Both Sides Now (Part 1)

Investors need to use both sides of their brains.

Yes, there’s the analytic side and the intuitive side. There’s numerical number-crunching and there’s aha-moment insight, the kind that gets into Apple at 30 and out of Google at 600. But that’s not the two-sidedness that I’m talking about.

I mean the balance sheet. Yes, that boring, accounting-level statement of what a business owns and owes. The statement of cash, receivables, inventory, property and equipment on one side, and payables, short-term loans, long-term loans, and equity on the other side: assets and liabilities—both sides.

For a long time the balance sheet was the Rodney Dangerfield of accounting: it didn’t get no respect. Continue reading Both Sides Now (Part 1)

Market Failure

I’ve missed a couple of blog entries. I’m sorry about that, and I want to explain why.

I’ve developed a medical issue that’s going to involve surgery. Not major surgery, mind you, but I will need anesthesia, an OR, and so on. The procedure is common, and I’m hopeful that there won’t be long-term complications. But as I’ve worked through the process of diagnosis, analysis, and preparation I’ve been taken aback by how little attention has been paid to the cost. Not just little attention—but active discouragement.

Continue reading Market Failure

The Law of the Jungle

Is economics a game with no rules?

In college I was introduced to a game called “Jungleball.” The first rule of Jungleball is that there are no rules. The second rule is to disregard the first rule. Sometimes it would take the form of a volleyball game, where some players got onto their teammates’ shoulders to spike the ball, or where the server’s team would try to tackle their opponents from below the net. Other times it would be a soccer/football game that involved passing, throwing, kicking, tripping, and wrestling.

But economics isn’t Jungleball. Continue reading The Law of the Jungle

An Island Tale

Are markets and economics a recent Western innovation?

Before John Keynes, before Alexander Hamilton, before Adam Smith, markets flourished around the world. They did so because some people were good at some things, and others were good at other things. In Europe, British iron ore was traded for Italian wine; in Africa gold from Mali was traded for salt from Chad. And in the Pacific Islands fish from the coastal areas was traded for breadfruit and produce from the uplands.

For all of human history people have exchanged goods that they had in surplus for other things that they wanted or needed. Continue reading An Island Tale

Opportunity Knocks Three Times

Are there more ways than one (or two) to skin a cat?

Conventional wisdom says yes. Picking stocks is one way to beat the market—easy to say, and hard to do. It’s possible because identifying growth candidates or value plays depends on insight and hard work—commodities that never become obsolete. But is stock-picking the only way?

There are two other principal sources of market return. One is the market’s overall trajectory—the market itself. If you can successfully predict the market’s ups and downs, switching to cash when the market goes down and back into stocks when it goes up, you can turn market volatility into investment returns. Continue reading Opportunity Knocks Three Times