Good interview with David Einhorn of Greenlight Capital — David is probably one of the best hedge fund managers in the world in the last decade and is famous for being one of the first, and most vocal, short-sellers of Lehman Bros. stock (24 minutes).
CCTV: Shenzhen Stock Exchange celebrates 20 years of growth by Deirdre Wang Morris
Deirdre Wang Morris reporting… asking tough questions as always. I love it.
4 minute clip - http://english.cntv.cn/program/bizasia/20101202/104256.shtml
Globe and Mail: A governance trend one CEO would like to reverse by Janet McFarland
An interview with Geoff Beattie, Chief Executive Officer of Woodbridge Co. Ltd, a private holding company that manages the assets of Canada’s Thomson family, including a majority stake in global information company Thomson Reuters Corp. I am a long time fan of Mr. Beattie’s approach to investing.
Thanks to my friend Jeffrey Charles for passing the article along.
Excerpt:
Do you think governance is improving?
Governance is huge for us. We don’t run things, we own things. And if we don’t run things properly, nobody suffers more than we do. We always make sure we look after minority shareholders, because we don’t value the company’s share price, they do. We don’t buy and sell the securities. We hold them.
Full article via globeandmail.com
i like this.
“The youngest people perform like the most rational investors,” said Dr. Samanez-Larkin. In other words, our investment mistakes tend to increase as we age.
But it wasn’t because of the stereotypical reason – that people become risk-averse as they age. Rather, when investors watch the markets closely and constantly revise their views, the older the person is, the more confused he or she becomes about which stock is the best choice.
“When older adults have to choose a safe asset, they’re just as good as young investors,” Dr. Samanez-Larkin noted. “But when they have to choose between two risky assets – when they have to learn from experience – they make more errors.”
Full article via globeandmail.com
This interview with a 29-year-old Steve Jobs has been making the rounds on the world wide web.
Excerpt:
PLAYBOY: We survived 1984, and computers did not take over the world, though some people might find that hard to believe. If there’s any one individual who can be either blamed or praised for the proliferation of computers, you, the 29-year-old father of the computer revolution, are the prime contender. It has also made you wealthy beyond dreams—your stock was worth almost a half billion dollars at one point, wasn’t it?
JOBS: I actually lost $250,000,000 in one year when the stock went down. [Laughs]
PLAYBOY: You can laugh about it?
JOBS: I’m not going to let it ruin my life. Isn’t it kind of funny? You know, my main reaction to this money thing is that it’s humorous, all the attention to it, because it’s hardly the most insightful or valuable thing that’s happened to me in the past ten years. But it makes me feel old, sometimes, when I speak at a campus and I find that what students are most in awe of is the fact that I’m a millionaire.
When I went to school, it was right after the Sixties and before this general wave of practical purposefulness had set in. Now students aren’t even thinking in idealistic terms, or at least nowhere near as much. They certainly are not letting any of the philosophical issues of the day take up too much of their time as they study their business majors. The idealistic wind of the Sixties was still at our backs, though, and most of the people I know who are my age have that ingrained in them forever.
PLAYBOY: It’s interesting that the computer field has made millionaires of——
JOBS: Young maniacs, I know.
PLAYBOY: We were going to say guys like you and Steve Wozniak, working out of a garage only ten years ago. Just what is this revolution you two seem to have started?
JOBS: We’re living in the wake of the petrochemical revolution of 100 years ago. The petrochemical revolution gave us free energy—free mechanical energy, in this case. It changed the texture of society in most ways. This revolution, the information revolution, is a revolution of free energy as well, but of another kind: free intellectual energy. It’s very crude today, yet our Macintosh computer takes less power than a 100-watt light bulb to run and it can save you hours a day. What will it be able to do ten or 20 years from now, or 50 years from now? This revolution will dwarf the petrochemical revolution. We’re on the forefront.
PLAYBOY: Maybe we should pause and get your definition of what a computer is. How do they work?
JOBS: Computers are actually pretty simple. We’re sitting here on a bench in this cafe [for this part of the Interview]. Let’s assume that you understood only the most rudimentary of directions and you asked how to find the rest room. I would have to describe it to you in very specific and precise instructions. I might say, “Scoot sideways two meters off the bench. Stand erect. Lift left foot. Bend left knee until it is horizontal. Extend left foot and shift weight 300 centimeters forward …” and on and on. If you could interpret all those instructions 100 times faster than any other person in this cafe, you would appear to be a magician: You could run over and grab a milk shake and bring it back and set it on the table and snap your fingers, and I’d think you made the milk shake appear, because it was so fast relative to my perception. That’s exactly what a computer does. It takes these very, very simple-minded instructions—”Go fetch a number, add it to this number, put the result there, perceive if it’s greater than this other number”—but executes them at a rate of, let’s say, 1,000,000 per second. At 1,000,000 per second, the results appear to be magic.
That’s a simple explanation, and the point is that people really don’t have to understand how computers work. Most people have no concept of how an automatic transmission works, yet they know how to drive a car. You don’t have to study physics to understand the laws of motion to drive a car. You don’t have to understand any of this stuff to use Macintosh—but you asked [laughs].
Full interview playboy.com
Dan Richards has written another excellent article on the perils of short-term thinking:
In fact, many investors would be better off if they looked at their portfolios less often.
Brandes Investment Partners, the fund company, has recently done work based on insights from the Nobel prize winner Daniel Kahneman, known for his work on “prospect theory.” This theory demonstrates that investors feel losses twice as much as they do gains. As a result, the stress of losses can cause emotions to kick in and make investors abandon investments, even ones they intended to hang on to for the long term.
In his book, Fooled by Randomness, the mathematician and former trader Nicholas Taleb applied this theory to a portfolio that returns 15 per cent annually over 20 years, with 10 per cent volatility along the way. He calculated that someone with this portfolio would stand a 7-per-cent chance of losing money over the course of any given year, a 23-per-cent chance of losing money in a quarter, a 33-per-cent chance of losing money in a month, a 46-per-cent chance of losing money during a day and a 50-per-cent chance of losing money in any hour.
As a result, the more often you look at your portfolio, the more often you’re going to experience the stress of seeing a loss – even though that loss is likely to be transitory. The stress can skew your decisions.
Every study that’s compared the performance of investments to the performance of investors who own them shows that investors’ portfolios do much worse over the long run than the investments they hold at any single moment. The reason? Investors allow emotions to rule. As a result, they buy and sell at exactly the wrong time.
Warren Buffett put it well: “Success in investing doesn’t correlate with IQ, once you’re above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other investors in trouble.”
Counterintuitive as it might seem, many investors would be better off if they reduced the frequency with which they looked at their portfolios to quarterly if possible, monthly at most. By doing this, chances are that investors would improve their stress level, decision making and long-term performance.
Good article on the perils of “following the herd” by clients and advisors alike. Written by one of my favourite journalists, Jason Zweig.
In 2008, researchers led by Antoinette Schoar, an economist at the Massachusetts Institute of Technology, trained two dozen mystery shoppers in the basics of investing. Masquerading as potential clients, the shoppers had initial meetings with nearly 300 financial advisers in the Boston area.
Each “client” showed up with a portfolio and a preferred investing strategy. About a third pretended to like chasing hot returns.
“Instead of undoing or leaning against that bias,” says Prof. Schoar, “advisers were actually very supportive of chasing past returns.” The more a prospective client had pursued hot performance, says Prof. Schoar, the less likely the average adviser was to suggest a different approach.
“Chasing past returns is kind of a nice bias from an adviser’s point of view,” she adds. “It generates more fees”—especially for advisers who earn commissions each time they sell stocks or mutual funds.
One danger is that if you voice a strong opinion, your adviser might not give you a second opinion. He might merely echo your own, making you think he is smart because he agrees with you—and clearing the path of least resistance to his next commission. Sometimes, acting like a sheep just pays better.
Globe and Mail article on the value of tracking insider transactions
The researchers analyzed publicly available data reported by U.S. insiders between 1989 and 2007. They placed trades that happened in the same calendar month at least three years in a row into one group, calling them “routine,” and then all the irregular trades, which they dubbed “opportunistic,” in another group.
Creating a portfolio of short sales and purchases equal-weighted to the opportunistic trades yielded 1.8 per cent a month, or over 21.6 per cent a year, while the researchers found the routine trades earned what their paper termed an “only marginally significant” return of 0.4 per cent a month.
The returns don’t include transaction costs, which could be significant because the insider activity generated a few hundred trading signals each month, requiring the portfolio to be rebalanced regularly.
The researchers also tracked corporate announcements to see whether the opportunistic insiders were on to something. They found that the buying or selling by the insiders was more likely to precede headline grabbing news events the month after the trade.
While sophisticated institutional investors with large amounts of cash could create portfolios to mimic the research paper, Prof. Pomorski says anyone can apply the basic findings to their own stocks or companies they’re interested in either buying or selling short.
Insider information is available on regulatory websites, where corporate executives and directors must divulge their activity. He says it would be easy for investors to track the pattern of insider activity by looking at whether trades are done at the same time each year or are irregular.
“One of the principles of our approach is that it’s really, really, simple,” he said.
CCTV: Emerging markets bullish, money flowing in. by Deirdre Wang Morris
My little sister doing some good investigative journalism in Beijing for CCTV.
http://english.cntv.cn/program/bizasia/20101025/103269.shtml
Love these guys