NYSE

I’m chatting with Mark and Erin on CNBC in the morning ( little after 10am East Coast), tune in!

Link here:

http://www.cnbc.com/id/15840232?video=1101420851&play=1

Intro to Investing Book

I had a friend ask me the other day what the best book was for their son who was graduating high school and wanted to learn more about investing. I drew a blank. I used to say the WSJ Guides to Money and Finance but they seem outdated.

Leave a comment with your favorite Investing 101 book…

Finding the Best Ideas in a Portfolio

(Hat Tip: Abnormal Returns)

I tried to get the professors to change the title to "Why you Need AlphaClone" but no luck so far.  The bolding below is mine.  1 to 4% per Q = over 4 to 16% per annum in alpha if you know where to look.  The Tiger Cubs popularity clone is beating the market this year by 20% (and has beaten by 15% per annum since ’00).

 

Best Ideas by Cohen, Polk, and Silli

Abstract:     

We examine the performance of stocks that represent managers’ "Best Ideas." We find that the stock that active managers display the most conviction towards ex-ante, outperforms the market, as well as the other stocks in those managers’ portfolios, by approximately one to four percent per quarter depending on the benchmark employed. The results for managers’ other high-conviction investments (e.g. top five stocks) are also strong. The other stocks managers hold do not exhibit significant outperformance. This leads us to two conclusions. First, the U.S. stock market does not appear to be efficiently priced, since even the typical active mutual fund manager is able to identify stocks that outperform by economically and statistically large amounts. Second, consistent with the view of Berk and Green (2004), the organization of the money management industry appears to make it optimal for managers to introduce stocks into their portfolio that are not outperformers. We argue that investors would benefit if managers held more concentrated portfolios.

CAIA buys AllAboutAlpha

Well deserved for such a good site – congrats Chris!

Article here.

Traveling

I will be in NYC next week for meetings.  Let me know if you are around and want to meet up.

LinkFest

I mention this in my book, but next time someone tells you the market is efficient tell them to pull up a quote for the CUBA closed-end fund that is up 35% today (and already trading at a 30% premium as of the market close Friday).

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"Is US Small Cap a Viable Alternative to US Private Equity?" (HT: LW)

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A cool TED speech on electric cars.  Looks like the first Aptera should ship this year. (HT: SD)

In a related note, an interesting rebuttal from the Tesla founder Musk to some recent criticism. . .

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A couple nice book reviews and mentions:

BusinessWeek

Why mean ignorant monkeys beat median jumping clowns in the investment circus

Designing Better Futures

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Ha, I interviewed once at GETCO, and after being interviewed by at least 15 people and having been there for about 6 hours the last two finished the interview with the question, "What are our names?".  No idea.

 

Traveling

I’m in Salt Lake City today and tomorrow if anyone is around…

LinkFest

10 Principles for Black-Swan proofing the world.  I like #3 – shouldn’t the government advisors be Dalio, Grantham, Taleb, Rogers, and Faber (Marc not Meb)?

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Tragically the investment blogosphere has lost one of the best in Greg Newton.  A nice tribute from Felix Salmon.

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The current median dividend yield for Dow 30 stocks is about 3.5% while the median net payout yield ($ spend on dividends + $ spent on buybacks – $ for share issues) is about 8.3%.  This is why, since 1982, dividends just don’t matter as much as they used to. . .

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Google books has a preview of my new book (and a review from dShort here).

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Obama using behavioral psych & the Consortium of Behavioral Scientists . 

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Geneoeconomics!

Is your investing risk tolerance in your DNA

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Buying new highs in bear markets can be problematic.

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Report on the Ontario’s Teacher’s Pension Fund

 

 

Where the Black Swans Hide

I have written about the topic of volatility clustering a number of times, and thought I would update the post here.   Many people trot out the highly misleading statistic about missing the best 10 days as a reason excuse for buy and hold investing.  It drives me crazy to the point I have considered writing a paper on the topic.  Great background reading here from Gire and Estrada.  Stay tuned. 

However, this line of reasoning is way too simplistic.  The basic math shows that the vast majority of up AND down days occur when the market has already been declining.  The simple reason?  The market is more volatile.  The last eight months have been a perfect example.  I updated the post I wrote back in titled "Dow 300 Point Days and Volatility Clustering".  An older post here – "More on Volatility Clustering". 

Below I take Yahoo DJIA data back to 1929 and the key takeaways are:

1.  The market goes up two-thirds of the time.

2.  All of the stock market return occurs when the market is already uptrending.

3.  The volatility is 80% higher when the market is declining.

4.  Roughly 75% of all of the best AND worst days occur when the market is already declining.  Reason: see #3.

5.  The reason markets are more volatile when declining is because investors use a different part of their brain when losing money.  Reminds me of the behavioral reasons listed by Lo in this earlier video.

 

 

Below is a chart from my book with monthly data on a few other asset classes.

 

 

 

Dow Theory Quantified

Currently writing a white paper on quantifying and backtesting Dow Theory.. stay tuned!

Two recent books out on the subject:

Dow Theory for the 21st Century – Schannep

Dow Theory Unplugged
– Dow, Russell et al

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