Weekend reading (and listening) ideas from Michael Batnick. I've added some excerpts.
These Are the Goods
Courtesy of Michael Batnick, The Irrelevant Investor
Articles
You should think of buying investments like you buy food–do it often. Make it a habit to invest your money like you make it a habit to pay your rent/mortgage.
By Of Dollars and DataSay it with me:
Just. Keep. Buying.
This is the investing mantra that can change your life. These 3 words can make you rich. What I am talking about is the continual purchase of a diverse set of income producing assets. I am not talking about when to buy or how much to buy, just to keep buying. The idea seems simple because it is simple.
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A one percentage point increase in ETF ownership also experience a 14% reduction in the average magnitude of their future earnings response coefficients.
The paper, “Is there a dark side to exchange traded funds? An information perspective,” written by Doron Israeli, Charles M. C. Lee, and Suhas A. Sridharan, digs into the details on some implications of higher ETF ownership on individual stocks.
The main premise of the paper is as follows–more people are investing using ETFs, so what are the implications of higher ETF ownership for individual stocks?
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A belief isn’t wrong merely because a lot of people share it.
By Jason ZweigThis week, S&P Dow Jones Indices produced new data showing that actively managed funds have underperformed for the past 15 years — which got me asking myself, When did I first coherently advocate index funds?
[Image credit:
“Investor Slaying the Dragon of High Cost”“St. Michael and the Dragon,” from The Hours of Frederic of Aragon (ca. 1500-1505), Bibliotheque Nationale de France]
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Most contrarianism is irrational cynicism.
1. Define what you’re incapable of and stay away from it.
2. You’re not proven until you’ve survived a calamity.
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Passive investing may be eating the world, but for now at least, active bond funds are still enjoying their leftovers.
By Phil Huber“Software is eating the world.” – Marc Andreessen
BlackRock, the world’s largest asset manager, made headlines a couple of weeks ago when it announced they would be consolidating a substantial number of their actively-managed equity mutual funds into a handful of new quantitative model-driven strategies. This is just the latest example in the generational zeitgeist that has seen billions of dollars flow out of high-cost active mutual funds and into their low-cost systematic counterparts. As the war between man and machine wages on in the investment landscape, the machines undoubtedly have the upper hand.
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Silence in the face of an unanswered falsehood, from people who should know better, is just never going to be how I roll.
We are the whipping boy for a recent article on the dangers of data mining in our field. And the whipping is delivered largely based on an unsupported shot taken by my frequent foil and sparring partner, Rob Arnott. Before I take on this attack1 we need to back up a bit.
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Rules-based strategies are not guaranteed to work any better than faith-based strategies, but when they don’t do well, there is, at least, a ready explanation for why.
It’s a reasonable argument made by both great active managers and mediocre ones. The subtext is that “any idiot can ride a bull market up, fully invested, and generate performance” but that it takes a skilled manager to know when to move toward less risky allocations or husband cash or take profits or rotate into defensive / high quality, etc. I am sympathetic to the argument and agree with it in theory.
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Big trends are not that hard to spot, but they can be strangely hard for large organizations to embrace.
"Jeff, what does Day 2 look like?"
That's a question I just got at our most recent all-hands meeting. I've been reminding people that it's Day 1 for a couple of decades. I work in an Amazon building named Day 1, and when I moved buildings, I took the name with me. I spend time thinking about this topic.
"Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1."
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Uber more than doubled gross bookings in 2016 to $20 billion.
Uber Technologies Inc. isn’t required to report its finances publicly, but the privately held company has decided to forgo that luxury for the first time. Uber said its revenue growth is outpacing losses, hoping to show the business is on a strong trajectory as it attempts to address a recent cascade of scandals.
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A credit card, mystifyingly, had suddenly become cool.
By Charles DuhiggTo understand the anxiety inside American Express — which has announced its second consecutive year of declining revenue — you need to know about a story that made its way through the company’s headquarters last fall.
Podcasts
If there were a Nobel prize for podcasts, Patrick would receive it.
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This was a great conversation between Nir Kaissar and my colleague Ben Carlson
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Veep nails the idiocy of the day-to-day decision making.
Books
The wisdom of crowds depends on the errors of individual investors cancelling each other out. But if we all exhibit certain behavioral patterns that are consistently irrational in the same way, sometimes the errors don’t cancel out.
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The Economic Policy Institute, a progressive think tank, estimated that the hedge fund loophole cost $6 billion a year- the cost of providing health care to three million children.
