Sunday, January 11, 2015

Some Reading Material and Thoughts on 2015

Here are some interesting articles I read recently:

How You Know explains that although we may forget the details of all that we've read, the net effect of all we've read shapes our worldview and intuition.

An informative article that explains why microcaps stocks consistently outperform all other larger stocks.

The Best Calls of 2014 on Wealthtrack This is an year end look at the most prophetic guests on the show in 2014.

Ed Hyman's 2015 predictions on Wealthtrack is surprisingly bullish.

Howard Mark's thoughts at year end on oil and the markets: The lessons of Oil

Race to the Bottom is an article Howard Marks wrote in 2007 foreshadowing the financial crisis. I think it is good to occasionally study that period so that we don't make the same mistakes again. I can't help but get a sense that the investor euphoria is slowly creeping back. In the blogsphere, I have heard several people say with a straight face that they target 60% or 40% or whatever. Below is an quote from the article which in turn is a quote from Ken Galbraith.

Contributing to . . . euphoria are two further factors little noted in our time or in past times. The first is the extreme brevity of the financial memory. In consequence, financial disaster is quickly forgotten. In further consequence, when the same or closely similar circumstances occur again, sometimes in only a few years, they are hailed by a new, often youthful, and always supremely self-confident generation as a brilliantly innovative discovery in the financial and larger economic world. There can be few fields of human endeavor in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

No doubt you'd have guessed I am not as bullish on 2015 as Ed Hyman.

I highly recommend The Economist Magazine in general. But the Jan 3, 2015 issue called Workers On Tap was especially insightful for me. It helps me think of the economy of the future a bit different. Below is an excerpt:

The other great force is changing social habits. Karl Marx said that the world would be divided into people who owned the means of production—the idle rich—and people who worked for them. In fact it is increasingly being divided between people who have money but no time and people who have time but no money. The on-demand economy provides a way for these two groups to trade with each other.

I've also stumbled upon an article of that analyzes the bond/equity ratio mix in a portfolio. I've thought extensively about this topic. Benjamin Graham advised it as a key tool for his readers in The Intelligent Investor. Graham only discussed the topic in heuristic terms. But I tried to put some empirical substance behind it by doing some simulations. And this is the first time I've seen any articles discussing it empirically. I have taken away a lot of ideas to modify my own simulations. I can't wait to implement them when I get the time. When I do and if the results are useful, I'll post.

Edit (Jan 18): Since I posted this a week ago, I noticed some more excellent material.

Jeffrey Gundlach gives his views and predictions for the coming year on behalf of Doubleline: (1, 2). Gundlach gives lots of non-typical observations and facts. I highly recommend the videos.

Ed Hyman's 2015 predictions on Wealthtrack part 2. Another interesting takeaway, Ed Hyman is bullish on Japanese equities!

Some observations about diversification from an excellent blog.