Wednesday, October 18, 2017
Thursday, September 14, 2017
An interesting read. In terms of concepts and philosophies, the reader will not find anything new that was not encountered before if one has been constantly reading up on the topic of investment.
The author ties together concepts of value investing augmented with experiences and practical applications of financial history and behavioural psychology. The main takeaway for me is his account of the travails of Dendreon and the dangers of investing in a "story." To summarise, Dendreon was a biotech which developed a treatment for cancer. The main bull story for Dendreon was that once FDA approval is obtained, earnings will rocket to the sky. The ending was that Dendreon did actually obtain FDA approval, and its share price went up tenfold, however sales were disappointing and the company eventually declared bankruptcy!
There are several stocks on the ASX in which investors are clearly enamoured with the "story", the most vivid example being Mesoblast.
The author also addressed the issues inherent in indexing, factor investing and macro investing.
The only gripe I have with the book is that it could be better organised. The way it was written looks more like a stream of thought cobbled together hastily without any overarching framework.
A reminder that there is a library of my reading here.
Enjoy and prosper
Thursday, July 13, 2017
This is a very entertaining and easy read. Not much prior background knowledge required, but you will gain a lot more insights if you do.
Specifically relevant to investing, you will gain an insight as to why price trends occur in all markets, how and why market bubbles form, and how/why this has and will repeat themselves.
The reversal preference experiments show clearly why many investors (including myself) hang on to losses and cut their winners too early.
The anchoring and adjustment experiments will be known to many of us. However, I think many will miss the essential lesson- being that anchoring and adjustment is an artifact of guessing. With investing, there will always be a degree of guessing, so the challenge is to be able to deal with effects of anchoring and adjustment.
Enjoy and Prosper
Tuesday, May 16, 2017
Human behaviour and the power of incentives will ensure that so long as investors want salt, they will be sold salt. It is not in the best interest of promoters and managers to sell a single index fund where investors are encouraged to stay invested indefinitely with no churn. If there is no activity and no churn, how are they going to earn their bread? Marketers know the basic behavioural problems of average investors and they will act accordingly, leading to a proliferation of different ETFs.
Wednesday, May 10, 2017
R & D
Once again, the figures are headed in the right direction. Cash burn is still $71m, with $114m left in the bank, implying a steady runrate of 1.5 years.
As a matter of comparison, let's look at Intuit's 2016 metrics:
Revenue USD$4.7billion up 12% from 2015 (note: XRO growth is 44%)
COGS 16% of revenue
R & D 19% of revenue
General 11% of revenue
Marketing 28% of revenue
Total 74% of revenue
The current market cap for XRO is roughly NZ$3.2 billion. Still too rich for my taste. As a matter of comparison, Intuit's market cap is currently USD$33 billion, trading on a historical PE of 33.
Tuesday, May 9, 2017
This short blog post will appear to be another nail in the coffin for active investing.
It is not intended to be.
The main purpose of this post is to point out that the truth, as usual, is rather more nuanced than the black and white propositions presented daily in the press.
If you are a stock-picker or aspiring to be one, then it is imperative to understand the monstrous task required. Stock returns over the long term are extremely skewed. Crazily so. Studies of the US market appear to indicate that only 4% of stocks accounted for the entire market gain over the period starting from 1926 to 2015.
The relevant blog post with the article link is here.
These means that a randomly generated portfolio (the monkey dart theory) will fail to beat the market 99% of the time. It is now also easier to understand why active management, in aggregate, cannot beat the market. In fact, it is a logical inference that when the active management industry, in aggregate, gets larger and larger, it is doomed to fail in its collective quest to beat the market. That is likely to hold true even if we disregard fees.
It does make the case for passive indexing even stronger.
But that is not the entire story. Stay tuned.
p/s astute readers will get a hint from the above. Just as nature abhors a vacuum, the market appears to abhor a crowded trade.
Tuesday, May 2, 2017
My brief thoughts on reading this book:
New ideas arise from a synthesis of ideas, usually from unrelated disciplines. They do not just come out from a vacuum.