Listened to this podcast with Jim Rogers... (very worth listening to! click here) http://media.dorseywright.com/rss/DorseyWrightPodcast106.mp3
I have nothing but the UTMOST respect for Mr. Jim Rogers, but I've got one point to quibble with him. Before I continue, I should point out that I espouse his conclusions completely.
He keeps saying that China in 2007 is like investing in US in 1907. Along with all the ups and downs and crisis, human rights violations, theft, corruption and other perils. Of course the implicit, and often explicit, message is that investing there for the long long long term is going to be a big win.
Well, the slight problem I have with that analogy is that the analogy suffers from selection(?) bias - the US back then didn't look that bullish, probably some other countries looked more 'obvious' then and would've been viewed as the 'China of 1907', other than the US. Remember, we were a small country with an accelerating, but very poor quality (IE, give me your wretched, your poor, etc...) population. Lots of space and commodities, not needing to import much at all. Perhaps a better guess at the next century's big winner would've been Africa (or even China). And any other 'obvious pick' since then hasn't worked out at all. So unless you picked the unlikely US, or even more unlikely Japan, by some weird luck, your bet would've failed, or at best kept up with the US of 1907 - England.
(Disclaimer: No real data here, no homework or research done, just vague recollections and generally complete-BS pulled from my rear. YMMV)
Btw, his book Adventure Capitalist is a MUST READ by anyone interested in the world, life or investing. Great book and clearly an example of Jim's genius. Called China when it was a backwater, commodities when that was for farmers, gold when that was for jewelry, and shorting the dollar when everyone couldn't get enough of those. Now its obvious but was not at all back then. Pure genius.
Monday, December 31, 2007
Friday, December 28, 2007
Don't touch your face = don't catch a cold
I'm not sure why so much is written about colds, but no one realizes that there's a really, really simple and effective way to avoid all that misery! Oddly, when I tell people, no one seems to believe that it's that simple - it's too simple to work, they think...
As I always say, if you just keep your hands away from your face, you'll minimize chances of catching a cold, of course unless someone sneezes and sprays the air you're breathing with it! (in which case, cover your mouth or otherwise filter your air from that clod, instead.)
Proof from WebMD:
This article states "Cold viruses enter your body through your nose or mouth and can be spread by touching someone who's sick or sharing common objects and then touching your nose or mouth."
Also, there's this article which states "With a common cold, you catch the virus from another person who is infected with the virus. This usually happens by touching a surface contaminated with cold germs and then touching your nose or mouth."
As I always say, if you just keep your hands away from your face, you'll minimize chances of catching a cold, of course unless someone sneezes and sprays the air you're breathing with it! (in which case, cover your mouth or otherwise filter your air from that clod, instead.)
Proof from WebMD:
This article states "Cold viruses enter your body through your nose or mouth and can be spread by touching someone who's sick or sharing common objects and then touching your nose or mouth."
Also, there's this article which states "With a common cold, you catch the virus from another person who is infected with the virus. This usually happens by touching a surface contaminated with cold germs and then touching your nose or mouth."
Wednesday, December 19, 2007
Fallacies continued:
Another "fact" in investment literature that I vehemently disagree with is that "data-mining is bad". Obviously mining data incorrectly is bad, but that's why its called incorrectly, otherwise it wouldn't be incorrect. Finding patterns in limited data over very specific instruments is a recipe for future randomness, but finding patterns of inefficiency in broad areas of the markets over long periods - and devising methods to exploit that inefficiency - is called intelligent investing.
In fact, that is the very definition of learning and wisdom - what else are those words but labels for effective long term patterns?!?!
INVESTMENT FALLACIES
Great article on DFA (fund management firm) and Efficient Market Hypothesis...
http://www.portfolio.com/executives/features/2007/11/19/Blaine-Lourd-Profile/
Read it before reading my crazy rant below, please.
I think French, Fama, et al, don't get it. The one thing they're forgetting is the implicit assumption their theory makes - the assumption that everyone WANTS to beat the market. In fact, a large portion of the capital invested is not looking for market level returns. They are more than happy to meet their defined needs and believe it or not, some institutions needs (insurance, annuities, etc) are NOT to beat the market. This is a HUGE source of alpha for everyone else.
I do agree that, in aggregate, investors can't beat the market - since they ARE the market, its a simple fact that the market can't beat itself! Amazing how that truism is made to sound like a proprietary "investment philosophy". And the Nobel committee fell for it.
I also agree that the key beneficiaries of Alpha are the managers themselves. Makes perfect sense - to the victor go the spoils. The fact that investors get ANY benefit from it is justification for the effort - they get that return for taking the risk on the manager, who in turn gets the return for taking the risk on a strategy. If it all works, they get the benefit, and if not, the investors have paid the bulk of the risk for a small slice of the return - and the ones doing the work have gotten paid anyway. It's analogous to owning any business - the workers still get paid if the business loses money. The operator gets a large share of the profit, if any, and the passive investor gets the rest. Not so sure why Bogle and the other grey haired 'geniuses' are so worked up about it.
As for the protagonist in the article, it's clear that this guy is a follower and is just onto the next fad. Since he's called the top of each of the previous ones, lets see if he's done it again....indexing, jeez.
Friday, December 07, 2007
Commuting on the Garden State Parkway
Recently, my commute has changed to driving the Garden State Parkway between Exit 131 and 171. As I stare at the car in front of me, lots of analogies to other complex systems pop up.
Before I go into that though, the traffic patterns themselves are very interesting. Lots of stop and go if you go during the bulge of rush hour. Which, because of the road's main function as a conduit to roads going East to NY, means that most people are getting on or off Route 280, Route 80, Route 78, Route 22, etc.. These roads are all pretty close to each other and make for a hellish time around the Newark exits.
Well, I now leave at 8:15 to go 40 miles on the Garden State Parkway and it is fabulous. No coming to a complete stop occasionally ON A HIGHWAY, no worrying about crazy tailgaters, no wondering if the guy behind you will stop in time. Just a nice steady 65 mph the whole way.
Clearly this is because most of those Hudson bound bulge is through the keyhole of Newark by then and the only people left on the road are NJ North South-ers like myself. Bliss!
Getting back to similarities with other complex systems, like equity markets, its easy to think of each lane as a sector or stock to invest in, and the traffic being other investors, riding the price of that stock, denotes as relative position to other lanes (since price is relative). The name of the game is getting ahead of everyone else - ie. capture alpha along with beta.
Everyone is trying to find a way to get into the faster moving lane, but there are costs due to traffic and crowding. Going with the currently fastest moving lane is a losing strategy and it quickly becomes clear that the game is more complex than that. It has hotspots and discernible patterns.
For example, one pattern is to go against instinct and stay in the right lane, the exit lane, at certain exits, like the for Route 280 - the drivers exiting end up getting out of the way and you pass everyone else who habitually stays away from exits. As soon as that Exit is passed though, its good to move to the far left, because the on-ramp from Route 280 immediately follows and those people merging into your stock, er lane, can cause turbulence which slows the flow.
Many, many other analogies follow, mostly concerning human tendencies around and reaction to large groups. Some concern the flow of capital through limited vehicles. An example is the fact that the best spot in the six lane carpet of cars moving down the highway is the trailing edge of an empty area - ie well behind the aggressive tailgaters and just ahead of some relaxed cruisers. This gives you plenty of time to stop, or switch out and the people behind you aren't stressing you out.
Most importantly, it lengthens your vista to the next curve and you can think strategically. Thats where the gains are. Thinking not about the nearby drivers, but the upcoming wave, hotspot or bulge.
Recently, my commute has changed to driving the Garden State Parkway between Exit 131 and 171. As I stare at the car in front of me, lots of analogies to other complex systems pop up.
Before I go into that though, the traffic patterns themselves are very interesting. Lots of stop and go if you go during the bulge of rush hour. Which, because of the road's main function as a conduit to roads going East to NY, means that most people are getting on or off Route 280, Route 80, Route 78, Route 22, etc.. These roads are all pretty close to each other and make for a hellish time around the Newark exits.
Well, I now leave at 8:15 to go 40 miles on the Garden State Parkway and it is fabulous. No coming to a complete stop occasionally ON A HIGHWAY, no worrying about crazy tailgaters, no wondering if the guy behind you will stop in time. Just a nice steady 65 mph the whole way.
Clearly this is because most of those Hudson bound bulge is through the keyhole of Newark by then and the only people left on the road are NJ North South-ers like myself. Bliss!
Getting back to similarities with other complex systems, like equity markets, its easy to think of each lane as a sector or stock to invest in, and the traffic being other investors, riding the price of that stock, denotes as relative position to other lanes (since price is relative). The name of the game is getting ahead of everyone else - ie. capture alpha along with beta.
Everyone is trying to find a way to get into the faster moving lane, but there are costs due to traffic and crowding. Going with the currently fastest moving lane is a losing strategy and it quickly becomes clear that the game is more complex than that. It has hotspots and discernible patterns.
For example, one pattern is to go against instinct and stay in the right lane, the exit lane, at certain exits, like the for Route 280 - the drivers exiting end up getting out of the way and you pass everyone else who habitually stays away from exits. As soon as that Exit is passed though, its good to move to the far left, because the on-ramp from Route 280 immediately follows and those people merging into your stock, er lane, can cause turbulence which slows the flow.
Many, many other analogies follow, mostly concerning human tendencies around and reaction to large groups. Some concern the flow of capital through limited vehicles. An example is the fact that the best spot in the six lane carpet of cars moving down the highway is the trailing edge of an empty area - ie well behind the aggressive tailgaters and just ahead of some relaxed cruisers. This gives you plenty of time to stop, or switch out and the people behind you aren't stressing you out.
Most importantly, it lengthens your vista to the next curve and you can think strategically. Thats where the gains are. Thinking not about the nearby drivers, but the upcoming wave, hotspot or bulge.
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