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Why is Reversion to the Mean important to consider?<span style="mso-spacerun: yes;"> </span>In cases where Luck plays a large role
in outcomes, such as prices of a stock, “Reversion to the mean is very
powerful,” and “failure to regress outcomes sufficiently” causes people to “buy
what has done well and sell what has done poorly” leading to the <i style="mso-bidi-font-style: normal;">dumb money</i> effect, (Mauboussin, The Success Equation). <span style="mso-spacerun: yes;"> </span>Further: “Any activity that combines
skill and luck will eventually revert to the mean.”<span style="mso-spacerun: yes;"> </span>Howard Marks, when referring to this uses the term cyclical, but I believe it’s essentially the same.<span style="mso-spacerun: yes;"> </span>But it’s important to realize that nothing can go up in
price forever and down is only limited by zero, but otherwise cant go down
forever.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Spierdijk & Bikker (2012), “Mean Reversion in Stock
Prices: Implications for long-term investors,” summarized much of the
literature. <a href="http://www.dnb.nl/en/binaries/Working%20Paper%20343_tcm47-271856.pdf">http://www.dnb.nl/en/binaries/Working%20Paper%20343_tcm47-271856.pdf</a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Fama & French’s 1988 study explained 25%-40% of the
variation in stock returns on mean reversion in long term investments over one
year to ten years in duration.<span style="mso-spacerun: yes;">
</span>Campbell & Shiller (2001) found that adjustments of the P/E ratio
towards an equilibrium level was more by the price of the stock than the
company fundamentals (price vs. quality).<span style="mso-spacerun: yes;">
</span>Coakley & Fuertes (2006) found mean reversion behavior to be
attributable to investor sentiment.<span style="mso-spacerun: yes;">
</span>Further, mean reversion in stock indices of whole countries was almost
absent in periods of low economic uncertainty, but of course very fast during
high uncertainty or crisis.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In investing, mean reversion can occur in essentially every
asset class, size of company, investing process, valuation model, and
geographical boundary due to the roles of luck or randomness.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Mauboussin argues that people usually fail to revert their
predictions sufficiently to the mean, and that its one of the biggest hazards
decision makers face.<span style="mso-spacerun: yes;"> </span>So it
makes sense that when price regresses it should move more to the mean than you
think it will, and that price often overshoots the
mean.<span style="mso-spacerun: yes;"> </span>The bigger the movement from
the old price to the mean, and the momentum of that move seems to imply the
possibility for a larger overshoot.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
If everyone in the market is generally failing to calculate
the amount of reversion to the mean that may occur, it seems a great contrarian
view to take, that it will be greater than expected.<span style="mso-spacerun: yes;"> </span>Howard Marks (The Most Important Thing) discusses a paradox
where investors think quality rather than price is the main determinant of
whether something is risky, yet price is more correlated with risk than
quality.<span style="mso-spacerun: yes;"> </span>A high quality stock is
likely to be high priced and therefore far more at risk of reversion to the mean,
despite its positive sentiment.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Contrarian strategies based on mean reversion in stock
prices have been shown to yield excess returns, Balvers et al. (2000).<span style="mso-spacerun: yes;"> </span>Further, generating risk adjusted
excess returns by selling past winners, and buying past losers was profitable,
De Bondt & Thaler (1985).<span style="mso-spacerun: yes;"> </span>In
other words there is less risk in mean reverting stocks especially over long
investment periods.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
However, evidence of the actual existence of mean reverting
behavior is harder to prove in stock prices, perhaps due to the difficulties in
empirical assessments of mean reversion, and a risk averse investor should base
investment decisions on conservative assumptions regarding mean reverting
behavior occurring in a given timeframe, especially shorter durations,
(Spierdijk & Bikker, 2012).<span style="mso-spacerun: yes;"> </span>But once it occurs, expect it to exceed
expectations of the magnitude of reversion.</div>
<div class="MsoNormal">
<br /></div>
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<div class="MsoNormal">
Mean Reversion of a Slinky. (It always overshoots its mean!)<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiIqck2k24V0KY-k23cauN914zxUl16eQhUnkOLwMvPCLLlosGfOj0O8snTyirMAK3y_sTbyuWtbe8s_zU0aypqS_fyF8NUWF81viIvx0zC3g4ZHJ483m63NxIUNbLDGpdUZumwOjSRXOk/s1600/image014.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiIqck2k24V0KY-k23cauN914zxUl16eQhUnkOLwMvPCLLlosGfOj0O8snTyirMAK3y_sTbyuWtbe8s_zU0aypqS_fyF8NUWF81viIvx0zC3g4ZHJ483m63NxIUNbLDGpdUZumwOjSRXOk/s1600/image014.gif" height="239" width="320" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="MsoNormal">
Summary:</div>
<div class="MsoNormal">
Reversion to the Mean does not need a cause.</div>
<div class="MsoNormal">
We fail to predict to an adequate amount its effect when
making predictions about the future.</div>
<div class="MsoNormal">
Reversion to the Mean is most pronounced at extremes.<span style="mso-spacerun: yes;"> </span>Things that are great won’t stay that
great, things that are terrible rarely stay that terrible.</div>
<div class="MsoNormal">
When a lot of luck is involved Reversion to the Mean is
stronger, and inevitable.</div>
<div class="MsoNormal">
The paradox of skill, (increases in the skills of investors
and access to information, has narrowed the skill variation in the population,
making luck more important in success), has lead to an increase in the power of
Reversion to the Mean, (Mauboussin).</div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
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Untangling Skill & Luck – Mauboussin Article. Legg Mason
Capital Management. <a href="http://vserver1.cscs.lsa.umich.edu/~spage/ONLINECOURSE/R15SkillandLuck.pdf">http://vserver1.cscs.lsa.umich.edu/~spage/ONLINECOURSE/R15SkillandLuck.pdf</a></div>
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Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-4071512187942424372014-11-27T02:06:00.000-08:002014-11-27T02:07:42.232-08:00The Best Paragraph I Have Read All Week.The Best Paragraph I Have Read All Week.<br />
<br />
"Since other investors may be smart, well-informed and highly computerised, you must find an edge they don't have. You must think of something they haven't thought of, see things they miss or bring insight they don't possess. You have to react differently and behave differently. In short, being right may be a necessary condition for investment success, but it won't be sufficient. You must be more right than others ... which by definition means your thinking has to be different."<br />
<br />
Howard Marks "The Most Important Thing: Illuminated."<br />
<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOzJTCy0V3dvvBBBKy-2EjPN0PvyTc02ACaDliLAkkLQG1x3LdPUIutKIk8YjDznWgcTE5aRtiLu8FDgGd446ev3jGi1E4RtDg-EXAqYbxgGQ5-4dveP5q1NZrYBExeH0GZPiQxPV1gVk/s1600/be_different_by_sovata.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOzJTCy0V3dvvBBBKy-2EjPN0PvyTc02ACaDliLAkkLQG1x3LdPUIutKIk8YjDznWgcTE5aRtiLu8FDgGd446ev3jGi1E4RtDg-EXAqYbxgGQ5-4dveP5q1NZrYBExeH0GZPiQxPV1gVk/s1600/be_different_by_sovata.jpg" height="240" width="320" /></a></div>
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<br />
<a href="http://www.samdiener.com/wp-content/uploads/2009/12/different-3.jpg">http://www.samdiener.com/wp-content/uploads/2009/12/different-3.jpg</a>Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-26587615651765257782014-11-21T01:25:00.000-08:002014-11-21T02:09:39.653-08:00Kamikaze Capitalism, Its Correlation to China, and US Self-Confidence.<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">1980’s Kamikaze
Capitalism.<o:p></o:p></span></b></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">Speculative episodes and euphoria seem to occur during periods in
the shift of the balance of economic power between nations. Two examples: the
Tulip Mania appeared in Holland not long after the Dutch “economic miracle” and
Amsterdam's rise to prominence as the centre of world trade. And
secondly, the New York stock market boom in the early twentieth century
occurred as the USA overtook Britain as the worlds leading industrial
powerhouse.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">In the mid 1980's America was struggling with growing trade
deficits, while Japan had trade surpluses. The Reagan government also
produced large budget deficits, "that were only sustained by the
willingness of Japanese investors to sink their country's trade surplus into US
Treasury Bonds" (Chancellor, Devil Take The Hindmost: A History Of
Financial Speculation).<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">Not only was that trade surplus spent on US Treasuries, but also investors
spent up on other assets luxury goods, fine art and property, often at above
it's real value. “The rising value of (Japanese) land became the engine for
creation of credit in the whole economy,” (Chancellor). <o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">Non-bank, loosely regulated lending in Japan was occasionally
offered at double the value of the property.<span style="mso-spacerun: yes;"> </span>The price of a small apartment in Tokyo exceeded the
lifetime earnings of an average graduate salaryman. <span style="mso-spacerun: yes;"> </span>Multi-generational hundred year mortgages were undertaken to
purchase property.<span style="mso-spacerun: yes;"> </span>All this on the
speculation of continued domestic property rises which at 1990 prices, equaled
four times the real estate value of the entire US!<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">The Rockefeller Center was purchased by Japanese interests, as was
the Exxon Building, Columbia Pictures and even Pebble Beach Golf Club.<span style="mso-spacerun: yes;"> </span>A new anxiety that "Japan is
buying up the United States" was written about in countless magazines and
papers, and this deluge of Japanese capital revived some sense of WW2-type xenophobia
in America. These fears occurred simultaneously with a rise in
Japanese self-confidence and nationalistic pride.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">This Japanese capital expansion and financial speculation, in almost
everything it seems, had not really had a precedent in Japan. That
economy and culture was strongly anti-individualist, community based,
hierarchical, state controlled and supposedly more stable, according to
Chancellor.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">However, when speculation came to Japan in the 1980's, "it
burrowed so deep in the Japanese system that when it departed, after a mere
five years, the system was in ruins."<span style="mso-spacerun: yes;"> </span>Many of the Japanese owned US properties were eventually
repatriated to Americans at discounted prices, compared to their inflated sales
prices. (Pebble Beach at a $300 Million Loss).<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">Ultimately, the social consequences of speculation became evident in
Japan that were not intended by the government.<span style="mso-spacerun: yes;"> </span>It was only then, that for reasons of social control rather
than economic side effects, that a decision to prick the bubble was made,
(Chancellor).<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">"History
doesn't repeat itself, but it does rhyme."</span></i><span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;"> (Nucky Thompson,
Boardwalk Empire, Season 5).<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">2000’s China and
US Self-Confidence.<o:p></o:p></span></b></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">1. Surely we are, and have been witnessing an economic balance of
power shift back the USA since the GFC troughs.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">2. America has been struggling with a large deficit, while China has
had trade surpluses.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">3. Chinese surpluses have been sunk into US Treasury Bonds.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">4. Chinese surpluses have been spent on US and world property, often
at inflated prices.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">5. The Waldorf Astoria building in New York has recently been
purchased by Chinese Angban Insurance Group for the possibly inflated price of
almost $2 Billion.<span style="mso-spacerun: yes;"> </span>(<a href="http://www.forbes.com/sites/erincarlyle/2014/10/15/stories-from-the-waldorf-astoria-chinese-acquirer-buying-link-to-glamorous-past/">http://www.forbes.com/sites/erincarlyle/2014/10/15/stories-from-the-waldorf-astoria-chinese-acquirer-buying-link-to-glamorous-past/</a>)<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">6. The “China is buying up all the property” fear, has been
published repeatedly.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">7. Chinese nationalistic pride and self-confidence has risen, and
been shown on the world stage increasingly over this period, nowhere more so
than South East Asia.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">8. The Chinese economy and traditional culture is somewhat anti-individualistic,
heirarchical, and state controlled.<span style="mso-spacerun: yes;">
</span>Cronyism was rampant in both Japan and China.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">9. The height of Japanese speculation occurred during the later half
of its economic rise and then its market top, as has China’s - so far at least.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">10.<span style="mso-spacerun: yes;"> </span>Much of the
speculation that has occurred, is on the back of rising property prices
domestically, as evident in Hong Kong and China (plus the empty cities issue
adding to this risk).<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">11. Much of the speculation has created ever-increasing disparities
of wealth in China, as it did in Japan.<span style="mso-spacerun: yes;">
</span>Social side effects have been occurring in China and Hong Kong in the
form of protests and a greater awareness of the public of the ultra-rich
disparity.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">I would argue that Occupy Central in Hong Kong is not just about the
universal suffrage and right to vote, but that it also encapsulates issues such
as Mainland control and perceived unfairness in the city, and issues about
housing prices and wealth.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">History would argue that we should see speculation right to the
pivot point, and then a decline in China’s economy, and that of the export countries
it supports.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">The probable current economic balance of power shift, should lead to
a beginning of speculation in the USD on top of its recent new gains.<span style="mso-spacerun: yes;"> </span>Ultimately a repatriation of many of
the American-located sold properties back to their own citizens at discounted
prices seems reasonable to expect. <span style="mso-spacerun: yes;"> </span>Conversely, Australia and NZ as more reliant on China’s
economic health, may not see that happen, as many Australians or Kiwi’s wouldn’t
be in a position, or have the confidence to buy at that time.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">And finally, a return of US self-confidence would only serve to bring
more people back into the market. All we need to see is that Templeton Optimism
to start it off.<span style="mso-spacerun: yes;"> </span>The many effects
of a strengthening USD and consequently lower commodity/energy prices could be
that catalyst.<span style="mso-spacerun: yes;"> </span>People would be
more optimistic as their purchasing power rises.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">This view is essentially nothing new to anyone studying economic history, but I found reading about the historical parallels REALLY interesting
today, sitting in the sun at HK Islands Delaney’s Bar, watching massive
container ships full of cheap junk, sailing east into the Pacific Ocean.<o:p></o:p></span></div>
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<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;"><br /></span></div>
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Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-75691208346280530462014-11-17T04:29:00.000-08:002014-11-17T04:29:07.706-08:00Trading Stocks and Comedy.<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica;">John Cleese released his memoirs recently, and reflected on how the
broader loss of general knowledge in society has limited a wider variety of
jokes from working.</span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">People once knew where places, and whom historical people were, to make
relevant jokes for instance that might fail these days. <span style="mso-spacerun: yes;"> </span>He even went on to say that Monty Python
Fans were very smart fans, and he has pride in his fan base for that. <span style="mso-spacerun: yes;"> </span>Could "Life of Bryan" have
worked without a historical context known to viewers?<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">Part of the problem is "lack of curiosity about important
information that does not directly apply to their lives," he said.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">"What people don't get about wealth is that it's very
boring." (At least in accumulating it, and what you need to do to make it).
He also feels, “people that are obsessed with themselves will not have
the energy to deal with other things or people in the world that are important.”<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">The Gen Y's are currently very uninvested in the market, having come
of age though the GFC, and are very distrustful of investing, wealthy investors
and banks.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">However, they will eventually come to the market to trade and invest,
but how will they do it?<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">Surely social sentiment through Apps, and social networking will
play a greater role than in the past, I would think. Stocktwits, Twitter,
FB or something new will be playing a greater role in investment choices.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">But will that mean, that they are simply the biggest Trend Followers
of all time? Will trading on hyper social sentiment, with no historical context,
be the norm?<span style="mso-spacerun: yes;"> </span>Will they have the
patience to hold long term investments at all, that are mundane and not
receiving any social focus?<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">Or perhaps, have younger, new investors never been any different?<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">"An Irishman, an American and John Cleese carrying a dead
parrot, walk into a Bar...."<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">The problem is, the two mid-twenty year old guys I worked with
today, didn't know who John Cleese was when I asked them, or showed them his
picture in the paper....... <o:p></o:p></span></div>
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<br /></div>
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<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;">Joke Wasted!!!<span style="mso-spacerun: yes;">
</span>Opportunity Lost. <span style="mso-spacerun: yes;"> </span>Carry On.<o:p></o:p></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRcVTncrLYeK3Y5f4b8ytsgIEMokvMC3pPMcW9I7Lr4x1_eNb1E56-ZP1Dsju_VUfDTjFhxsAM4Fjx89cdU_X98yWe7xHWcFVQFTQhvAyPRRsC1pFgvjqj2lB633nQD6Ai-RPB7-pZZ_0/s1600/john-cleese-web.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRcVTncrLYeK3Y5f4b8ytsgIEMokvMC3pPMcW9I7Lr4x1_eNb1E56-ZP1Dsju_VUfDTjFhxsAM4Fjx89cdU_X98yWe7xHWcFVQFTQhvAyPRRsC1pFgvjqj2lB633nQD6Ai-RPB7-pZZ_0/s1600/john-cleese-web.jpg" height="206" width="320" /></a></div>
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<span style="font-family: Helvetica; mso-bidi-font-family: Helvetica;"><br /></span></div>
Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-16843352243755884332014-11-13T20:37:00.000-08:002014-11-13T20:37:14.537-08:00The First Ever Contrarian View of Markets?<div class="MsoNormal">
“Is it possible that a young Man at present could pass his
Time better, than in reading the History of Stocks, and knowing by what secret
Springs they have sudden Ascents and Falls in the same Day?</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Could he be better conducted on his Way to Wealth, which is
the great Article of Life, than in a Treatise dated from Change-Alley by an
able proficient there?</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
NOTHING COULD BE MORE USEFUL, THAN TO BE WELL INSTRUCTED IN
HIS HOPE AND FEARS; TO BE DIFFIDENT WHEN OTHERS EXALT, AND WITH A SECRET JOY
BUY WHEN OTHERS THINK IT THEIR INTEREST TO SELL.”</div>
<div class="MsoNormal">
(SIR RICHARD STEELE, ~1695)<span style="mso-spacerun: yes;"> </span>{My caps}</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I think Graham and Buffet would agree with the capped
statement.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Steele was a proponent of the “Castles in the Air” theory –
that stocks have no intrinsic value and are simply the product of investor
psychology.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Steele also talked about the link to the height and
extravagance of ladies’ headdresses, which peaked the year the 1695 London
stock market collapsed, just as hemlines rose during the 1920’s stock market
boom.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Basically, fashionable style, like a speculative movement,
is subject to a popular consensus and follows a trend until it reached a point
of extravagance, from which it can only retreat, (Chancellor, Devil Take the
Hindmost).</div>
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<br /></div>
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<div class="MsoNormal">
I thought it interesting that some people were thinking
about investor psychology, long before Psychology itself existed as a science,
and that social and cultural behavior was influenced by stock market exuberance
or decline – and vice versa!<span style="mso-spacerun: yes;">
</span>Ladies Hemlines fell after the 1929 Crash too!</div>
Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-76716100996904029362014-11-10T03:54:00.000-08:002014-11-10T03:56:16.191-08:00Anti Fragility, Robustness and Risk.<div class="p1">
<span style="background-color: white; color: red; font-family: arial, sans-serif; font-size: 12px; line-height: 15.9979982376099px;">A great video of a conversation between Nassim Taleb & Daniel Kahneman discussing the concept of Anti-fragility. Interesting to see how two deep thinkers discuss the philosophical challenge of anti-fragility.</span></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="p1">
<span class="s1"><a href="https://www.youtube.com/watch?feature=player_embedded&v=MMBclvY_EMA">https://www.youtube.com/watch?feature=player_embedded&v=MMBclvY_EMA</a></span></div>
<div class="p1">
<br /></div>
<div class="p1">
<span class="s1">Taleb argues that Greenspan, in trying to smooth out the economy to create no more boom or busts, actually caused a big bust.</span></div>
<div class="p2">
<span class="s1"></span><br /></div>
<div class="p1">
<span class="s1">Likewise it seems obvious that the Fed in smoothing out the GFC downside with QE, have created the current stock market boom cycle and likely future inflationary boom.</span></div>
<div class="p2">
<span class="s1"></span><br /></div>
<div class="p1">
<span class="s1">Controlling stressors (smoothing), leads only to the increased Magnitude of events later, and blowouts in volatility. This creates Fragility in the system, not robustness or anti-fragility. In other words the system does not learn - the risks have not changed (only the direction).</span></div>
<div class="p2">
<span class="s1"></span><br /></div>
<div class="p1">
<span class="s1">Anti-Fragility he demonstrates in the Airline analogy, is that everytime there was a crash (certainly a volatile event), the airline industry and aircraft makers, made changes to their products to decrease the chance of another same-cause highly volatile event. Airlines became safer through these changes and volatile events occurred less, and then usually for different reasons. "You never let the mistake go to waste."</span></div>
<div class="p2">
<span class="s1"></span><br /></div>
<div class="p3">
<span class="s1"><b><span style="color: #e06666;">The finance industry eliminated small risks at the expense of large risks, the airline industry mostly eliminated large risks, though small risks do remain. We can handle the small risks, and therefore survive the big risks - most likely. More so, taking the small risks, benefits and advances our lives - travel, opportunity, wealth and the like, whilst less exposure to the big risks negates the downside.</span></b></span></div>
<div class="p4">
<b><span style="color: #e06666;"><span class="s1"></span><br /></span></b></div>
<div class="p1">
<b><span class="s2" style="color: #e06666;">I think that is Anti-Fragility.</span><span class="s1"><span style="color: #e06666;"> </span>(I need to read this book when I can get through the ten others I have bought).</span></b></div>
<div class="p2">
<span class="s1"></span><br /></div>
<br />
<div class="p1">
<span class="s1">There is a lot more in this video to get my head around.</span></div>
<br />
<a href="https://www.youtube.com/watch?feature=player_embedded&v=MMBclvY_EMA">https://www.youtube.com/watch?feature=player_embedded&v=MMBclvY_EMA</a>Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-32241001366425362952014-11-05T18:16:00.000-08:002014-11-05T18:16:24.849-08:00The Power of Narrative. (I have ways of making you THINK!)<div class="MsoNormal">
The Power of Narrative.<span style="mso-spacerun: yes;"> </span>(I have ways of making you THINK!)</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Simon Singh, a British Author has a neat trick.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
He plays a snippet of “Stairway to Heaven” by Led Zeppelin,
and then plays it BACKWARDS.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Time and again to new audiences, it sounded like Random
sounds to most of the people in the audience.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The second time he plays it backwards, he provides lyrics on
the screen, like Karaoke lines.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As people follow <i style="mso-bidi-font-style: normal;">along
“the audience unmistakably hears the words, where before they heard nothing.”</i>
(The Success Equation, Mauboussin, p33). </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
It demonstrates how our mind has a great ability, and NEED
to explain the world around us.<span style="mso-spacerun: yes;"> </span>It
does this through creating stories of
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<!--StartFragment--><span style="font-family: Cambria; font-size: 12.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Cambria; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">unlinked </span>events, patterns in the clouds
out of random air movements, and impressionist paintings of dots into a complete
image.<span style="mso-spacerun: yes;"> </span>It is such a strong
occurrence its often difficult to ignore!</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Taken further<i style="mso-bidi-font-style: normal;">, “our
love of stories, and need to connect cause and effect,”<span style="mso-spacerun: yes;"> </span>“leads us to believe the past was
inevitable and to underestimate what else might have happened.” </i><span style="mso-spacerun: yes;"> </span>(The Success Equation, Mauboussin, p34).<span style="mso-spacerun: yes;"> </span>This leads to biases and inevitable
errors in judgment.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
We are provided with unending narratives daily via the
media.<span style="mso-spacerun: yes;"> </span>It’s quite hard to see
through that, when an opinion has been provided and seemingly backed up with
some facts, to find our own opinion independently afterwards.<span style="mso-spacerun: yes;"> </span>More so to refute that opinion
completely.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I found a video on YouTube that demonstrates this
effect.<span style="mso-spacerun: yes;"> </span>I don’t want to pre-empt
the lyrics, but its an entertaining 6 minutes!<span style="mso-spacerun: yes;"> </span>After seeing the lyrics presented, close your eyes and TRY
NOT TO hear the words that have been planted.</div>
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<br /></div>
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https://www.youtube.com/watch?v=0bG7EFhMw8w</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgq8WAbcFTeS78H5uG47Y3fQgMx9nKv5AbfCL18sIzmgLBY08O-ml1N334XFE8RqvGPFDDr4N1i7Kn6PkP7eYKId7RQuBOCHY7h1zSX0kwDLfFtae5T-I2WNrTGUa6LdUXAPPqLNhKtQMo/s1600/parliament.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgq8WAbcFTeS78H5uG47Y3fQgMx9nKv5AbfCL18sIzmgLBY08O-ml1N334XFE8RqvGPFDDr4N1i7Kn6PkP7eYKId7RQuBOCHY7h1zSX0kwDLfFtae5T-I2WNrTGUa6LdUXAPPqLNhKtQMo/s1600/parliament.jpg" height="245" width="320" /></a></div>
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Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-44573325066369006052014-11-02T05:49:00.000-08:002014-11-02T05:49:11.480-08:00To IPO, or not to IPO: that is the question:<div class="MsoNormal">
To IPO, or not to IPO: that is the question:</div>
<div class="MsoNormal">
<br /></div>
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<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<i style="mso-bidi-font-style: normal;"><span style="mso-bidi-font-family: Helvetica; mso-bidi-font-size: 16.0pt;">HAMLET:<o:p></o:p></span></i></div>
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<i style="mso-bidi-font-style: normal;"><span style="mso-bidi-font-family: Helvetica; mso-bidi-font-size: 16.0pt;">To be, or not
to be: that is the question:<o:p></o:p></span></i></div>
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<i style="mso-bidi-font-style: normal;"><span style="mso-bidi-font-family: Helvetica; mso-bidi-font-size: 16.0pt;">Whether 'tis
nobler in the mind to suffer<o:p></o:p></span></i></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<i style="mso-bidi-font-style: normal;"><span style="mso-bidi-font-family: Helvetica; mso-bidi-font-size: 16.0pt;">The slings and
arrows of outrageous fortune,<o:p></o:p></span></i></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<i style="mso-bidi-font-style: normal;"><span style="mso-bidi-font-family: Helvetica; mso-bidi-font-size: 16.0pt;">Or to take
arms against a sea of troubles,<o:p></o:p></span></i></div>
<div class="MsoNormal">
<i style="mso-bidi-font-style: normal;"><span style="mso-bidi-font-family: Helvetica; mso-bidi-font-size: 16.0pt;">And by
opposing end them? <span style="mso-spacerun: yes;"> </span></span></i><span style="mso-bidi-font-family: Helvetica; mso-bidi-font-size: 16.0pt;">(Shakespeare,
1602).<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal">
<span style="mso-bidi-font-family: Helvetica; mso-bidi-font-size: 16.0pt;">Hamlet was talking about the pain of life verses the uncertainty of
death and damnation of suicide, and not Trading IPO’s, however I think the
metaphor works somewhat.<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal">
<span style="mso-bidi-font-family: Helvetica; mso-bidi-font-size: 16.0pt;">I have only ever subscribed to an IPO once, and probably won’t do so
again.<span style="mso-spacerun: yes;"> </span>Risk/Return does not seem
right.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal">
<span style="mso-bidi-font-family: Helvetica; mso-bidi-font-size: 16.0pt;">My recent reading highlighted the IPO’s of the Railway boom in 1845:<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal">
<i style="mso-bidi-font-style: normal;"><span style="mso-bidi-font-family: Helvetica; mso-bidi-font-size: 16.0pt;">“If the
subscription was successful, the committeemen retained a large allocation of
stock for themselves and their friends and released only a few shares in the
market, thus creating a scarcity which threatened to snare speculators who had
sold shares short in anticipation of buying them back at a lower price.<span style="mso-spacerun: yes;"> </span>The new railway company was then hyped
by friends in the railway press and its stock bid up by agents in the stock
market.<span style="mso-spacerun: yes;"> </span>Once the shares were
trading at a premium, the promoters would offload their retained shares at a
vast profit.<span style="mso-spacerun: yes;"> </span>Some companies even employed
special “share committees” to oversee the success of those operations.” </span></i><span style="mso-bidi-font-family: Helvetica; mso-bidi-font-size: 16.0pt;"><span style="mso-spacerun: yes;"> </span>(Chancellor, Devil Take the Hindmost,
p130).<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal">
<span style="mso-bidi-font-family: Helvetica; mso-bidi-font-size: 16.0pt;">It all sounds quite familiar to TWTR and FB, and Alibaba.<span style="mso-spacerun: yes;"> </span>Of course the banks these days are the
“committeemen,” and their “friends” the Venture Capitalists perhaps.<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal">
<span style="mso-bidi-font-family: Helvetica; mso-bidi-font-size: 16.0pt;">I see some value in companies that have IPO’d and corrected into a
nice long base perhaps in the months after IPO.<span style="mso-spacerun: yes;"> </span>But they need some time for price and volume to become valid
post IPO.<span style="mso-spacerun: yes;"> </span>Before that, its ALL
sentiment, usually too high a sentiment for investing in anything other than
day trades.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="mso-bidi-font-family: Helvetica; mso-bidi-font-size: 16.0pt;">There can be nothing worse than buying something when you only do so
because everyone else already wants it, and it has been marketed to create
that.<o:p></o:p></span></div>
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Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-68378089967564292452014-10-29T00:35:00.000-07:002014-10-29T00:35:35.893-07:00Oil, Growth, Sustainability - How the world cannot continue as it has for much longer.Oil, Growth, Sustainability - How the world cannot continue as it has, for much longer.<br />
<br />
Not a blog today, just a fascinating, though older video showing the mathematics behind growth, and how we fool ourselves into thinking the world can sustain 7% growth forecasts - semiindefinately.<br />
<br />
Well worth the hour long watch if you have the time.<br />
<br />
Exponential and logarithmic thinking at work.<br />
<br />
<a href="http://youtu.be/O133ppiVnWY" style="font-family: Helvetica; font-size: 12px;">http://youtu.be/O133ppiVnWY</a><br />
<br />
<br />
http://planetforlife.com/oilcrisis/oilpeak.html<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjerGNvk7opeLrpEg6qG7MGm0TbtgpzPL189QJ9gSmzkYGDzzPgj83ob4-_RjGuj1KvdLFl3MEoZ4WEGnn6ofyOxMbxeigYCABrfjYqTFBgS00CiJU2suOFZUkeILPjoO2IKAqz24kEkBw/s1600/Screen+Shot+2014-10-29+at+3.33.10+pm.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjerGNvk7opeLrpEg6qG7MGm0TbtgpzPL189QJ9gSmzkYGDzzPgj83ob4-_RjGuj1KvdLFl3MEoZ4WEGnn6ofyOxMbxeigYCABrfjYqTFBgS00CiJU2suOFZUkeILPjoO2IKAqz24kEkBw/s1600/Screen+Shot+2014-10-29+at+3.33.10+pm.png" height="72" width="320" /></a></div>
Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-17890195987553804242014-10-24T03:20:00.000-07:002014-10-24T03:20:10.561-07:00The Four F’s of Investing Behavior.<div class="MsoNormal">
The Four F’s of Investing Behavior.</div>
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<br /></div>
<div class="MsoNormal">
One of the first things I learnt in Psychology 1011 a lifetime ago, was the basic framework of the “Four F’s” to explain most basic human and animal behavior.</div>
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<br /></div>
<div class="MsoNormal">
Otherwise known in part as the “Fight or Flight response.”</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The Four F’s:</div>
<div class="MsoNormal">
Fight</div>
<div class="MsoNormal">
Flight</div>
<div class="MsoNormal">
Feeding and:</div>
<div class="MsoNormal">
“Fornication.” (Resisting using the other term!)</div>
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<br /></div>
<div class="MsoNormal">
http://en.wikipedia.org/wiki/Four_Fs_(evolution)</div>
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<br /></div>
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Since I’m sure that most wont forget to eat while trading ….. or do the other thing, I was thinking how easy it is that we go from the fight to flight response under stress.</div>
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<br /></div>
<div class="MsoNormal">
Having just gone through the correction, our rational behavior, or at least mine was tested by the flight response (fear), despite having a rational belief that “everything would be alright.” No one is immune to emotional behavior sometimes, or certainly instinctual programming. But there is hope.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Fear is often treated in people with phobias (arachnophobia etc) through exposure therapy. I.e. Exposing someone to his or her fear in a safe environment, leading to extinction or reduction of the response to it. Whilst I wouldn’t classify what I felt as fear, there was a little stress and avoidance going on perhaps.</div>
<div class="MsoNormal">
http://en.wikipedia.org/wiki/Exposure_therapy</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So what makes someone less susceptible to this reaction? Clearly experience, through seeing the events unfold, a skill increase through surviving such events and learning, and a solid foundation/training to rely on.</div>
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<br /></div>
<div class="MsoNormal">
I bet US Navy SEAL Team 6 would score far less on fear scales under relevant stressors than the typical population does due to intense exposure to those factors above. I also bet they NEVER stray far from their training or procedures!</div>
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<br /></div>
<div class="MsoNormal">
These days I’m thinking far less about the profit I want to make in the markets, and far more in the learning & conditioning this year should provide. It’s a good thing!</div>
<br />
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<br /></div>
<a href="http://www.cartoonstock.com/cartoonview.asp?catref=shl090609">http://www.cartoonstock.com/cartoonview.asp?catref=shl090609</a>Anonymoushttp://www.blogger.com/profile/15656874424602539299noreply@blogger.com0tag:blogger.com,1999:blog-4057685379627568345.post-32470716656021907452014-10-22T07:33:00.001-07:002014-10-22T08:03:29.370-07:00Fooled By Randomness, Ancient vs Modern World.<div class="MsoNormal">
Fooled By Randomness, Ancient vs Modern World.<br />
<a class="GCUXF0KCKB" href="https://www.blogger.com/blogger.g?blogID=4057685379627568345" kind="label #investing" style="border: 0px; color: #ffa951; font-family: Arial, Helvetica, sans-serif; font-size: 13px; font-style: italic; margin: 0px; padding: 0px; text-decoration: underline; vertical-align: baseline;">#investing</a><span style="color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: 13px;">, </span><a class="GCUXF0KCKB" href="https://www.blogger.com/blogger.g?blogID=4057685379627568345" kind="label #psychology" style="border: 0px; color: #ffa951; font-family: Arial, Helvetica, sans-serif; font-size: 13px; font-style: italic; margin: 0px; padding: 0px; text-decoration: underline; vertical-align: baseline;">#psychology</a><span style="color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: 13px;">, </span><a class="GCUXF0KCKB" href="https://www.blogger.com/blogger.g?blogID=4057685379627568345" kind="label #stocks" style="border: 0px; color: #ffa951; font-family: Arial, Helvetica, sans-serif; font-size: 13px; font-style: italic; margin: 0px; padding: 0px; text-decoration: underline; vertical-align: baseline;">#stocks</a><span style="color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: 13px;">, </span><a class="GCUXF0KCKB" href="https://www.blogger.com/blogger.g?blogID=4057685379627568345" kind="label #study" style="border: 0px; color: #ffa951; font-family: Arial, Helvetica, sans-serif; font-size: 13px; font-style: italic; margin: 0px; padding: 0px; text-decoration: underline; vertical-align: baseline;">#study</a><span style="color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: 13px;">, </span><a class="GCUXF0KCKB" href="https://www.blogger.com/blogger.g?blogID=4057685379627568345" kind="label #trading" style="border: 0px; color: #ffa951; font-family: Arial, Helvetica, sans-serif; font-size: 13px; font-style: italic; margin: 0px; padding: 0px; text-decoration: underline; vertical-align: baseline;">#trading</a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
(WARNING: This is a bit off topic - a bit of history and
then a modern Investing parallel).</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Taleb makes an interesting point on history, and Homer’s Iliad,
<i style="mso-bidi-font-style: normal;">“…the epic poet did not judge his heroes
by the result: Heroes won and lost battles in a manner that was totally
independent of their own valour; their fate depended upon totally external forces,
generally the explicit agency of the scheming gods.” (Taleb, Fooled by
Randomness , p39).<o:p></o:p></i></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<i style="mso-bidi-font-style: normal;">“Heroes are heroes
because they were heroic in behavior, not because they won or lost.”</i><span style="mso-spacerun: yes;"> </span>Of course to prove your heroic behavior,
you had to at least survive long enough to do something…heroic!<span style="mso-spacerun: yes;"> </span>(Luck?/Survivor Bias?).</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Take Julius Caesar as an example however.<span style="mso-spacerun: yes;"> </span>Clearly one of history’s most skilled
Generals.<span style="mso-spacerun: yes;"> </span>But he was also very
lucky (…until he wasn’t)!<span style="mso-spacerun: yes;"> </span>(Hail
Imperator!)</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
His Battle of Alesia was a masterful example of
tactics.<span style="mso-spacerun: yes;"> </span>In a nutshell he besieged
Vercingetorix’s Gaulish town by surrounding it with trenches and fortifications
to starve them out.<span style="mso-spacerun: yes;"> </span>But, while
waiting on that, he anticipated reinforcements would arrive, and built a second
defensive wall around his army (Skill).<span style="mso-spacerun: yes;"> </span>An enormous army of reinforcements did indeed arrive
and attack.<span style="mso-spacerun: yes;"> </span>Caesar took desperate great
risks to win that battle, personally riding through the perimeter to spur on
the legionnaires, and leading a cavalry detachment to attack the enemy in the open
field, which forced his cavalry general to double his efforts after <i style="mso-bidi-font-style: normal;">“seeing their leader undergoing such risk,”</i>
(<a href="http://en.wikipedia.org/wiki/Battle_of_Alesia">http://en.wikipedia.org/wiki/Battle_of_Alesia</a>).<span style="mso-spacerun: yes;"> </span>Of course it was lucky he didn’t get
killed, as that usually ended such battles immediately, and world history would
be very different.<span style="mso-spacerun: yes;"> </span><span style="background: white; color: #252525; mso-bidi-font-size: 7.5pt;">Paul K. Davis
writes that "<i style="mso-bidi-font-style: normal;">Caesar’s victory over
the combined Gallic forces established Roman dominance in Gaul for the next 500
years.”</i></span><i style="mso-bidi-font-style: normal;"><span style="mso-bidi-font-size: 10.0pt;"><o:p></o:p></span></i></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Caesar accepted the role of fate in his outcomes; “the die
is cast” being one of his quotes.<span style="mso-spacerun: yes;">
</span>The goddess of luck Fortuna was also consulted prior to battles and
appeased.<span style="mso-spacerun: yes;"> </span>But as Brad would say,
he positioned himself to get lucky.<span style="mso-spacerun: yes;">
</span>He also was the first expert general/politician in writing his own
history and contemporary propaganda, which only discussed his skill, of course.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Caesar was skillful – and Caesar won (as did Wellington,
Eisenhower, Nelson).<span style="mso-spacerun: yes;"> </span>But there are
undoubtedly foolish generals that have won a war (most of the British Generals
in France WW1 for instance, who were there mostly due to peerage over inate ability);
and there are skillful generals that lost (Mark Antony, Rommel, Napoleon).</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The ancient world was one where the gods interfered in life,
where disease, famine and war uncontrollably altered lives and outcomes
randomly caused reversals of fortune.<span style="mso-spacerun: yes;">
</span>They understood that randomness would have the final say in the outcome,
as probability couldn’t be assessed, despite skills or individual choices.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Taleb argues that <i style="mso-bidi-font-style: normal;">“we
are left only with dignity as a solution – dignity defined as the execution of
a protocol of behavior that does not depend on immediate circumstance</i>, p227<i style="mso-bidi-font-style: normal;">).<span style="mso-spacerun: yes;">
</span></i>This sounds a lot like having a PROCESS to me, in our situation
here, and something I’m certainly still working on developing.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Marc Antony lost to Octavian (Emperor Augustus – and Caesar’s
adopted son) in battle, and returned to Cleopatra and committed suicide.<span style="mso-spacerun: yes;"> </span>The Romans’ would have understood that
he had been skillful in command his whole life, lucky often, but that in defeat
he was stoic.<span style="mso-spacerun: yes;"> </span>His Heroism would
never have been questioned, and in fact suicide was heroic and expected of him.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Before getting onto a modern equivalent, one last point on
history’s view.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Chivalry evolved throughout the middle ages and was a set of
behaviors that gentlemen and knights would follow strictly.<span style="mso-spacerun: yes;"> </span>It was a formalized continuation of the
following of a dignified process that you would be judged by.<span style="mso-spacerun: yes;"> </span>Skill was important and displayed by
battle and jousts, but only in the context of being chivalrous.<span style="mso-spacerun: yes;"> </span>So it allowed for a bad outcome and
acceptance; if you followed the process you remained heroic and admired, even when
you were unlucky and lost.</div>
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<br />
But I believe we have lost that distinction now.<span style="mso-spacerun: yes;"> </span>Skill and Luck are not considered in those we follow
anymore.</div>
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Babe Ruth would have been forgotten if he hadn’t been
successful – yet in baseball, luck is fairly important in deciding outcomes.<span style="mso-spacerun: yes;"> </span>In fact, in professional sports where
every player is highly skilled, luck plays a larger and often hidden component
to the outcomes.<span style="mso-spacerun: yes;"> </span>Yet they are
idolized as heroes.</div>
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<br /></div>
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In the investment world - even more so.<span style="mso-spacerun: yes;"> </span>No talking head investment manager
would have been on CNBC if they had been unable to make big money at some
point, a task where skill matters, but luck plays a huge part too.</div>
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Partly perhaps, is this because the narrative has changed?<span style="mso-spacerun: yes;"> </span>One - it is fed to us daily by compelling
sources that have biases.<span style="mso-spacerun: yes;"> </span>Two - is
that instead of being a narrative about the process of actions (skillful behavior
+ luck = any outcome), it is often a narrative about the outcome of actions (high
skill = successful outcome).<span style="mso-spacerun: yes;"> </span>The
latter often backed up with inaccurate or misleading statistics.</div>
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<br /></div>
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This plays into our brains difficulty in understanding
probability, especially in the face of a good narrative.</div>
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<br /></div>
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<i style="mso-bidi-font-style: normal;">“Such tendency to make
and unmake prophets based on the fate of the roulette wheel is symptomatic of
our ingrained inability to cope with the complex structure of the randomness
prevailing in the modern world.” <span style="mso-spacerun: yes;"> </span></i>(Taleb,
Fooled by Randomness , p40).</div>
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<br /></div>
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I’m off to make my offering to the goddess Fortuna.<span style="mso-spacerun: yes;"> </span>“Fortune favors the bold,” afterall,
and it can’t hurt.</div>
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<br /></div>
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