Financial Complexity, Part 1
FT Alphaville had an article recently where they featured an academic paper Complexity, Innovation and the Regulation of Modern Financial Markets by Dan Awrey. It’s not a mathematically complex paper, though it deals with complex financial instruments and it is quite relevant to our present troubles. Let me start by quoting the beginning of the...
Leverage Isn’t Free
I’ve been running across an idea that outperformance is possible with safe assets, so why not take those assets and lever them up until their volatility is equal to common equities, and earn more at the same level of volatility? That was my only significant disagreement with the book Expected Returns. I think this is...
Rationality is Overrated
When I was in school, I was the “class brain.” (sigh, I had a hard time with it, but after I became a Christian, I won people over by offering homework help for free) I even have this glow-in-the-dark rubber brain that my senior class awarded me. But it’s not worth that much. There are...
When I was Young
I can’t place it, but when I was 5 years old or so, sometime in 1966, my Mom showed me The Milwaukee Journal, and pointed me to an entry for Litton Industries preferred stock. She told me that I owned some shares of the stock, and that it was good for me if the stock...
Why your company should embrace March Madness
March Madness, and the pools that come along with it, are often blamed for productivity losses in the American economy. It might be the case that companies should embrace the distraction that is March Madness and not block employees from visiting Internet sites in search of the latest scores and updates. Or that is at...
The power of connection
One need not look far for the influence of social media these days. The value of the primary social networking companies these days (Facebook, Twitter) seems to climb ever higher. Fortunately for investor these are real businesses with real profits. More so it highlights the belief that these companies will be central to the way...
On Investment Modeling, Part 4
I thought part 3 would be the end, but I ended up with one huge and good comment from a friend. A real friend, not a Facebook friend. I will respond to it in pieces. Good article and series. A few comments and/or questions for you. First, there is no doubt that both value and...
On Investment Modeling, Part 3
This is the last piece intended in this series, but I know that I will get a some abuse for it. One small request to those who agree with me on this issue: if I get flames as a result of this piece, and you disagree with the flames, please comment in my favor. Thanks....
On Investment Modeling, Part 2
Before I begin tonight’s piece, one small thing that I want to point out from my last piece was that though my models were a few years ahead of the life insurance industry, the two most important things that I did were: Not optimize for best return, even if risk adjusted. I gave extra weight...
On Investment Modeling, Part 1
Investing is a battle between the past, present, and future. The past tempts all to look and see what has happened, and extrapolate, or assume mean-reversion. It tempts academics to use simplistic math, and calculate alphas, betas, standard deviations, R-squareds, and more. They consider the past to be prologue. They estimate assumptions for asset allocation...
Comment on: Was It All Just A Bad Dream? Or, Ten Lessons Not Learnt
I have the fun of speaking at the Burridge Center Conference at the University of Colorado at Boulder this week on Friday. The CFA Society of Colorado is co-sponsoring it. As a guide, they have asked my panel to comment on this piece by James Montier of GMO: Was It All Just A Bad Dream?...
ARTV with Eric Falkenstein
We recently had the pleasure of speaking with blogger and author Eric Falkenstein on StockTwits TV. In a post over a year ago we had introduced readers to his ‘big idea’ and it is always helpful to hear directly from the author. Eric’s research is at odds with much of what you read in...
