Better To Stay Away?

This was the conclusion from from Felix Salmon yesterday in an interesting post. Specifically; Either you’re a buy-and-hold type who’s convinced about the existence of the equity premium over the long term and who happily ignores all intraday volatility, or else you’re a high-frequency trader who loves to make money on a tick-by-tick basis. Everybody else is liable to get stopped out, or otherwise crushed. And in many ways, the only winning move is not to play. I am all for exploring different ways to get the job done and have written quite a few posts along these lines but I’ve never been an advocate of not playing. It is very easy to believe that asset allocation and portfolio construction are each evolving at some rate (you can decide if this evolution is fast or slow) due to current events and advancements in investment products. I do not believe evolution means not playing. Many articles and TV segments seem to frame the conversation in very narrow terms that I believe are impractical. First if Felix literally means not playing at all, going 100% cash; this is very problematic due to commission drag, possible tax consequences and biggest of all which would be going to cash at literally the worst time possible like maybe March 9, 2009. It is important to have some context before figuring out the best course for you to take. How did September 29, 2008 permanently change your financial life or the financial life of anyone you know? Without looking, do you even know what happened that day? What about October 27, 1997? On that day...

Better To Stay Away?

This was the conclusion from from Felix Salmon yesterday in an interesting post. Specifically; Either you’re a buy-and-hold type who’s convinced about the existence of the equity premium over the long term and who happily ignores all intraday volatility, or else you’re a high-frequency trader who loves to make money on a tick-by-tick basis. Everybody else is liable to get stopped out, or otherwise crushed. And in many ways, the only winning move is not to play. I am all for exploring different ways to get the job done and have written quite a few posts along these lines but I’ve never been an advocate of not playing. It is very easy to believe that asset allocation and portfolio construction are each evolving at some rate (you can decide if this evolution is fast or slow) due to current events and advancements in investment products. I do not believe evolution means not playing. Many articles and TV segments seem to frame the conversation in very narrow terms that I believe are impractical. First if Felix literally means not playing at all, going 100% cash; this is very problematic due to commission drag, possible tax consequences and biggest of all which would be going to cash at literally the worst time possible like maybe March 9, 2009. It is important to have some context before figuring out the best course for you to take. How did September 29, 2008 permanently change your financial life or the financial life of anyone you know? Without looking, do you even know what happened that day? What about October 27, 1997? On that day...

Economic Depression and Other Plagues

Yesterday there was an article from Paul Krugman predicting a depression, the weekly post from John Hussman had a more strenuous warning about trouble coming and both got a lot of play around the interweb. As opposed to trying to prove this line of thought right or wrong I think it is more instructive to try to figure out what to do in case Krugman and Hussman are correct. Making a compelling argument as to why they are wrong only for them to turn out to be right would be disastrous but going the other way, mentally preparing for bad times that don’t come strikes me as the more conservative route. First I should say that if Krugman turns out to be correct and we go into something “officially” labeled as a depression it will turn out that the depression started years ago. Anyone capable of even a little rational thought should not be surprised or freak out if they are told a depression started in 2000 (ten years ago) and might last another six or seven. Stocks are where they were in the 1990s, housing prices have imploded, job growth has stunk for many years and US debt loads have been increased massively only to get us to lousy. I’m not real keen on labels but if someone says depression just remember that realistically and with the understanding that it will not be exactly like the Great Depression it already started. The depression Krugman is calling for would linger for quite a while without being as bad as the Great Depression. If you can accept the idea that...

Economic Depression and Other Plagues

Yesterday there was an article from Paul Krugman predicting a depression, the weekly post from John Hussman had a more strenuous warning about trouble coming and both got a lot of play around the interweb. As opposed to trying to prove this line of thought right or wrong I think it is more instructive to try to figure out what to do in case Krugman and Hussman are correct. Making a compelling argument as to why they are wrong only for them to turn out to be right would be disastrous but going the other way, mentally preparing for bad times that don’t come strikes me as the more conservative route. First I should say that if Krugman turns out to be correct and we go into something “officially” labeled as a depression it will turn out that the depression started years ago. Anyone capable of even a little rational thought should not be surprised or freak out if they are told a depression started in 2000 (ten years ago) and might last another six or seven. Stocks are where they were in the 1990s, housing prices have imploded, job growth has stunk for many years and US debt loads have been increased massively only to get us to lousy. I’m not real keen on labels but if someone says depression just remember that realistically and with the understanding that it will not be exactly like the Great Depression it already started. The depression Krugman is calling for would linger for quite a while without being as bad as the Great Depression. If you can accept the idea that...

A Lack Of Critical Thinking and Objective Analysis

Recently I have alluded to some serious problems with the Walker Fire Department and while I am not going to get into specifics until it is over (of course it may never end) there are human behaviors at work that impede success and these behaviors can also impede investment success. There are certain things in our lives where emotion and ego work to our detriment. Ego has no place on a wildfire. Ego often prevents investors from having the objectivity to recognize when something is wrong be it process, macro opinion or an investment selection. An incident (fire or medical) is essentially a problem to be solved. Solving means being effective and safe. If the context of investing is some long term goal like retirement, that too is a problem to be solved and solving it means being effective and safe. The more that emotion, ego and other insecurities encroach on these tasks the greater the likelihood that something will go wrong. One problem at the fire department and in many financial plans is the inability to understand this concept and even more difficult is having the objectivity and introspection to realize when behaviors are counter productive. I hope to resume normal blogging tomorrow. The picture is of the Bay Bridge from Telegraph Hill taken with my not-so-smart...