Courtesy of Lance Roberts of STA Wealth Management
"Twas the week before Christmas, when all through markets
Not a trader was stirring, because they already left for the Hamptons.
Which left the "inmates running the asylum" with very little care
As everyone hoped a 'Santa Claus Rally' would soon be there."
Yes, it is that magical week leading up to Christmas and the subsequent low volume push into the new year. For individuals, it is "magic time" as hopes are high that "Santa Claus" will come to WallStreet.
Of course, as mutual funds window dress portfolios for the end of year reporting, it tends to elevate the most popular stocks in the markets. However, investors should also be wary of the rotation of the calendar as those same managers then sell positions for tax purposes in the New Year.
This weekend's reading list is a smattering of articles that cover a wide range of topics from investing to oil. As always, I try to provide opposing points of view to give readers a complete picture of the topic. As a portfolio manager, it is important to remember that our fundamental beliefs can lead us into making poor investment decisions. Therefore, it is crucial for long-term investment success that we eliminate the emotional biases that affect our decision-making processes.
With that said, here are the things I will be reading this weekend.
1) Be A Good Loser by Mebane Faber via Meb Faber Research
"One of the biggest challenges of investing is long periods of underperformance, or outright negative performance and losses. Cliff Asness has a fun piece out on his blog where he talks about 5 year periods in stocks, bonds, and commodities and basically how anything can happen.
So if you’re going to be an investor, get used to being a loser!"
Read Also: What To Expect When Your Expecting by Michael Batnick via The Irrelevant Investor
2) An Unconventional Way Of Looking At Valuations by GaveKal Research
"An unconventional way of looking at valuations is to place companies into different "buckets" based on their absolutely valuation level. This gives you a simple way of understanding where the majority of stocks lie in terms of valuations levels
In the charts below, we take a look at price to earnings, price to book, price to cash flow and price to sales ratios. We want to see whether or not a majority of companies lie above or below certain absolute levels."
Read Also: Lessons From WWI About "Markets" Predictive Ability by Fabius Maximus
3) Oil Price Scenarios For 2015-2016 by Euan Meams via oilprice.com
"The spare capacity data suggests that demand / supply imbalance may last three years, requiring 18 months to work through to the mid-cycle point where over-supply turns to under-supply. It is by no means certain that the market will respond to the same time dynamic when we are now dependent upon natural production capacity wastage to occur as opposed to OPEC simply closing the spigot."
Read Also: The Fracturing Energy Bubble Is The New Housing Crash by David Stockman via Contra Corner Blog
Read Also: The Lessons Of Oil By Howard Marks via ZeroHedge
4) Advocating Ignorance by Signmund Holmes
"Ignoring valuation – ignoring risk – is a recipe for disappointment and is the thing that is most likely to lead investors to abandon a passive plan as Swedroe fears. If you have a risk tolerance that allows for a 10% drawdown and you invest the same today as you would when valuations were lower – say in 2009 – you will at some point blow your risk budget. You’ll get a drawdown that exceeds your pain threshold and you’ll throw in the towel right when you shouldn’t. If your risk tolerance is fixed, at least in the short term, shouldn’t your portfolio asset allocation change as risk rises and falls? Is Swedroe saying that stock market risk today, after a huge rise in market multiples, is the same as it was in March of 2009 and you should just ignore that and stick to the same portfolio?"
Read Also: The Next Crisis Will Be Different Than The Last by Pater Tenebrarum via Acting-Man.com
Read Also: Maybe Business Cycles Don't Exist by Noah Smith via Bloomberg
5) Will The Fed Be Patient Enough by Matt O'Brien via The Washington Post
"But why does it think it should be raising rates then anyway? Sure, unemployment is approaching normal levels, but there are still a lot of people who want full-time jobs who can only find part-time ones, or who have given up looking altogether until things look better. Wages are quiescent, and prices are too. There's just no pressure to raise rates now. And as Sweden shows, raising them too soon only leads back down to zero. That's because even 1 percent rates can be enough to kill a still-weak recovery, and send inflation down below zero—forcing rates back there too."
Read Also: Janet Yellen Consults Mr. Language Person by Sigmund Holmes (Humorous)
Read Also: The Coming Margin Call From Hell by Ambrose Evans-Pritchard via The Telegraph
CHART OF THE DAY: The Annotated History Of The Dollar via ZeroHedge
Bonus Read: 122 Things Everyone Should Know About Investing And The Economy by Morgan Housel via Motley Fool
"#103 Someone once asked Warren Buffett how to become a better investor. He pointed to a stack of annual reports. "Read 500 pages like this every day," he said. "That's how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.""
"It is no coincidence that the century of total war coincided with the century of central banking.” – Ron Paul
Have A Great Weekend
