Out on a Limb

By |2018-09-25T07:22:18+00:00September 25th, 2018|Global Market Update|

Has your cat ever been stuck up in a tree? Photo: Kessa. Source: Pixabay It’s a hassle. The cat goes up and up, lured by birds or squirrels or some other incentive. Their retractable claws and powerful hind legs are great for climbing. Getting down, not so much. The problem comes once they’re in the higher branches. Birds and squirrels are nimble and can flit from twig to twig, while a cat never looks so awkward as when it’s swaying on a branch that’s [...]

Rolling the Dice?

By |2018-08-21T07:46:22+00:00August 21st, 2018|Global Market Update|

How do we manage risk in our lives? CC0 1.0 Public Domain. Source: Pxhere The first step is to acknowledge that risk is omnipresent and it’s not our friend. Oblivious investors are their own worst enemies. The Financial Crisis came about in part because real-estate and bond investors thought the world had fundamentally changed to have a lower risk profile. They became complacent and bought complex debt instruments in larger amounts than ever before. They borrowed money to purchase these investments, hoping to enhance [...]

Looking Under the Surface

By |2018-08-20T05:33:52+00:00August 20th, 2018|Global Market Update|

How do you find hidden risks? Archeological dig. Public Domain. Source: Wikimedia Good investing is like good building. You can’t really judge the quality of the work unless you look under the surface. A few years ago, we remodeled our kitchen. It was an adventure. There was plumbing underneath our flooring. Yes, seriously. When we pulled up the floorboards, plumbing came up with it. That was fun. Later, other areas had brought up to code: electrical, insulation, windows. We found that our quirky house [...]

The Hidden Asset

By |2017-07-17T12:21:30+00:00February 1st, 2017|Global Market Update|

What’s the asset that no one talks about? Photo: Bryan Hanson. Source: Morguefile When I discuss asset allocation, I usually focus on stocks and bonds. Bonds are a senior claim on a business’s cash flow, and stocks are a residual claim on cash flow. So stocks benefit from a business’s growth, but they’re riskier – they get wiped out if the business fails. Bonds are safer, but they don’t go anywhere. If everything goes right, you just get back what you put in, with [...]

Mountains and Markets

By |2017-07-17T12:22:59+00:00April 20th, 2015|Global Market Update|

How much attention should we pay to forecasts? Tuckerman Ravine Image Source: Douglas Tengdin I recently hiked into the mountains for some spring skiing. The forecast wasn’t great: cloudy with showers, then partial clearing, with a front moving in the next day. When we arrived at the trail, expectations had deteriorated—the following day was supposed to bring worse weather—snow, sleet, and freezing rain. But there was a lot of snow right then, and we were prepared. If conditions deteriorated, we could always ski out. [...]

Beating the House

By |2017-07-17T12:23:07+00:00January 22nd, 2015|Global Market Update|

Is investing like gambling? Photo: Casinocashjourney.com I’ve written before how investing isn’t gambling. Gambling is a zero-sum game, while investing makes everyone better off. Gambling is entertainment, while investing is a fundamental part of business. Investors own something real—a share of a company, or a loan to a city; gamblers don’t own anything. They just participate in a process. […]

Reviewing Risk and Return

By |2017-07-17T12:23:10+00:00December 8th, 2014|Global Market Update|

What’s your tolerance for risk? Source: Flikr Some people see risk and see only danger: lions and tigers and bears, oh my! Others look at risk as an opportunity for an adrenaline-rush: backflips off cliffs into mountain lakes, bungee-jumping off bridges and buildings. Risk is an integral part of finance. Different asset classes have different levels of uncertainty regarding their underlying cash-flow. This uncertainty translates into a risk-profile. […]

Returning to Risk (Part 4)

By |2014-05-15T09:36:22+00:00May 15th, 2014|Global Market Update|

Why is risk so important? Risk-management is at the center of rational investing. It’s what keeps people up at night when markets are booming, and what allows them to sleep soundly during panics and depressions. It’s what allows your money to work for you, so that later in life you don’t need to. But risk-management puts a glaze over people’s eyes. Tell them you work in risk-management and they’ll quickly change the subject. Google the phrase and you’ll get links to wiki articles about [...]

Returning to Risk (Part 3)

By |2017-07-17T12:34:18+00:00May 14th, 2014|Global Market Update|

Is anything risk-free? Practically-speaking, sure. Insured bank deposits and short-term Treasury obligations have little to no credit risk, and their maturities are so short that if interest rates rise, they’ll have very little price volatility. At least in the short term. But over the long-term, their real value can erode. Right now the Fed has rates near zero, while inflation is running around 1 ½ percent. A 10% loss in value isn’t a lot, but it isn’t nothing, either. But that’s just the US. [...]

Returning to Risk (Part 2)

By |2014-05-13T09:39:40+00:00May 13th, 2014|Global Market Update|

What is risk? Risk comes in two major flavors: short-term and long-term. With investments, short-term risk comes from the investments themselves—where they sit in the corporate capital structure. When a company generates cash, there are three different types of claims on that cash: senior claims (bonds), operating claims (real-estate), and residual claims (equity). The volatility of the cash-flow and the priority of the claim determine the likelihood of the investor getting his or her money back. But long-term risk comes from outside the investments—from [...]