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Archive for the ‘Pick of the day’ Category

Buffett: Don’t Sell Japan

Monday, March 21st, 2011

Bloomberg reports:

“If I owned Japanese stocks, I would certainly not be selling them because of the events of the past 10 days or so,” said Buffett, speaking to reporters in the South Korean city of Daegu, where he arrived yesterday to attend a ceremony for a new factory being built by TaeguTec Ltd. “Something out of the blue like this, an extraordinary event, really creates a buying opportunity.”

I think Buffett is spot on. For Japan, this catastrophee does not change the long-term economic prospects. On the contrary, it may even be an opportunity to reform the political system and strengthen the unity of the Japanese population. There is also an interesting discussion going on about this topic in our discussion groups.

 

The 20 Richest People of All Time Are Listed….

Wednesday, September 8th, 2010

here. Great collection. Interestingly how diverse the wealth sources are/were. Whereas in the 18th/19th century and before trade, oil and transportation seemed to be the most prominent sources, in the 20th century wealth was generated more from retail, technology and investing.

 

Do-It-Yourself Passive Investing

Thursday, August 19th, 2010

The guys from Passive Investing in Geneva have just published a short but on-the-spot new DIY-guide to passive investing. It’s worth the read if you are toying with the idea to get into passive investing or if you would like to review your investment approach. Make also sure to read the MyPrivateBanking-Guide on ETF Risks. If you follow the advise of these two papers, your investment performance will probably beat 95% of conventional wealth managers…

 

Repent! The Markets Are (Again) Going To Crash…

Monday, August 16th, 2010

Here we go again, the markets will soon crash with a big kawooooooommmm and a fireball. Who says so? It’s the Hindenburg Omen, a complicated technical stock market indicator, that predicts living hell on earth for stock investors and was named after the Zeppelin Hindenburg which went up in flames and cost 35 lives. Analysts are readily jumping on the bandwagon predicting that “A savage equity downturn is imminent”. The Hindenburg Omen even made it today into the financial section of the venerable NZZ (German speaking quality paper, Zurich daily).

Now, how do the statistics look for the Hindenburg Omen? Allegedly, the Omen predicted over the last 25 years with a probability of 24% a market crash (loss of more than 15%), with a probability of 36% a panic (loss of more than 10%), with a probability of 52% a loss of more than 8% and with a probability of 76% a loss of 5% on the New York Stock Exchange. WOW! So, in 76% of cases there will be a loss of 5% within….hhhmmmmm…wait a minute. Nobody tells us wihtin which timeframe that prediction will turn into reality. The only information I can find is that for half the predictions the downturn happened latest after 41 days. So the bottomline is: May be you will lose 5% within 41 days or later. With a much smaller probability you will lose 10% or more. Sounds to me like there could be some rain tomorrow, or next week, may be also snow before Christmas. This is just another example of data mining, i.e. looking ex post for statistical correlations which - at the end of the day - turn out to be mere chance events. And, it is a bad example on top of it - given the low probabilities.

 

The Worst Enemy of Every Investor

Wednesday, June 16th, 2010

As a private investor, should you hire a good shrink or a good financial adviser? According to behavioural finance research the psychologist is  more valuable.   Forbes just published a good overview article on the most important findings of behavioral finance:

“…the burgeoning field of behavioral finance, which, over the past three decades, has blended elements of neurology, psychology and economics. It has revealed that, contrary to the preachings of classical economics, individual investors tend to be anything but rational, self-interested profit maximizers. Their own worst enemies would be a more apt description.”

 

The Man Who Blew It All

Tuesday, June 1st, 2010

He won GBP  9.7 m in the lottery, but

“eight years on, having blown all that money, Michael Carroll is practising for a return to his old job as a binman. The 26-year-old, who squandered his multi-million fortune on drugs, gambling and thousands of prostitutes, has since February claimed £42 a week in jobseeker’s allowance.”

Unfortunately, the article doesn’t mention the name his wealth manager. But it seems that even the best investment advice would have failed to save his wealth…

 

Let the Bankers Fail

Tuesday, April 27th, 2010

“The trouble with Wall Street isn’t that too many bankers get rich in the booms. The trouble, rather, is that too few get poor — really, suitably poor — in the busts. To the titans of finance go the upside. To we, the people, nowadays, goes the downside. How much better it would be if the bankers took the losses just as they do the profits”

In an editorial for the Washington Post James Grant captures the essence of what financial reform should be all about. I think the same principle should apply to private wealth managers. Why not have fee arrangements that reward an adviser for profitable strategies and make him pay for bad advice?

“The job before Congress is to bring the fear of God back to Wall Street. Not to stifle enterprise but quite the opposite: to restore real capitalism. By all means, let the bankers savor the sweets of their success. But let them, and their stockholders, pay dearly for their failures. Fair’s fair.”

 

“For Nine Years I Was the S.E.C.’s Doormat”

Monday, March 1st, 2010

The New York Times Magazine has interviewed Harry Markopolos, an investment manager and math whizz who spent nine years to track the machinations of Bernie Maddoff’s hedge fund.  He concluded  early on that Madoff must be a fraud.  In November 2005 he sent a memo to SEC regulators titled  “The World’s Largest Hedge Fund  is a Fraud.” It described his suspicions about Madoff in more detail and asked the SEC to check his fraud theory.

In the NYT interview, Markopolos judgement of the SEC is a harsh one:

Q: “Why do you think the S.E.C. failed to wake up to Madoff’s $65 billion Ponzi scheme until he turned himself in?
A: “They weren’t even asleep at the switch; they were comatose. They didn’t respond to heat and light, much less evidence of wrongdoing. They were not engaged in the fight.”

The whole story is a great example how dysfunctional huge regulatory administrations have become in the financial industry. They are not even able to uncover a fraud scheme when someone else does the analysis for them.

Governments around the world are busy these days to develop grand schemes for new regulatory bodies and laws. No doubt, they will be even less functional. The dysfunctionality will most likely be proportional to the complexity of the law and the number of new bureaucrats hired.

Yet, ordinary investors should really take one learning from the Madoff story: Don’t trust the government to see the red flags and protect investors. It won’t happen. Or more precisely, it will happen but far too late. There is only one way for investors to protect themselves from fraudsters - do the critical analysis yourself,  and keep a very skeptical eye on the ocassional fund management Wunderkind.

 

Happy Holiday Reading!

Monday, December 21st, 2009

Just in case you want to spend some time during your holidays pouring over good & bad investment advice, thinking about financial Armageddon or heavenly bull markets, the (limited) wisdom of market pundits, or even read about bankers on the run, well, then have a look at the following links:

Institutional Investor is gloomy about stocks - sounds for my taste just a little bit like these “STOCKS ARE DEAD” predictions in the late 1970s….

Doug Kass’s 20 surprises for 2010 - fun to read and Doug in many cases was spot on end of 2008 with his predictions for 2009

Obituary - Legendary Value investor Chris Browne dies

Surprise - Best performing fund of the decade is from…SWEDEN

LA Times - shares with us the top-5 investing lessons of 2009, very rational

“Banker On The Run” - Why the new bonus tax makes British bankers leave London in droves.  An example how punishing taxes can backfire? (from the German paper Sueddeutsche)

     

    Stock Market Fads Since 1996

    Friday, November 20th, 2009

    This is a wonderful table every wealth manager should be mandated to show to every new client. It is hardly comprehensible how absurd some of these investment stories were. But then, who is without blame and can claim he never believed in any of them? And the price questions is of course what to fill in for 2010 ff…

    Thanks go to the Reformed Broker!

    Invest fads since 1996

     
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