What’s causing capital income to grow?
Ever since Thomas Piketty’s Capital in the Twenty First Century came out last year, economists have been discussing the role of capital income in the economy. The debate centered on Piketty’s simple but profound formula, r > g. That is, the rate of return on capital—r—is greater than the growth of the economy: g.
Continue reading The New Capital
It’s 5 o’clock. Do you know where your data is?
Photo credit: Viktor Hanacek. Source: Picjumbo
Increasingly, our lives are dominated by online activities that require us to share our personal information in order to access the service. Apple uses my location data to improve its Maps app; Facebook knows who my friends are and what they’re doing; Amazon knows all about what I read, listen to, or buy; Google knows what I’m looking for, sometimes even before I initiate a search. Recently a former US official emailed another former official and immediately received targeted ads for hotels in Kabul. That’s not just creepy, it’s dangerous.
Continue reading Data Denial
Are the markets about to tip over?
Source: Public Domain Images
In the twelfth century the city of Pisa, Italy, began to erect a bell-tower for the local cathedral. But the subsoil they built upon was unstable on one side, and the structure began to lean to one side. Construction was halted, and the ground settled. After a century, construction was resumed, and the architect compensated for the tilt. The tower was finally completed 200 years after it was started.
Continue reading Leaning Markets
Is the industrial sector over?
Photo: Dave Meier. Source: Picography
Industrial stocks have gone sideways relative to the market for two decades. They lagged during the internet bubble, boomed with the BRICs mid-decade, suffered with everyone else in the Financial Crisis, and have been gradually recovering since. But even though their profit margins are expanding, the sector has just moved up or down with the general market. Is there any dynamism left?
Continue reading Rusting Out?
Investors face all kinds of temptations.
Trustees of the British Museum. BM 1843.1103.31. Source: British Museum
There’s a passage in Book 12 of Homer’s Odyssey that describes the Sirens—beautiful creatures with the faces of girls and the bodies of birds. Their magical song promises knowledge, but it actually lures sailors to their deaths upon the reef surrounding their island. “There is no homecoming for the man who comes upon them unawares,” Odysseus is warned.
Continue reading The Investment Odyssey
Are you a trader or investor?
I started out as a trader. In the ‘80s I bought and sold Treasury Notes and Bonds—as well as futures and options—almost every day for a mid-sized bank. I used technical and fundamental analysis, subscribed to charting services, and practically lived on my phone. Trading was a tonic that got into my blood.
Continue reading Trading vs. Investing
Hey: got a tip?
Photo: Kevin Rosseel. Source: Morguefile
I’m often asked for investment advice. People are usually looking for something new—an overlooked equity good for a quick buck. But giving out random tips is contrary to my professional principles. Investment advice is like medical or legal advice: specific instructions should be tailored to specific situations. It may be fine for a doctor to say, “Get more exercise,” but it maybe not if the person just had a heart attack.
Continue reading Tips From Trading (Part 3)
What can traders teach investors?
Trading and investing are different disciplines. Traders look at short-term price fluctuations; investors focus on long-term total return. Traders might move in and out of a position several times a day, while investors may only occasionally adjust their portfolios. But both are concerned with financial gains and losses, and the frequent feedback that traders get can help investors better understand their own performance.
Continue reading Tips from Trading (Part 2)
Can investors learn from traders?
The short answer would seem to be no. After all, investing is a long-term discipline. Goals and objectives are measured in years and decades. Trading is short-term, with positions that can last just a few hours, minutes, or even seconds. But both deal with financial instruments and financial risk. Both require you to make decisions with imperfect information. And both play on our emotions—making us euphoric and giddy when we’re up, and frustrated and grumpy when we’re down.
Continue reading Trading and Investing (Part 1)
Does it pay to be a passive investor?
Illustration: Oliver Hereford. Source: Gutenberg
That’s the conventional wisdom. Proponents of passive investing claim that the market is efficient: analyzing stocks is useless. All the public information about them is already reflected in their prices. They see the debate between active stock picking and passive index-based investing as a tortoise/hare story, where passive investors are the tortoise and active investors are the hare. And in that story the tortoise wins.
Continue reading Active / Passive Passions