_________________
Has Trudeau destroyed Canada's resource future? (Link)
200 years of stock market history (Link)
The basis of technical analysis (Link)
Inside Edge is dedicated to providing a collection of investment-related charts, articles and musings that have hit our desks or inboxes. Once in a while we will post materials we’ve created and glimpses into the lives of our own EdgePointers.
Tuesday, January 29, 2019
Friday, January 25, 2019
Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________
Too busy during the week? Catch up with last week's articles and charts:
Investing
Don't have a crystal ball? Base rates are the next best thing (Link)
CPP takes bigger bite from Canadians (Link)
Putting in the reps (Link)
Interview with Bob Rodriguez, the former CEO of First Pacific Advisors (Link)
Risk is where you're not looking (Link)
Why we look for scapegoats after a market decline (Link)
Seth Klarman offers a warning. Davos should listen. (Link)
The rich are getting richer? Maybe, but they're also getting younger! (Link)
Businesses
How open-source software took over the world (Link)
Survival is the ultimate performance measure of a business (Link)
How to invest for the long-term in a turbulent market (Link)
The world's biggest brands want you to refill your orange juice and deodorant $(Link)
Charts
_________________
Too busy during the week? Catch up with last week's articles and charts:
Investing
Don't have a crystal ball? Base rates are the next best thing (Link)
CPP takes bigger bite from Canadians (Link)
Putting in the reps (Link)
Interview with Bob Rodriguez, the former CEO of First Pacific Advisors (Link)
Risk is where you're not looking (Link)
Why we look for scapegoats after a market decline (Link)
Seth Klarman offers a warning. Davos should listen. (Link)
The rich are getting richer? Maybe, but they're also getting younger! (Link)
Businesses
How open-source software took over the world (Link)
Survival is the ultimate performance measure of a business (Link)
How to invest for the long-term in a turbulent market (Link)
The world's biggest brands want you to refill your orange juice and deodorant $(Link)
Charts
Thursday, January 24, 2019
Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________
The rich are getting richer? Maybe, but they're also getting younger! (Link)
A survey of U.S. investors with $25 million or more finds their average age dropped by 11 years since 2014, to 47. These fabulously rich Americans, whose ranks have more than doubled since the depths of the Great Recession, are younger than less wealthy millionaires. The finding suggests a vast generational transfer of wealth is just beginning.
Seth Klarman offers a warning. Davos should listen. (Link)
Klarman argued that American capitalism has been damaged by the obsession with short-term stock prices. “Does anyone really believe that shareholders are the only constituency that matters: not customers, not employees, not the community or the country or Planet Earth?” he asked. In those remarks, Klarman challenged CEOs and fellow-investors to accept greater responsibility for the consequences of their actions. “It’s a choice to do things that ‘maximize profits,’ to pay people as little as you can, or work them as hard as you can,” he said. “It’s a choice to maintain pleasant working conditions or, alternatively, particularly harsh ones, to offer good benefits or paltry ones.” Also, without naming specific cases, he criticized the kind of buyouts in which private-equity investors saddled a troubled company with so much debt that it helped push the company into bankruptcy. “I’m convinced, as an investor, that the world I live in every day has gotten more short-term-oriented,” he said. “The pressure on the game changed the game.” Some investors, he said, are too quick to demand ephemeral fixes: “Why aren’t you restructuring? Why aren’t you doing a spinoff? Why aren’t you buying back stock?"
The world's biggest brands want you to refill your orange juice and deodorant $(Link)
Proponents of refillables say they can reduce greenhouse-gas emissions, waste and energy use. A bottle refilled five times as part of the project has an impact equivalent to five single-use bottles when accounting for the use of resources and the release of pollutants, estimates TerraCycle. Each use after that is incrementally better for the environment.
_________________
The rich are getting richer? Maybe, but they're also getting younger! (Link)
A survey of U.S. investors with $25 million or more finds their average age dropped by 11 years since 2014, to 47. These fabulously rich Americans, whose ranks have more than doubled since the depths of the Great Recession, are younger than less wealthy millionaires. The finding suggests a vast generational transfer of wealth is just beginning.
Seth Klarman offers a warning. Davos should listen. (Link)
Klarman argued that American capitalism has been damaged by the obsession with short-term stock prices. “Does anyone really believe that shareholders are the only constituency that matters: not customers, not employees, not the community or the country or Planet Earth?” he asked. In those remarks, Klarman challenged CEOs and fellow-investors to accept greater responsibility for the consequences of their actions. “It’s a choice to do things that ‘maximize profits,’ to pay people as little as you can, or work them as hard as you can,” he said. “It’s a choice to maintain pleasant working conditions or, alternatively, particularly harsh ones, to offer good benefits or paltry ones.” Also, without naming specific cases, he criticized the kind of buyouts in which private-equity investors saddled a troubled company with so much debt that it helped push the company into bankruptcy. “I’m convinced, as an investor, that the world I live in every day has gotten more short-term-oriented,” he said. “The pressure on the game changed the game.” Some investors, he said, are too quick to demand ephemeral fixes: “Why aren’t you restructuring? Why aren’t you doing a spinoff? Why aren’t you buying back stock?"
The world's biggest brands want you to refill your orange juice and deodorant $(Link)
Proponents of refillables say they can reduce greenhouse-gas emissions, waste and energy use. A bottle refilled five times as part of the project has an impact equivalent to five single-use bottles when accounting for the use of resources and the release of pollutants, estimates TerraCycle. Each use after that is incrementally better for the environment.
Wednesday, January 23, 2019
Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________
Why we look for scapegoats after a market decline (Link)
Whenever stocks experience a large decline, it’s normal to look for someone or something to blame; The Fed, China, inflation, computers, etc. We can never determine exactly why stocks do what they do, especially when we’re searching for answers on a daily basis, and in the age of click bait and sensationalism, it’s unlikely that we’ll ever read an honest news update.
Survival is the ultimate performance measure of a business (Link)
Old companies are often the most innovative and adaptive companies. They have focused on an area for a long time. Many old companies aren’t large companies. They are small to medium sized companies that focused initially on an area that they ultimately ended up dominating. They wouldn’t have survived 50-100+ years if they weren’t innovative and adaptive.
How to invest for the long-term in a turbulent market (Link)
There are three things that can allow you to use market volatility to your advantage: 1. The right structure 2. A long-term investment process 3. A behavioral checklist to allow you to remain rational when everyone else is being anything but.
_________________
Why we look for scapegoats after a market decline (Link)
Whenever stocks experience a large decline, it’s normal to look for someone or something to blame; The Fed, China, inflation, computers, etc. We can never determine exactly why stocks do what they do, especially when we’re searching for answers on a daily basis, and in the age of click bait and sensationalism, it’s unlikely that we’ll ever read an honest news update.
Survival is the ultimate performance measure of a business (Link)
Old companies are often the most innovative and adaptive companies. They have focused on an area for a long time. Many old companies aren’t large companies. They are small to medium sized companies that focused initially on an area that they ultimately ended up dominating. They wouldn’t have survived 50-100+ years if they weren’t innovative and adaptive.
How to invest for the long-term in a turbulent market (Link)
There are three things that can allow you to use market volatility to your advantage: 1. The right structure 2. A long-term investment process 3. A behavioral checklist to allow you to remain rational when everyone else is being anything but.
Tuesday, January 22, 2019
Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________
Putting in the reps (Link)
There’s no singular path to success in any endeavor so my advice to anyone looking to further themselves is to put in the reps, even when they seem meaningless.
- If you want to become a writer, start writing every single day, even if it’s terrible.
- If you want to become a better investor, start reading about the markets, and put some actual money to work.
- If you want to work in a specific company, start out as an unpaid intern or figure out how to provide value to someone who already works there.
- If you want to become an entrepreneur, quit reading hashtags on Instagram and actually try to start a business or sell a product.
- If you want to become something or someone you have to put in the reps.
There are no shortcuts...
Interview with Bob Rodriguez, the former CEO of First Pacific Advisors (Link)
Q: In my Jan. 30, 2018, interview with you, you called the stock market “Alice in Wonderland” populated by a host of irrational “Mad Hatters.” Are they still in the Rabbit Hole?
A:The equity market was delusional and still is. All the excitement from the Trump tax cut has been washed away. And where did the corporate tax cuts go? Stock buybacks and dividends. Capital spending hasn’t occurred, which means that productivity is unlikely to improve appreciably. We’re substituting labor for capital. That’s part of the reason for lower unemployment rates.
Risk is where you're not looking (Link)
To date, the increase in supply of corporate bonds has partially been soaked up by the increase in corporate bond exchange traded funds (ETFs). Such passive funds have grown from an immaterial amount in 2008 to $600 billion today. A relevant trait of most such funds is that they transact indiscriminately with frequent, ratable purchases and sales – a function of ETF inflows or outflows, respectively – that can drive bond prices to both new highs and new lows. In a downturn, passive investment vehicles could be forced to indiscriminately sell those investment grade bonds that the ratings agencies have downgraded to junk. Given the huge size of the BBB market, downgrades could incite a large volume of selling that could then infiltrate the rest of the market and quite possibly exacerbate the negative price action. There is no bond exchange, unlike the many exchanges for stocks, so matching buyers and sellers of bonds isn’t always an easy task. Trading desks of investment banks used to facilitate markets by assuming risk and holding bonds on their balance sheets. Such market making represented about 10% of the overall corporate bond market a decade ago, but today, trading desks hold less than 1% of total corporate bonds in inventory.
_________________
Putting in the reps (Link)
There’s no singular path to success in any endeavor so my advice to anyone looking to further themselves is to put in the reps, even when they seem meaningless.
- If you want to become a writer, start writing every single day, even if it’s terrible.
- If you want to become a better investor, start reading about the markets, and put some actual money to work.
- If you want to work in a specific company, start out as an unpaid intern or figure out how to provide value to someone who already works there.
- If you want to become an entrepreneur, quit reading hashtags on Instagram and actually try to start a business or sell a product.
- If you want to become something or someone you have to put in the reps.
There are no shortcuts...
Interview with Bob Rodriguez, the former CEO of First Pacific Advisors (Link)
Q: In my Jan. 30, 2018, interview with you, you called the stock market “Alice in Wonderland” populated by a host of irrational “Mad Hatters.” Are they still in the Rabbit Hole?
A:The equity market was delusional and still is. All the excitement from the Trump tax cut has been washed away. And where did the corporate tax cuts go? Stock buybacks and dividends. Capital spending hasn’t occurred, which means that productivity is unlikely to improve appreciably. We’re substituting labor for capital. That’s part of the reason for lower unemployment rates.
To date, the increase in supply of corporate bonds has partially been soaked up by the increase in corporate bond exchange traded funds (ETFs). Such passive funds have grown from an immaterial amount in 2008 to $600 billion today. A relevant trait of most such funds is that they transact indiscriminately with frequent, ratable purchases and sales – a function of ETF inflows or outflows, respectively – that can drive bond prices to both new highs and new lows. In a downturn, passive investment vehicles could be forced to indiscriminately sell those investment grade bonds that the ratings agencies have downgraded to junk. Given the huge size of the BBB market, downgrades could incite a large volume of selling that could then infiltrate the rest of the market and quite possibly exacerbate the negative price action. There is no bond exchange, unlike the many exchanges for stocks, so matching buyers and sellers of bonds isn’t always an easy task. Trading desks of investment banks used to facilitate markets by assuming risk and holding bonds on their balance sheets. Such market making represented about 10% of the overall corporate bond market a decade ago, but today, trading desks hold less than 1% of total corporate bonds in inventory.
Monday, January 21, 2019
Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________
How open-source software took over the world (Link)
"By the time the open-source software gets to production it is rarely, if ever, displaced. Fundamentally, the software is never “sold”; it is adopted by the developers who appreciate the software more because they can see it and use it themselves rather than being subject to it based on executive decisions. The developers basically vote with their feet. This is in stark contrast to how software has traditionally been sold."
CPP takes bigger bite from Canadians (Link)
"Many expansion proponents assume that an expanded CPP will result in a net increase in savings for retirement. Both theory and empirical evidence indicate this is not the case. Instead, higher mandatory CPP contributions will likely result in less private savings in pensions and RRSPs. A 2015 study found that between 1996 and 2004, when CPP contributions were raised from 5.6 to 9.9 per cent, for every $1 increase in CPP premiums, the average Canadian household reduced its private savings by almost $1 because people have a preference for how they split their income between saving and consuming. Mandating an expanded CPP doesn’t change that preference. Thus the overall rate of savings will likely remain unchanged but the mix will change to favour more CPP and less private savings."
Buy high, buy low (Link)
_________________
How open-source software took over the world (Link)
"By the time the open-source software gets to production it is rarely, if ever, displaced. Fundamentally, the software is never “sold”; it is adopted by the developers who appreciate the software more because they can see it and use it themselves rather than being subject to it based on executive decisions. The developers basically vote with their feet. This is in stark contrast to how software has traditionally been sold."
CPP takes bigger bite from Canadians (Link)
"Many expansion proponents assume that an expanded CPP will result in a net increase in savings for retirement. Both theory and empirical evidence indicate this is not the case. Instead, higher mandatory CPP contributions will likely result in less private savings in pensions and RRSPs. A 2015 study found that between 1996 and 2004, when CPP contributions were raised from 5.6 to 9.9 per cent, for every $1 increase in CPP premiums, the average Canadian household reduced its private savings by almost $1 because people have a preference for how they split their income between saving and consuming. Mandating an expanded CPP doesn’t change that preference. Thus the overall rate of savings will likely remain unchanged but the mix will change to favour more CPP and less private savings."
Buy high, buy low (Link)
Sunday, January 20, 2019
Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________
Don't have a crystal ball? Base rates are the next best thing (Link)
"Obviously, it would be great if we were all psychic and could know how the future would turn out. But we aren’t. Knowing the base rate is the next best thing to psychic ability. How often something has occurred in the past is usually a good indicator of how often it will occur in the future. Base rates are like having a crystal ball. Seeking out the base rate in our decision process reminds us to not put so much weight on our own experience and own opinions. Always asking, “how often does this typically happen?” helps us view the decision from the outside in, rather than the inside out."
The paradox of uncertainty - Counter intuitively, being more uncertain leads to greater accuracy
"When we're aware of our own uncertainty, we're looking for why we're wrong. We're more likely to consider other opinions. We're less likely to be overconfident in whatever answer we find. When we're more uncertain and less confident, we're more likely to be open-minded, leading us to take the outside view. A study found that bringing uncertainty into a group increased the group's ability to correctly identify the perpetrator in a "Murder Mystery" scenario. They were both more likely to be right and, at the same time, more open to the idea that they might be wrong. That might seem to be a paradox, but there turns out to be a strong correlation between astute decision-making and a willingness to recognize—and even embrace—uncertainty. These findings echo the famous Dunning-Kruger effect from cognitive psychology, in which low-ability individuals have a tendency to overestimate their skills. Sometimes the easiest way to be wrong is to be certain you are right."
Investment grade bond returns
_________________
Don't have a crystal ball? Base rates are the next best thing (Link)
"Obviously, it would be great if we were all psychic and could know how the future would turn out. But we aren’t. Knowing the base rate is the next best thing to psychic ability. How often something has occurred in the past is usually a good indicator of how often it will occur in the future. Base rates are like having a crystal ball. Seeking out the base rate in our decision process reminds us to not put so much weight on our own experience and own opinions. Always asking, “how often does this typically happen?” helps us view the decision from the outside in, rather than the inside out."
The paradox of uncertainty - Counter intuitively, being more uncertain leads to greater accuracy
"When we're aware of our own uncertainty, we're looking for why we're wrong. We're more likely to consider other opinions. We're less likely to be overconfident in whatever answer we find. When we're more uncertain and less confident, we're more likely to be open-minded, leading us to take the outside view. A study found that bringing uncertainty into a group increased the group's ability to correctly identify the perpetrator in a "Murder Mystery" scenario. They were both more likely to be right and, at the same time, more open to the idea that they might be wrong. That might seem to be a paradox, but there turns out to be a strong correlation between astute decision-making and a willingness to recognize—and even embrace—uncertainty. These findings echo the famous Dunning-Kruger effect from cognitive psychology, in which low-ability individuals have a tendency to overestimate their skills. Sometimes the easiest way to be wrong is to be certain you are right."
Friday, January 18, 2019
Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________
Too busy during the week? Catch up with last week's articles and charts:
Investing
While investors display clear skill in buying, their selling decisions underperform substantially (Link)
50 reasons why we don't invest for the long-term (Link)
Forecasting - the attempt to predict the unknowable by measuring the irrelevant (Link)
Things I'm pretty sure about (Link)
The Big Mac index shows currencies are very cheap against the dollar (Link)
Q&A with Daniel Crosby, the author of "The Behavioral Investor" book (Link)
Other
CPP ads on one of the most expensive TV spots for Canadian TV. (Link)
With an aging population spurring an ongoing economic revival, Japan is proving demographics aren't always destiny $(Link)
We're hiring! We understand that extraordinary human ability is a scarce resource in high demand. If you know someone who would be interested in joining our investment team, please refer them to the posting above. (Link)
Charts
_________________
Too busy during the week? Catch up with last week's articles and charts:
Investing
While investors display clear skill in buying, their selling decisions underperform substantially (Link)
50 reasons why we don't invest for the long-term (Link)
Forecasting - the attempt to predict the unknowable by measuring the irrelevant (Link)
Things I'm pretty sure about (Link)
The Big Mac index shows currencies are very cheap against the dollar (Link)
Q&A with Daniel Crosby, the author of "The Behavioral Investor" book (Link)
Other
CPP ads on one of the most expensive TV spots for Canadian TV. (Link)
With an aging population spurring an ongoing economic revival, Japan is proving demographics aren't always destiny $(Link)
We're hiring! We understand that extraordinary human ability is a scarce resource in high demand. If you know someone who would be interested in joining our investment team, please refer them to the posting above. (Link)
Charts
Thursday, January 17, 2019
Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________
Forecasting - the attempt to predict the unknowable by measuring the irrelevant (Link)
"The most important thing to know to accurately forecast future stock prices is what mood investors will be in in the future. Will people be optimistic, and willing to pay a high price for stocks? Or will they be “bummed out” and unwilling to do so? You have to know that. It’s the most important variable when predicating future stock returns. And it’s unknowable. So why do we bother with the forecasting game? Market strategists would say there is a demand for price targets and the like and that they have little choice but to cater to this demand. As for those forecasters who make especially eye-catching predictions, they know inaccurate forecasts will quickly be forgotten, while the occasionally correct one can be milked for years."
We're hiring! (Link)
We understand that extraordinary human ability is a scarce resource in high demand. If you know someone who would be interested in joining our investment team, please refer them to the posting above.
Friday humour
_________________
Forecasting - the attempt to predict the unknowable by measuring the irrelevant (Link)
"The most important thing to know to accurately forecast future stock prices is what mood investors will be in in the future. Will people be optimistic, and willing to pay a high price for stocks? Or will they be “bummed out” and unwilling to do so? You have to know that. It’s the most important variable when predicating future stock returns. And it’s unknowable. So why do we bother with the forecasting game? Market strategists would say there is a demand for price targets and the like and that they have little choice but to cater to this demand. As for those forecasters who make especially eye-catching predictions, they know inaccurate forecasts will quickly be forgotten, while the occasionally correct one can be milked for years."
We're hiring! (Link)
We understand that extraordinary human ability is a scarce resource in high demand. If you know someone who would be interested in joining our investment team, please refer them to the posting above.
Friday humour
Wednesday, January 16, 2019
Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________
Q&A with Daniel Crosby, the author of "The Behavioral Investor" book (Link)
"I, along with many others in the industry, now believe the primary benefit of financial advice to be behavioral. The tricky thing about good financial decision-making is that education is a fairly weak predictor of behavior. There are all sorts of educational resources available to the retail investor today – blogs, white papers, all the way to robo-advisors that will automatically create a near perfect asset mix – but none of these things can prevent the panicked investor from being their own worst enemy. I liken it to nutritional information which is widely available and widely ignored. In fact, some research suggests that restaurants that list calorie counts on the menu actually lead diners to eat slightly *more* than those that don’t list them. Investors do not need an advisor to tell them how to invest; a long weekend of reading the right books would point the average investor in a good direction that could be implemented simply and cheaply. However, that very same investor is highly unlikely to stick with that plan through thick and thin, which is the only thing that matters in the long-term."
From the EdgePoint archives....June 24, 2016 - The pros of hiring a pro (Link)
Syd and Montana's griddle greatness
When Syd and Montana made pancakes to celebrate their anniversary at EdgePoint a few weeks ago, they weren't the only ones flipping! We all flipped out over the gooey, chocolate-y decadence. A hot pancake would be perfect on this chilly Thursday morning...
_________________
Q&A with Daniel Crosby, the author of "The Behavioral Investor" book (Link)
"I, along with many others in the industry, now believe the primary benefit of financial advice to be behavioral. The tricky thing about good financial decision-making is that education is a fairly weak predictor of behavior. There are all sorts of educational resources available to the retail investor today – blogs, white papers, all the way to robo-advisors that will automatically create a near perfect asset mix – but none of these things can prevent the panicked investor from being their own worst enemy. I liken it to nutritional information which is widely available and widely ignored. In fact, some research suggests that restaurants that list calorie counts on the menu actually lead diners to eat slightly *more* than those that don’t list them. Investors do not need an advisor to tell them how to invest; a long weekend of reading the right books would point the average investor in a good direction that could be implemented simply and cheaply. However, that very same investor is highly unlikely to stick with that plan through thick and thin, which is the only thing that matters in the long-term."
From the EdgePoint archives....June 24, 2016 - The pros of hiring a pro (Link)
Tuesday, January 15, 2019
Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________
50 reasons why we don't invest for the long-term (Link)
"Adopting a genuinely long-term approach to investing is one of the few genuine edges or advantages any investor can hope to exploit. Unfortunately, it can feel as if everything is conspiring against our attempts to benefit from it – but that does not mean we should not try."
1: Because it is boring.
2: Because markets are random and it’s difficult to accept.
3: Because of short-term benchmark comparisons.
4: Because we are remunerated based on annual performance.
5: Because of quarterly risk and performance reviews.
6: Because there is always something/somebody performing better.
7: Because we watch financial news.
8: Because we think we can time markets.
....
Buy Canada?
Diversification? (Link)
_________________
50 reasons why we don't invest for the long-term (Link)
"Adopting a genuinely long-term approach to investing is one of the few genuine edges or advantages any investor can hope to exploit. Unfortunately, it can feel as if everything is conspiring against our attempts to benefit from it – but that does not mean we should not try."
1: Because it is boring.
2: Because markets are random and it’s difficult to accept.
3: Because of short-term benchmark comparisons.
4: Because we are remunerated based on annual performance.
5: Because of quarterly risk and performance reviews.
6: Because there is always something/somebody performing better.
7: Because we watch financial news.
8: Because we think we can time markets.
....
Buy Canada?
Diversification? (Link)
Monday, January 14, 2019
Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________
Things I'm pretty sure about (Link)
"Market behaviors feed on themselves. We all see the same market price and read the same commentary, the latter of which acts like gasoline on the flames of herd behavior. So investing misbehaviours can snowball. The consequence is that markets rarely sit at “average” valuations; they spend far more time in areas that look historically cheap or historically crazy. Underestimating adaptation and reversion to the mean is the greatest cause of pessimism. If you can stick around long enough to stomach the adaptations, optimism should virtually always the default assumption."
The Big Mac index shows currencies are very cheap against the dollar (Link)
"The Big Mac index is based on the theory of purchasing-power parity (PPP), which states that currencies should adjust until the price of an identical basket of goods—or in this case, a Big Mac—costs the same everywhere. By this metric most exchange rates are well off the mark. In Russia, for example, a Big Mac costs 110 roubles ($1.65), compared with $5.58 in America. That suggests the rouble is undervalued by 70% against the greenback."
With an aging population spurring an ongoing economic revival, Japan is proving demographics aren't always destiny $(Link)
"Japan is refreshing its labor force from three often-neglected pools: the elderly, women and foreigners. This offers important lessons for the many other countries that now, or will soon, face similar demographic pressures."
_________________
Things I'm pretty sure about (Link)
"Market behaviors feed on themselves. We all see the same market price and read the same commentary, the latter of which acts like gasoline on the flames of herd behavior. So investing misbehaviours can snowball. The consequence is that markets rarely sit at “average” valuations; they spend far more time in areas that look historically cheap or historically crazy. Underestimating adaptation and reversion to the mean is the greatest cause of pessimism. If you can stick around long enough to stomach the adaptations, optimism should virtually always the default assumption."
The Big Mac index shows currencies are very cheap against the dollar (Link)
"The Big Mac index is based on the theory of purchasing-power parity (PPP), which states that currencies should adjust until the price of an identical basket of goods—or in this case, a Big Mac—costs the same everywhere. By this metric most exchange rates are well off the mark. In Russia, for example, a Big Mac costs 110 roubles ($1.65), compared with $5.58 in America. That suggests the rouble is undervalued by 70% against the greenback."
With an aging population spurring an ongoing economic revival, Japan is proving demographics aren't always destiny $(Link)
"Japan is refreshing its labor force from three often-neglected pools: the elderly, women and foreigners. This offers important lessons for the many other countries that now, or will soon, face similar demographic pressures."
Sunday, January 13, 2019
Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________
While investors display clear skill in buying, their selling decisions underperform substantially (Link)
"We present evidence consistent with limited attention as a key driver of this discrepancy, with investors devoting more resources to buy decisions than sell decisions. When attentional resources are more likely to be equally distributed between prospective purchases and sales, specifically around company earnings announcement days, stocks sold outperform counterfactual strategies similar to buys. We document managers' use of a heuristic that overweights a salient attribute of portfolio assets - past returns - when selling, whereas we do not observe similar heuristic use for buys. Assets with extreme returns are more than 50% more likely to be sold than those that just under- or over-performed. Finally, we document that the use of the heuristic appears to a mistake and is linked empirically with substantial overall underperformance in selling."
CPP ads on one of the most expensive TV spots for Canadian TV. (Link)
"Canadian viewers of this year’s NFL’s wild card weekend were startled to see a certain commercial in heavy rotation. No, not the Budweiser Clydesdales, or the burger and soft drink ads that are the pricey broadcasts’ usual fare. Rather, this important message was brought to you by the Canada Pension Plan Investment Board. “You don’t think about CPP Investment Board,” the announcer chirped, while the usual assortment of smiling Canadians went blissfully about their assorted business, “but we think about you every day.” Indeed, “while you may not think about it, you started saving for retirement with your first paycheque.” Cue the music (Great Big Sea’s “Ordinary Day”) and the slogan: “Investing today for your tomorrow.”
Canadian Equities
_________________
While investors display clear skill in buying, their selling decisions underperform substantially (Link)
"We present evidence consistent with limited attention as a key driver of this discrepancy, with investors devoting more resources to buy decisions than sell decisions. When attentional resources are more likely to be equally distributed between prospective purchases and sales, specifically around company earnings announcement days, stocks sold outperform counterfactual strategies similar to buys. We document managers' use of a heuristic that overweights a salient attribute of portfolio assets - past returns - when selling, whereas we do not observe similar heuristic use for buys. Assets with extreme returns are more than 50% more likely to be sold than those that just under- or over-performed. Finally, we document that the use of the heuristic appears to a mistake and is linked empirically with substantial overall underperformance in selling."
CPP ads on one of the most expensive TV spots for Canadian TV. (Link)
"Canadian viewers of this year’s NFL’s wild card weekend were startled to see a certain commercial in heavy rotation. No, not the Budweiser Clydesdales, or the burger and soft drink ads that are the pricey broadcasts’ usual fare. Rather, this important message was brought to you by the Canada Pension Plan Investment Board. “You don’t think about CPP Investment Board,” the announcer chirped, while the usual assortment of smiling Canadians went blissfully about their assorted business, “but we think about you every day.” Indeed, “while you may not think about it, you started saving for retirement with your first paycheque.” Cue the music (Great Big Sea’s “Ordinary Day”) and the slogan: “Investing today for your tomorrow.”
Canadian Equities
Friday, January 11, 2019
Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________
Too busy during the week? Catch up with last week's charts and articles:
Housing
Markets
World
Looking back on the last 40 years of reforms in China by Ray Dalio (Link)
Wouldn't it be sad if Canada can't help displace coal in emerging markets? (Link)
Businesses
Apparently LEGO sets have outperformed equities over the long-term (Link)
How much of the internet is fake? Turns out, a lot of it, actually (Link)
Addiction to a language-learning app $(Link)
Industrial production
Millennials
Youth use of e-cigarettes has soared over the past year $(Link)
Millennials aren't the only ones struggling to find a home to buy. A shortage of houses in the entry-level price range is prompting institutional landlords to begin building new ones themselves. $(Link)
_________________
Too busy during the week? Catch up with last week's charts and articles:
Housing
Markets
World
Looking back on the last 40 years of reforms in China by Ray Dalio (Link)
Wouldn't it be sad if Canada can't help displace coal in emerging markets? (Link)
Businesses
Apparently LEGO sets have outperformed equities over the long-term (Link)
How much of the internet is fake? Turns out, a lot of it, actually (Link)
Addiction to a language-learning app $(Link)
Industrial production
Millennials
Youth use of e-cigarettes has soared over the past year $(Link)
Millennials aren't the only ones struggling to find a home to buy. A shortage of houses in the entry-level price range is prompting institutional landlords to begin building new ones themselves. $(Link)
Thursday, January 10, 2019
Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________
Looking back on the last 40 years of reforms in China by Ray Dalio (Link)
"I believe while there will be trade wars and trade truces, they aren’t the most important things. The most important things are that 1) China has a culture and system that has worked well for it for a long time so it shouldn’t be expected to change much, 2) the U.S. has the same, 3) these systems (and those of other countries) will be both competing and cooperating, and how well they do that will be an important influence on global conditions, 4) how well each system works in practice will have a far greater influence on where each country stands in the future than the terms of the deals that they strike with each other, so each would do well to examine its own weaknesses and come up with reforms to rectify them, and 5) there is a lot to respect about the Chinese culture and approach that led to its remarkable accomplishments, 6) we would do well to learn from each other, cooperate and compete to bring each other up rather than to tear each other down, and 7) China is a place we need to continue to evolve with and invest in."
Wouldn't it be sad if Canada can't help displace coal in emerging markets? (Link)
"At present, Chinese LNG demand is surging. For the first nine months of the year, Chinese imports are up an incredible 50% year-on-year. However, it’s not just China that will drive LNG demand going forward. Using our same methodology, we expect India, Turkey, Pakistan, and Thailand will all see sharply higher demand for LNG volumes between now and 2025. Furthermore, as domestic demand comes in stronger than expected, several LNG exporting countries are facing feed gas shortages. Indonesia, Egypt, and Brazil have all run into problems and limited exports since we first identified this potential bottleneck several years ago. Indonesia’s new large-scale export terminal on Papua is now expected to entirely serve domestic gas demand, and as a result, no volumes are expected to reach the export market."
Investor behaviour - investors remain their own worst enemy
_________________
Looking back on the last 40 years of reforms in China by Ray Dalio (Link)
"I believe while there will be trade wars and trade truces, they aren’t the most important things. The most important things are that 1) China has a culture and system that has worked well for it for a long time so it shouldn’t be expected to change much, 2) the U.S. has the same, 3) these systems (and those of other countries) will be both competing and cooperating, and how well they do that will be an important influence on global conditions, 4) how well each system works in practice will have a far greater influence on where each country stands in the future than the terms of the deals that they strike with each other, so each would do well to examine its own weaknesses and come up with reforms to rectify them, and 5) there is a lot to respect about the Chinese culture and approach that led to its remarkable accomplishments, 6) we would do well to learn from each other, cooperate and compete to bring each other up rather than to tear each other down, and 7) China is a place we need to continue to evolve with and invest in."
Wouldn't it be sad if Canada can't help displace coal in emerging markets? (Link)
"At present, Chinese LNG demand is surging. For the first nine months of the year, Chinese imports are up an incredible 50% year-on-year. However, it’s not just China that will drive LNG demand going forward. Using our same methodology, we expect India, Turkey, Pakistan, and Thailand will all see sharply higher demand for LNG volumes between now and 2025. Furthermore, as domestic demand comes in stronger than expected, several LNG exporting countries are facing feed gas shortages. Indonesia, Egypt, and Brazil have all run into problems and limited exports since we first identified this potential bottleneck several years ago. Indonesia’s new large-scale export terminal on Papua is now expected to entirely serve domestic gas demand, and as a result, no volumes are expected to reach the export market."
Investor behaviour - investors remain their own worst enemy
Wednesday, January 9, 2019
Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________
Millennials aren't the only ones struggling to find a home to buy. A shortage of houses in the entry-level price range is prompting institutional landlords to begin building new ones themselves. $(Link)
"California-based American Homes 4 Rent has been building houses throughout the Southeast to add to its pool of more than 52,000 rental homes across the country. Chief Executive David Singelyn told a recent gathering of rental investors that in some places the company can build houses for about the same price that it costs to buy existing ones. By building houses, American Homes avoids sales commissions and renovation costs. It can outfit homes with its preferred fixtures and finishes at the onset, and charge higher rents than it can fetch for its older homes, Mr. Singelyn said."
U.S. millennial stats
Source: Raymond James Report on 2019 outlook
_________________
Millennials aren't the only ones struggling to find a home to buy. A shortage of houses in the entry-level price range is prompting institutional landlords to begin building new ones themselves. $(Link)
"California-based American Homes 4 Rent has been building houses throughout the Southeast to add to its pool of more than 52,000 rental homes across the country. Chief Executive David Singelyn told a recent gathering of rental investors that in some places the company can build houses for about the same price that it costs to buy existing ones. By building houses, American Homes avoids sales commissions and renovation costs. It can outfit homes with its preferred fixtures and finishes at the onset, and charge higher rents than it can fetch for its older homes, Mr. Singelyn said."
U.S. millennial stats
Source: Raymond James Report on 2019 outlook
Monday, January 7, 2019
Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________
Youth use of e-cigarettes has soared over the past year $(Link)
"Youth use of e-cigarettes has soared over the past year, thanks largely to Juul, whose sales have skyrocketed since mid-2017. One out of every five high school students—more than three million teens—reported using e-cigarettes recently, according to a federal survey conducted this past spring. Some, like Mr. Kinard, have become addicted to the powerful doses of nicotine that Juuls and similar e-cigarettes pack."
How much of the internet is fake? Turns out, a lot of it, actually (Link)
"Take something as seemingly simple as how we measure web traffic. Metrics should be the most real thing on the internet: They are countable, trackable, and verifiable, and their existence undergirds the advertising business that drives our biggest social and search platforms. Yet not even Facebook, the world’s greatest data–gathering organization, seems able to produce genuine figures. In October, small advertisers filed suit against the social-media giant, accusing it of covering up, for a year, its significant overstatements of the time users spent watching videos on the platform (by 60 to 80 percent, Facebook says; by 150 to 900 percent, the plaintiffs say)."
Addiction to a language-learning app $(Link)
"Von Ahn set out with his developers to make the app as addictive as Candy Crush and other popular games—in a good way. Good or bad, Duolingo’s addiction rate is way up. Next-day retention is 55 percent, up from 13 percent in 2012. And with about 300 million users, Duolingo is the largest language-teaching company in the world, by user base. The company has tapped into the latest research from behavioral scientists such as Angela Duckworth, an expert on self-control, and cadged ideas from game makers, who, von Ahn says, “have nailed down behavioral addiction really well.” One copied technique, “appointment mechanics,” encourages users to keep returning by rewarding streaks of uninterrupted daily practice with jewels that can be traded for in-game rewards."
_________________
Youth use of e-cigarettes has soared over the past year $(Link)
"Youth use of e-cigarettes has soared over the past year, thanks largely to Juul, whose sales have skyrocketed since mid-2017. One out of every five high school students—more than three million teens—reported using e-cigarettes recently, according to a federal survey conducted this past spring. Some, like Mr. Kinard, have become addicted to the powerful doses of nicotine that Juuls and similar e-cigarettes pack."
How much of the internet is fake? Turns out, a lot of it, actually (Link)
"Take something as seemingly simple as how we measure web traffic. Metrics should be the most real thing on the internet: They are countable, trackable, and verifiable, and their existence undergirds the advertising business that drives our biggest social and search platforms. Yet not even Facebook, the world’s greatest data–gathering organization, seems able to produce genuine figures. In October, small advertisers filed suit against the social-media giant, accusing it of covering up, for a year, its significant overstatements of the time users spent watching videos on the platform (by 60 to 80 percent, Facebook says; by 150 to 900 percent, the plaintiffs say)."
Addiction to a language-learning app $(Link)
"Von Ahn set out with his developers to make the app as addictive as Candy Crush and other popular games—in a good way. Good or bad, Duolingo’s addiction rate is way up. Next-day retention is 55 percent, up from 13 percent in 2012. And with about 300 million users, Duolingo is the largest language-teaching company in the world, by user base. The company has tapped into the latest research from behavioral scientists such as Angela Duckworth, an expert on self-control, and cadged ideas from game makers, who, von Ahn says, “have nailed down behavioral addiction really well.” One copied technique, “appointment mechanics,” encourages users to keep returning by rewarding streaks of uninterrupted daily practice with jewels that can be traded for in-game rewards."
Thursday, January 3, 2019
Get the Edge
Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________
How not to be stupid (Link)
"Stupidity is the cost of intelligence operating in a complex environment. It’s almost inevitable. Seven factors that lead to stupidity: being outside your normal environment or changing your routines, being in the presence of a group, being in the presence of an expert or if you, yourself, are an expert, doing any task that requires intense focus, information overload, physical or emotional stress, fatigue. All seven factors are present in U.S. hospitals. All seven factors. This will astonish you. In the United States every year, there are roughly 30,000 fatalities from automobile accidents. That is a benchmark. How many deaths accidentally occur, accidentally, in hospitals every year? In other words, you go in with a broken arm and you don’t come out. Not, you died as a result of what you went in for. You died because of error, human error. I would tell you the current best estimate—this is deaths, mind you, not injuries—is 210,000 to 440,000 people die every year in the United States from hospital error."
Canada can and should be a leader in managing the impacts of climate change (Link)
"Canada's responsibly produced oil and natural gas can mitigate the impact of climate change globally. The Trans Mountain pipeline, if constructed, would transport roughly 590,000 b/d of oil, produced with leading environmental and social standards, to global markets. If Canadian standards were recognized and applied worldwide, the amount of GHG emissions from producing a barrel of oil would fall by 23%, the equivalent of removing approximately 100 million cars from the road. By approving and constructing the Trans Mountain pipeline, Canada will be reducing global GHG emissions."
Japan's return on equity and price to book value discount vs. world
Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________
How not to be stupid (Link)
"Stupidity is the cost of intelligence operating in a complex environment. It’s almost inevitable. Seven factors that lead to stupidity: being outside your normal environment or changing your routines, being in the presence of a group, being in the presence of an expert or if you, yourself, are an expert, doing any task that requires intense focus, information overload, physical or emotional stress, fatigue. All seven factors are present in U.S. hospitals. All seven factors. This will astonish you. In the United States every year, there are roughly 30,000 fatalities from automobile accidents. That is a benchmark. How many deaths accidentally occur, accidentally, in hospitals every year? In other words, you go in with a broken arm and you don’t come out. Not, you died as a result of what you went in for. You died because of error, human error. I would tell you the current best estimate—this is deaths, mind you, not injuries—is 210,000 to 440,000 people die every year in the United States from hospital error."
Canada can and should be a leader in managing the impacts of climate change (Link)
"Canada's responsibly produced oil and natural gas can mitigate the impact of climate change globally. The Trans Mountain pipeline, if constructed, would transport roughly 590,000 b/d of oil, produced with leading environmental and social standards, to global markets. If Canadian standards were recognized and applied worldwide, the amount of GHG emissions from producing a barrel of oil would fall by 23%, the equivalent of removing approximately 100 million cars from the road. By approving and constructing the Trans Mountain pipeline, Canada will be reducing global GHG emissions."
Japan's return on equity and price to book value discount vs. world
Wednesday, January 2, 2019
Get the Edge
Click here to view an archive of:
Investment Education
Book Recommendations
Food for thought
Glimpses into EdgePointers' lives
...and Daily Musings
__________________________
Joel Greenblatt on passive investing
"The shift to passive management is a powerful trend dominating the investment industry. The liquidity, lack of tracking error, and low costs associated with passive investing are clearly attractive. However, active management is the only way to truly outperform the market as a whole over time. Gotham Asset Management founder and co-CIO Joel Greenblatt shares his thoughts on the debate and provide insights on ways to navigate the changing landscape".
What's an unusual year for the stock market? (Link)
"Very roughly, the stock market gains, on average, about 1/40th of a percent each trading day. In other words, a $40 stock gains about one penny each day. Yet the standard deviation, meaning the average daily swing, is about 1% each day. That means the daily “noise” is about 40 times the true value each day, again, on average. On average, the stock market gains about 6% to 7% each year, and the standard deviation is around 15%. So right now, we’re tracking about one standard deviation below the mean. That’s perfectly normal."
Rewards credit cards gained a fanatic following - now banks are pulling back $(Link)
"Big banks calculated that giant rewards would make consumers spend more, earning the banks more interest and boosting their returns. They calculated wrong. Consumers have figured out how to game the system, spending just enough to earn generous sign-up bonuses—then abandoning the cards in a drawer. Others pay their bills in full and avoid interest charges and late fees. This has pressured credit card profitability for banks. Once the crown jewel of their lending portfolios, credit cards are estimated to only deliver a return on assets of 3% in 2019, down from nearly 5% in 2014."
Click here to view an archive of:
Investment Education
Book Recommendations
Food for thought
Glimpses into EdgePointers' lives
...and Daily Musings
__________________________
Joel Greenblatt on passive investing
"The shift to passive management is a powerful trend dominating the investment industry. The liquidity, lack of tracking error, and low costs associated with passive investing are clearly attractive. However, active management is the only way to truly outperform the market as a whole over time. Gotham Asset Management founder and co-CIO Joel Greenblatt shares his thoughts on the debate and provide insights on ways to navigate the changing landscape".
What's an unusual year for the stock market? (Link)
"Very roughly, the stock market gains, on average, about 1/40th of a percent each trading day. In other words, a $40 stock gains about one penny each day. Yet the standard deviation, meaning the average daily swing, is about 1% each day. That means the daily “noise” is about 40 times the true value each day, again, on average. On average, the stock market gains about 6% to 7% each year, and the standard deviation is around 15%. So right now, we’re tracking about one standard deviation below the mean. That’s perfectly normal."
"Big banks calculated that giant rewards would make consumers spend more, earning the banks more interest and boosting their returns. They calculated wrong. Consumers have figured out how to game the system, spending just enough to earn generous sign-up bonuses—then abandoning the cards in a drawer. Others pay their bills in full and avoid interest charges and late fees. This has pressured credit card profitability for banks. Once the crown jewel of their lending portfolios, credit cards are estimated to only deliver a return on assets of 3% in 2019, down from nearly 5% in 2014."
Subscribe to:
Posts (Atom)