I’m a big fan of the book, Active Value Investing; Making Money in Rangebound Markets. Today, I found a blog posting with a slideshow by the author that comments on the current economy and includes some elements of rangebound markets. I asked the author if I could post the presentation here, and he said he’d be honored to have a placement on such an estimable blog yes. So here it is. Click it to [hopefully] launch the slideshow.
Archive for November, 2009
The current frontier of investing, the one that poses the greatest threat to the Efficient Markets Hypothesis (EMH) is Behavioral Finance. The EMH is based on the concept of homo economicus, or rational man. Rational Man is like Commander Spock. He always acts without emotion and for his own self interest. He never freaks out and sells stocks at their lows. He’s able to forecast earnings perfectly, etc. Behavioral Finance recognizes that real investors don’t act that way. Exhibit number one might be investment bubbles, whether they involve tulips or internet stocks.
In the course of developing this school of thought there have, naturally, been a lot of names given to theories. One that I like a lot is called “Confirmation Bias.” It’s the tendency to look only for information that supports one’s position. It’s pros, not cons. Avoid it, and you’re well on your way to making better decisions–in investing, and elsewhere.
Here’s a nice Wall Street Journal interview with one of its columnists on the subject.
Among the research and strategy services we utilize is one from Joe Granville. Joe’s one of the old guys of investments. He was born in 1923. He’s not afraid to embrace [1980s] technology, though, as his daily fax comes without fail. Why we pay $800 a year for a service that the Hulbert Financial Digest says is “very poor,” according to Wikipedia, might be questionable, but he’d been right for all of 2009.
Anyway, here’s what he’s saying now:
Conclusion: My big picture numbers cast a bright glow over the balance of the year and stretching well into 2010. The daily numbers are very bullish.
Do with that what you will. This, of course, is not a recommendation, just an example of the cross currents we find as we read some smart folks.
This past weekend another three banks were closed. Two were in Florida; one in California. That brings the total to 123. Here’s a graphic from CNN showing where they’ve happened. Check out the two states with the highest number of closures. Who would have thought? Florida looks only slightly worse than Minnesota, and Illinois and Georgia beat out California.
Here’s a link to the original article: http://money.cnn.com/news/storysupplement/economy/bank_failures/index.htm
Finally, here’s a graph of my own making. It shows the closings, by date, from July 11, 2008, the data after which the number of closings moved beyond one per shot. Also, you can see that, lately, the frequency has been weekly, on Friday. The 4-week moving average is heading up, although 10/30/09 closing look spike-y. With 400 banks on the FDIC’s Watch List (we’re not one of them), the lines on the graph are likely to head up and to the right.
Two things captured my attention. First, Peak Oil, the idea that production of oil has stopped growing–peaked in the U.S. in the early ’70s, and slowing in the rest of the world. Second, the idea of correlation versus causation and how many confuse them. The graphic below clearly shows that the decline in songs added (replacing others) each year to Rolling Stones 500 Greatest Songs of All Time has lead to declining oil production in the U.S.