Presentation: The psychology of financial misjudgment
Human misjudgment and its financial costs
A better PE ratio, MADCAPE, and why we’re all going to die
Everyone knows about the P/E ratio, but nobody knows how to use it. Price / last year's earnings and Price / next year's earnings are pretty much worthless, yet these are the formulas we hear referenced the most. Why? Because…
Bootstrapping honor
A society is a network of relationships, and in a healthy society those relationships consist of trust. Trust is an understanding of how another will behave in a given situation. It leads to smooth coordination of action, greater prosperity, and…
The market is likely to crash and sure to disappoint. Here are some options.
Part 1: Valuations like this have always lead to disaster. Ben Graham, the father of security analysis, said that the stock market is a voting machine in the short run but a weighing machine in the long run. That machine weighs sales,…
As the CAPE breaches 30, remember the Iron Law of Valuation
The 2015 global sell-off saw many equity markets fall over 20% and a crash in junk bonds. Developed and even European markets were priced to deliver double digit 12-year returns by the start of 2016, and investor sentiment was pessimistic.…
Why momentum works
Summary: There's no free lunch. It is difficult to attract and retain investors to strategies that are uncorrelated with popular benchmarks. This "business risk" helps sustain the momentum premium, which is huge on a risk-adjusted basis. Furthermore, asset class level…
The astonishing accuracy of long-term stock market valuation
I have been giving this presentation explaining how we can tell, with a high degree of accuracy, what stock returns will be over the following 10-15 years from any point in time. In the short-term the market is a voting…
When not to buy stocks
You don't want to buy US stocks right now. If you own them, be prepared for a deep downturn or long period of very low returns, or more likely both. To value an investment is to assess its likely returns over…
You want a fiduciary, not a salesman
You're paying for loyalty - make sure you're getting it. If you're paying someone for advice and investment management, his only compensation should be what you pay him, the advisory fee. 0.75 to 1.5 percent per year is fair, depending on account size.…
How to win at stocks
Everyone loves stocks. Maybe because they were the first easily investable security. Maybe because betting on businesses satisfies our gambling instinct - everyone fancies himself a handicapper when it comes to things we can read about in the paper. You…