Seven Sins of Fund Management

Investing is fighting against emotions and biases continuously. Now and then it is worthwhile to remind yourself of the most common sins. Although you know they exist, they will intertwine with your trading habits and kill your returns.

The first is placing forecasting at the very heart of the investment process. An enormous amount of evidence suggests that investors are generally hopeless at forecasting. So using forecasts as an integral part of the investment process is like tying one hand behind your back before you start. (Pride)

Secondly, investors seem to be obsessed with information. Instead of focusing on a few important factors (such as valuations and earnings quality), many investors spend countless hours trying to become experts about almost everything. The evidence suggests that in general more information just makes us increasingly over-confident rather than better at making decisions. (Gluttony)

Thirdly, the insistence of spending hours meeting company managements strikes us as bizarre from a psychological standpoint. We aren’t good at looking for information that will prove us to be wrong. So most of the time, these meetings are likely to be mutual love ins. Our ability to spot deception is also very poor, so we won’t even spot who is lying. (Lust)

Fourthly, many investors spend their time trying to ‘beat the gun’ as Keynes put it. Effectively, everyone thinks they can get in at the bottom and out at the top. However, this seems to be remarkably hubristic. (Envy)

Fifthly, many investors seem to end up trying to perform on very short time horizons and overtrade as a consequence. The average holding period for a stock on the NYSE is 11 months! This has nothing to do with investment, it is speculation, pure and simple. (Avarice)

Penultimately, we all appear to be hardwired to accept stories. However, stories can be very misleading. Investors would be better served by looking at the facts, rather than getting sucked into a great (but often hollow) tale. (Sloth)

And finally, many of the decisions taken by investors are the result of group interaction. Unfortunately groups are far more a behavioral panacea. In general, they amplify rather than alleviate the problems of decision making. (Wrath)

For further reading, click here (pdf) or watch this video by The Compound

The Trade War Is Exposing What Little U.S. Tech China Still Needs

Bloomberg.com

A trade war between the world’s two largest economies erupted this year, and technology is at the center of the skirmish. President Donald Trump blocked networking giant Huawei Technologies Co. from buying U.S. components, and put tariffs on many Chinese products. China responded by threatening to blacklist U.S. companies. The rising tension is testing a complex relationship, especially in tech where the U.S. and China are tightly intertwined through global supply chains and software that can zip across borders with the tap of a computer key. So which country has the most to lose? Who needs the other nation more?

UWS Selects 13

Source: Pixaby

Every week I am actively seeking to find the best and noteworthy stories beyond the every day breaking news nonsense. This week about the Trade War, Europe, HDmaps & the Dutch Green Bond. Enjoy your Sunday!

Who’s Winning the Trade War? Here’s a Look at the Scoreboard

Bloomberg

The U.S. and China are going toe to toe in their fight over trade. In one corner, President Donald Trump is swinging away with tariffs and blacklisting Huawei Technologies. In the other, President Xi Jinping is promising retaliation from Beijing just as a privately produced song that’s gone viral on Chinese social media promises: “If the perpetrator wants to fight, we will beat him out of his wits.”

Why we must not let Europe break apart

The Guardian

It’s time to sound the alarm. Seven decades after the end of the second world war on European soil, the Europe we have built since then is under attack. As the cathedral of Notre Dame burned, Marine Le Pen’s Rassemblement National was polling neck and neck with Emmanuel Macron’s movement for what he calls a “European renaissance”. In Spain, a far-right party called Vox, promoting the kind of reactionary nationalist ideas against which Spain’s post-Franco democracy was supposedly immunised, has won the favour of one in 10 voters in a national election. Nationalist populists rule Italy, where a great-grandson of Benito Mussolini is running for the European parliament on the list of the so-called Brothers of Italy. A rightwing populist party called The Finns, formerly the True Finns (to distinguish them from “false” Finns of different colour or religion), garnered almost as many votes as Finland’s Social Democrats in last month’s general election. In Britain, the European elections on 23 May can be seen as another referendum on Brexit, but the underlying struggle is the same as that of our fellow Europeans. Nigel Farage is a Le Pen in Wellington boots, a True Finn in a Barbour jacket.

Elon Musk Declares Precision Maps A “Really Bad Idea” — Here’s Why Others Disagree

Forbes

Last week, I examined Tesla’s plan to build full self driving without LIDAR when all other major teams are betting on that technology. This is not Tesla’s only contrarian bet. They have also decided not to use high-detail maps in their project, and again most other teams plan otherwise.

We briefly barked up the tree of high precision lane line [maps], but decided it wasn’t a good idea. — Elon Musk

There are many sorts of maps a robocar might use. The most basic maps are the sort found in navigation systems and your phone. They just show where the roads are and how they connect. Today, most such maps, including Tesla’s, map each individual lane, so they know at each point how many lanes there are, how they connect, and what function each lane has

Debut Dutch green bond lures more than 20 bln euros of orders

Reuters

Investors piled into the Netherlands’ inaugural, triple-A rated sovereign green bond on Tuesday, placing 21.2 billion euros ($23.7 billion) of orders for the environmentally friendly paper.

The Dutch debt agency said it had given preference to investors that could prove their ecological credentials. Thirty-two investors had registered as green before the 20-year bond’s auction, in which the Netherlands raised almost 6 billion euros.

If you want to read the UWS Selects form last week, you can do so here. For my latest Opinion, click here

UWS Selects 12

Source: Pixaby

Every week I am actively seeking to find the best and noteworthy stories beyond the every day breaking news nonsense. This week about Microsoft, India, a Banking Cartel & definition of IPO. Enjoy your Sunday!

The Most Valuable Company (for Now) Is Having a Nadellaissance

Bloomberg Businessweek

The congratulatory texts and tweets started the last week of November. Microsoft had overtaken Apple to become the world’s most valuable company, a stunning climax in a year that also saw it pass Amazon and Google’s Alphabet Inc.Longtime employees, who’d grown accustomed to thinking of Microsoft as far removed from its glory years, when it was run by Bill Gates and feared as the “Evil Empire,” were flooded with messages from friends and family.

Yet not a word of this achievement was uttered when Chief Executive Officer Satya Nadella gathered his senior staff for their weekly meeting that Friday. In an interview at Microsoft Corp. headquarters in Redmond, Wash., Nadella appears irritated by questions about the company’s ascendancy. “I would be disgusted if somebody ever celebrated our market cap,”

India’s Deadly, Dirty Addiction to Cheap Coal Is Getting Worse

Bloomberg

When the massive coal-fired power plant next door to her home in New Delhi was firing at full blast, Bala Devi would pull her saree tight against her face to try and protect her lungs.

It was a futile gesture. Towered over by red-and-white striped smoke stacks, Devi’s house in a poor community of India’s capital is just too close to the sprawling plant.

“The coal dust got mixed in with the food,” said Devi, who regularly coughed up black phlegm in the mornings. Mountains of unused coal and a fly ash pond the size of 500 football fields made her neighborhood a particularly noxious part of the world’s most polluted mega-city. “We would shut our doors and we swept the floors,” she said. “But still we fell ill.”

EU fines Barclays, Citi, JP Morgan, MUFG and RBS $1.2 billion for FX rigging

Reuters

Banks have been hit with billions of dollars in penalties worldwide over the last decade for the rigging of benchmarks used in many day-to-day financial transactions, further damaging the industry’s fragile reputation after the financial crisis.

The European Commission said individual traders at the banks involved formed two cartels to manipulate the spot foreign exchange market for 11 currencies, including the dollar, the euro and the pound.

“These cartel decisions send a clear message that the Commission will not tolerate collusive behavior in any sector of the financial markets,” European Competition Commissioner Margrethe Vestager said in a statement.

A Definition of IPO from The Devil’s Financial Dictionary

UWS Selects 11

Source: Pixaby

Every week I am actively seeking to find the best and noteworthy stories beyond the every day breaking news nonsense. This week about the middle class, conspiracy theories, The Daily Shot and volatility. Enjoy your Monday!

The demise of the middle classes is toxifying British politics

The Guardian

Economies have always had their very rich and their very poor, but traditionally they also had a sizeable and growing middle class, which glued societies together and acted as political ballast. But over the past decade or so real incomes for those in the middle have been stagnant at best. When there has been growth, the higher incomes have gone disproportionately to those at the top. Poverty is holding Britain’s young people back. They deserve so much better

One of the building blocks in the creation of the middle class was the expansion of university education. Those taking out loans to finance their studies did so in the expectation that there would be a well-paid career at the end of their course. But that part of the social contract is breaking down, with the Office for National Statistics reporting that 34% of those graduating since 2007 were doing jobs for which they were overqualified.

Why we are addicted to conspiracy theories

The Guardian

Morton is a self-proclaimed psychic and UFO expert, and someone who has made a lot of dubious claims about how to beat government agencies such as the IRS in court. (In 2017, he was sentenced to six years in prison for tax fraud.) I dismissed his predictions about 2016 the way I dismissed a lot of his prophecies and basic insistence about how the world works. Morton and the other conspiracy theorists on the boat were confident of a whole lot of things I found unbelievable, but which have plenty of adherents in the US and abroad.

Some of them asserted that mass shootings such as Sandy Hook are staged by the US government with the help of “crisis actors” as part of a sinister (and evidently delayed) gun-grab. The moon landing was obviously fake (that one didn’t even merit much discussion). The government was covering up not just the link between vaccines and autism but also the cures for cancer and Aids. Everywhere they looked, there was a hidden plot, a secret cabal and, as the gospel of Matthew teaches about salvation, only a narrow gate that leads to the truth.

The Daily Shot: President Trump’s Tweets Awake Market Volatility

Wall Street Journal

A daily shot, to get up to date and it is the place where you are not bothered with opinions. Facts and figures in infographics.

Josh Brown on why volatility shouldn’t scare you — even close to retirement

CNBC

One of the biggest misunderstandings about investing is the role that volatility plays in your portfolio.

Too much volatility, and you’re likely to panic and make disastrous decisions during the market’s roughest environments. Not enough volatility and you’re probably not taking enough risk to earn the returns you’ll need for later.

It’s counterintuitive to think about volatility as your portfolio’s best friend, but once you switch your mindset over to doing so, you’ll become a much stronger and better equipped investor.

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