investment

The Little Book of Behavioral Investing by James Montier

The same James Montier from SG, now from GMO and the same The Little Book of Behavioral Investing: How not to be your own worst enemy. Started reading Behavioural Finance: Insights into Irrational Minds and Markets.

In a certain sense, his books – these are collected excerpts from his works in SG. But, these are still full books. He writes, конечно хорошо, but as I understand it, Albert Edwards taught him.

Behavioral Finance Book, ie. about baes and about, how it prevents you from investing and, что собственно делать. Everything in general ordinary, but many references to work and research. Ie. if you know what kind of rabbit this is, you won't learn a lot, but meet the zest.

The following is the content and a short description of that, what is this section about.

Let's start with the conclusion of the book. Such is the thought. I am overweight. I know it. (By the way, почитайте «Mindless Eating» – Same, what have you just read about investments, but about food. Some solid baes). But my knowledge does not lead to better results.. And in general, people very often do not use knowledge. All in all, take care of yourself, friends.

1) In the Heat of the momentum
Empathy gap – inability to imagine your future feelings. For example, when we ate, it is very difficult for us to imagine the feeling of hunger. Emotional imagination works badly. The flip side of the thought is, что мы думаем, that will behave this way (rationally), in fact (especially when an unexpected stimulant appears) it turns out not at all as we expected it.

2) Who’s Afraid of the Big Bad Market?
Fear and greed. I present the game. Вы инвестируете 1$ on each coin toss for 100 once. Eagle – you still 2.5$, tail – your invested dollar is taken by the casino. Turns out, that depending on the results (for example, several losses in a row) people invest less often. Although, as we know, based on probabilities, take part in as many shots as possible. A plus, in this experiment, a group of people with a brain defect (damage to the area responsible for fear) invested more often than others.

3) Always Look on the Bright Side of Life
The section on Over-Optimism. Состояние, when we are overly confident in future success. Differs from Over -Confidence, comes from a combination of Illusion of Control and Self-attribution. Say, what is over-optimism – it is a built-in survival tool and is needed for purely biological purposes. But, anyway, hope – this is not the best investment strategy.

4) Why does Anyone Listen to These Guys (Jim Cramer)
Yes, subsection is called «Why are you listening to Kramer?». The idea is old and is, what the guys from the TV say confidently, and a person is just being led on confidence. An interesting comparison between meteorologists and doctors. The first Self-attribution Bias are significantly lower, чем у вторых. Question: well, who do the gurus look like? Of course on the second. (5 Kopeks: the closest analogue for the economy and the market – this is medicine).

5) The Folly of Forecasting
So why use predictions? By the way, forecast – it is also an anchor effect (anchor bias), therefore, consider the forecast as a force of attraction to reality – still that dubious occupation. All in all, forecast – it's not for that, to «спрогнозировать», this is for, to «подготовиться».

6) Information Overload
Standard idea: a lot of information – this is bad. With the growth of the information used, the effect of its usefulness decreases., and the level of confidence continues to grow at the same rate. I guess you can say so: new information has declining marginal utility. In the same time, the confidence gained when entering a new portion of information grows even at an accelerating rate.

7) Turn of That Bubblevision!
Turn off the TV. You are welcome! By the way, Summers (the one that Larry) was seen writing a work, in which they tried to compare whether the strongest market fluctuations were caused by at least some events. Was, which is not really.

8) See No Evil, Hear No Evil
See then, what to want to see. Basically Confirmation Bias. A very interesting story about Sir Roger Tichborne.

9) In the Land of thr Perma-Bear and the Perma-Bull
This is the problem of Conservatism. Just like the story of the broken watch, which show the correct time twice a day (от себя, I guess, added).

10) The Siren Song of Stories
When an event is linked to history, we treat him differently. Promotions with history – these are completely different promotions. (5 Kopeks: purely trader's «never fall in love with the stock»)

11) This Time Is Different
Bubbles, these are not bubbles, and «Predictable surprises». At GMO they counted 30 pieces for 84 of the year. There is also such a thing, how «myopia» – it is focusing on the short term. Then they talk about the structure of the bubble according to Haimon Minsky's scheme. Turns out, Mil wrote almost the same thing, which is John Stewart.

12) Right for the Wrong Reason, or Wrong for the Right Reason
Chapter on Self-attribution Bias, in all its splendor.

13) The Perils of ADHD Investing
ADAH – attention deficit hyperactivity disorder. The second title explains well the content of the chapter.: Never Underestimate the Value of Doing Nothing. Simplified: excess body movements in trade – unnecessary problems. Goalkeeper example, penalties are hit by about 1/3 to each side and to the center. In this case, the goalkeepers jump to one of the sides to 94% cases. Having a short span of professional goalkeeper, I can confirm to stay in the center and skip to the corner – it's more shameful, than jumping all the time and skipping in the center.

14) Inside the Mind of a Lemming
It's hard to have the opposite opinion. It is in our nature that, that disagreement with the crowd is perceived by the body as a risk to survival, which causes physical pain. A few more words about the danger of groupthink. (5 Kopeks: there are three different levels of problems: crowd mistakes, mistakes of small groups and mistakes of individuals).

15) You Gotta Know When to Fold Them
Loss aversion even the capuchin monkeys have. Interesting examples of Loss aversion. How Buffett differs from his teacher. Ben had a maniche: found hatched sold, earned on convergence-divergence. Buffett found and sat down, if stocks don't overheat, then why sell them. Ie. in the first case, the exploitation of an incorrect market assessment, in the second, growth along with the growth of business. Something like this.

16) Process, Process, Process
There is an old wisdom about, that earnings cannot be controlled, only loss is possible. Montier writes, that this is also an illusion. The only thing, what can be controlled – this is a process. Ie. соблюдать правила, do not be stupid, ignore short-term results and everything will be fine.

NYSE New York Stock Exchange Sector Indices

New York Stock Exchange (NYSE) includes several sector indices, which reflect the productivity of companies in different sectors of the economy. Some of them: – S&P 500: index, which includes 500 largest companies by market capitalization in the United States, covering various sectors of the economy, Such as technology, healthcare, energy, etc.. – Dow Jones Industrial Average (DJIA): index, which includes 30 largest companies in the USA, representing various sectors of the economy, such as finance, industry, technology, etc. – NASDAQ Composite: index, which includes more than 3000 companies, traded on the NASDAQ exchange, Most of which are companies in the technology sector. – S&P 500 Health Care: index, which includes companies in the healthcare sector, such as manufacturers of pharmaceuticals and medical devices. – S&P 500 Energy: index, which includes companies in the energy sector, such as oil and gas producers, companies manufacturing equipment for the energy industry, etc.

Предложение от Обама

Obama also proposes to introduce 100% tax write-off of equipment purchases by businesses, thus stimulating investment in production expansion and modernization.
Gotta announce it Wednesday in Cleveland.
I believe, that this is also the right step and contribution to the real economy.

End of the stock exchange?

In recent years, the media has been full of calls from brokers and asset management companies to invest in stocks., as well as institutions of joint investment – ISI.

Violent advertising campaign funded by stock exchanges and professional participants is paying off.

According to the Ukrainian Association of Investment Business, on 1 January 2010 years in the country worked 985 Funds, whereas in 2004 year there were only 37. Management companies – OK – already 380, whereas in 2000 year there were only 45.

Net asset value, that is, the funds of the population and legal entities in the management of all Ukrainian unit investment funds are estimated at the level 82,5 billion hryvnia.

Moreover, on 1 January 2005 years in mutual funds were invested in total 1,9 billion hryvnia, that is, over five years, investments in the stock market through mutual funds have grown by 42 Times! Not a bad result. What other sector of the economy in Ukraine has increased in size by 42 Times? Rhetorical question.

The industry of individual and collective investment is developing: people bring money to management companies, open brokerage accounts, buys shares.

And even scandals with the bankruptcy of a number of AMC, a fivefold fall in the market failed to discourage citizens from investing in the stock market. Need to mark, that the management of brokerage companies and mutual funds was insured: all investment agreements express risks, related to stock market trading.

Дескать, asset value may decline, possible losses. However, what kind of investor would think about losses?, when he sees this text.

Who will refuse one and a half “Форд Фокусов” in year? By the way, according to sociologists, the level of financial literacy of Ukrainians is at a catastrophically low level. With such services, like ATM and plastic card, know how to use everything 30-40% граждан.

In this way, the field of activity for stock brokers and management companies is huge. 98% Ukrainians do not yet know about the pros and cons of investing in shares of Ukrainian and foreign companies, and they can continue to talk about “прибавлении” one and a half “Фокуса” in year.

The question arises: what are the advantages of investing?

The classic definition is: exchange investments – it is long term, больше года, investing in securities of public or private capital at home or abroad for the purpose of generating income.

There are two keywords here: “Long term” And “income generation”. Long-term investment means, that a person does not speculate, that is, short-term transactions, the risk of losing money for which is many times greater, and “income generation” – this is the purpose and essence of buying shares.

It is worth remembering here, how the mutual fund industry was born, which is now actively appealing to advertisements of management companies and brokers. Why the slogan “longevity is equal to income” works so effectively in the stock market?

If you do not take into account hoary antiquity, then the collective investment industry emerged and flourished in 1980 years in the USA. It was during this period that investments in stocks became truly massive..

Electronic exchange trading technologies, quotes in newspapers and magazines, telephone dealing with leading brokers, growth in the number of issuers – all this allowed every American housewife to get involved in investing.

Of course, it's not just about technology. The growing prosperity of the baby boomer generation also played a role., and advertising. However, this is not even the point. – a long period of growth in stock indices spoke for itself.

Broad Market Index S&P500 c 1980-2000 years grew eleven times, with 110 points to 1300. “Форды Фокусы” did triple every two years, and Americans felt the beauty of investing in their pocket. The apotheosis became, undoubtedly, dotcom bubble, burst in 2001 year.

Nevertheless, the system worked for twenty years in a row. Investors invested in stocks, shares rose in price, which attracted even more investors, which brought even more money. And so in a circle. Money was at the heart of this cycle, rather, their quantity and cost.

As seen from the Fed Interest Rate Chart, in 1981 year, the cost of capital in the United States was at its highest level in history – 19% per annum. Then the American monetary authorities began to consistently reduce the rate, bringing it down to today's zero values.

In other words, из года в год, except for a few short periods of rate hikes, borrowed capital in the USA became cheaper, loans became more and more affordable, up to that, that the use of leverage – purchase of shares for loans – became a massive phenomenon on American and European exchanges.

This is what ensured twenty years of growth in the stock market., the formation and flourishing of the mutual fund industry, massive influx of depositors.

It is easy to see the inverse correlation on the charts.: as soon as the US monetary authorities dared to raise the rate, stock market growth stopped, and the fall began. Wall Street aces pushed through another cycle of rate cuts, and growth in the stock market resumed.

It all worked until then, until the rates reach zero.

Already in the middle 2000 years owners and managers of multinational banks, analyzing the situation, understood, where the wind blows, and launched a new project to replace the collective investment industry.

If you can't make money on the rise in stock prices, you can earn on their fall. The so-called hedge funds appeared and became popular. The essence of their work – in the widespread use of financial derivatives, which allow you to earn both on growth, and on the fall of the market.

This is how the financial world entered an era of global volatility. – volatility, when the sharp rise, caused by politics “количественного смягчения” changes with an equally sharp drop. As it turned out, volatility can be successfully traded and earned on it, what hedge funds do.

Ukraine, normally, ended up on the sidelines of progress. While the civilized world is flying jet fighters – хеджевых фондах, domestic investors hobble in the rusty pennies of mutual funds. However, and mutual funds reached Kiev with a 25-year delay, and hedge funds – completely exotic for Ukraine.

Even 4% financially educated people don't understand, that global growth in stock exchanges is over forever. After that, how the fed dropped rates to zero, shares of companies around the world will never rise in price.

And if there is no such understanding, then management companies and brokers will continue to collect their commissions for a completely meaningless business: long-term investing in stocks.

Low % rates and “bubble” in the real estate market

based on the Monetary policy was not to blame
first you need to notice, what are the rules for % rates are derived mainly from the inflationary gap and the unemployment gap (differences between actual values ​​and target values). estimated % rates are derived from "achieving full employment with minimal inflationary pressures". wherein, in fact, % rate has a lot more function (like monetary policy itself) – do not forget about the external sector, financial stability, etc..

also it should be noted, that the application of universal rules for the small open economy and the large open economy and the micro-open economy (for which an independent monetary policy exists only in the case of restrictions on the movement of capital – which already contradicts the idea of ​​an open economy). that's why, before seeing the revealing evidence, it is worth remembering the limited conclusions;)

_____________________________________________________________________________________________________

monetary policy: according to Taylor's rule and in fact:

 
Further: "Not high enough" and property prices

Further: "Not high enough" and real estate investments

now surprise: Real % real estate rates and prices

On the one side, it can be argued, what % US rates are setting the architecture of rates around the world, but find a link between the rise in prices in Ukraine and % US rates. Real estate boom in Ukraine – function of the underdevelopment of the financial market, underdevelopment of the real estate market and capital inflows in the banking sector. Capital inflows into our banking sector – it is a function of the rate of increase in raw material prices, which is a function of the growth rate of emerging markets. And the growth rate of emerging markets is leading to …. ouch, excess savings – decrease in long-term % rates in the US and spurring a boom in the real estate sector, which I already find due to securitization, many years of subsidizing the real estate market for the poor and euphoria that is transmitted across borders and restrictions on capital flows…

Almonds&Fleming from Krugman

in post about the transmission of fiscal tightening in Europe, Mr. Krugman recalls the good old model and actually proposes not to look for the best having good – ie. suggests using a well proven approach to understanding / analyzing the situation.

from Krugman in free translation:
fiscal tightening in one country under a floating exchange rate system leads to a decrease in economic activity in the world. The reason: reduction in government spending leads to lower rates, leading to devaluation, which leads to an increase in exports, which partially neutralizes the effect of reducing government spending, but also transfer part of the recession to the outside world. finally, it will not be quite so, but somehow similar by results.

not sure, that our reality fits into the framework of Mandela-Fleming, but you shouldn't lose sight of the correct logic in general. those times, many believe, that the growth of exports from the Eurozone will override the effect of reducing government spending.

this would be true for a small country (suitable for a 'small open economy'). there are problems with such a giant as the Eurozone / EU. they, these problems lie in the plane of heterogeneity of the Eurozone itself, the impact of government spending cuts on aggregate demand in the global economy, plus we need steady growth in other regions. and here's another nuance. what is exported? rather then, which depends on the demand for investment and the price elasticity of these products is relatively limited. but the growth rates are just very.

eventually, whatever one may say and what where do not substitute, spending cuts will reduce business activity in the global economy in the short term. how much other factors will obscure it, here it is already necessary to count / estimate.

about good investments

speculation/investment – philosophical division.
can be divided as follows – investment, it's when the revord is partly dependent on you/partly..
therefore, the purchase of football players, it's more of an investment, than speculation.

an example of a good investment.

Fernando Muslera footballer SS Lazio. in 2007 year bought for 3 million. euro to replace the legendary Angelo Peruzzi.
(Argentine Carizzo was bought to replace, but could not move to Italy for six months due to passport problems).

watch the video. starts with the debut – ridiculous mistakes almost in the debut match.
then a little tightened taema with taken pencil cases (Italian Cup 09 – Muslera's merit),

with 4:33 saves begin. because the defense is a leaky guy flying every game,
something like that is remembered only in the form of Buffon in Parma (other good keepers just have good protection.))

despite, what transfermarkt.de Evaluates transfer guy to 4 million euros,
if desired, is the second most valuable player on the team with potential from 10 million.

ABK : Ambac Financial Group

Ambac Financial GroupFinancial Group, Inc, united by 29 April 1991, is primarily a holding company, through its subsidiaries, issues bank guarantees and financial services to clients in the public and private sectors around the world. Ambac Financial Group's activities are divided into two business segments: financial guarantees and financial services. The financial guarantee segment provides financial guarantees (including credit derivatives) for public finance, structured finance and other liabilities. Financial services segment investment agreements, financing of pipelines, interest rate, total profit and currency swaps, mainly for clients from financial business a guarantee, which includes municipalities and other state structures, healthcare organizations, owned by investors, utilities and asset issuers. For the year, ended 31 December 2008 the year the company stopped writing new investment agreements and derivative products in its financial services segment. His current agreement of investment portfolios and derivative products are in active stock, which may include endings deals, settlements, Restructuring, transmission and natural loss, as maturity contracts.

Mario Gabelli / Mario Gabelli

Mario Joseph Gabelli (Mario Joseph Gabelli) was born 19 June 1942 of the year. He spent his childhood and youth in the Bronx, where he attended primary school first, and then the private Jesuit school for boys at Fordham University. In his spare time Mario, hitchhiking, traveled to the northern suburbs of New York, to Westchester County, where he worked as a caddy (a carrier of golf clubs and other equipment) in leading golf clubs, such as Winged Foot and Sunningdale. There he met many people, have achieved success in life, and these people often talked about investing in stocks. Later Gabelli told, that already in those days I read market reports for my own pleasure, and bought my first shares, when he was all 13 years. Upon graduation, Gabelli received a scholarship and went to college at Fordham University. There he stood out not only with his hair, which at that time was still red, but also desperate enterprise. He always had another get-rich-quick scheme ready., like selling electric flashlights from the trunk of your own car during the period, when the streets and shop windows were poorly lit.

Джон Темплтон / John Templeton

Sir John Marks Templeton (John Marks Templeton) was born 29 november 1912 of the year in the small town of Winchester, Tennessee, in a poor family. While studying at Yale University, which fell on the period of the Great Depression, he was forced to support himself and was used to austerity. IN 1934 year he graduated from the university as the best student in his group, earning the opportunity to continue my studies at Belliol College, Oxford, who graduated, having received a degree in jurisprudence. IN 1937 year Templeton began his career on Wall Street. His hour has struck 1939 year, when World War II began in Europe. Borrowing from your boss $10000, Templeton buys small-cap stocks, traded at the price $1 or below. This risky operation proved to be extremely successful and allowed him to make a profit., four times the loan.

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