Reblog: When a 10% gain makes you feel like a loser


Big gains can be hard to find in the financial markets. Nowadays, though, they seem to be everywhere — and that could change how you feel about taking risks.

As of Nov. 16, the S&P 500 is up 359% since the bull market began March 9, 2009, counting dividends, according to S&P Dow Jones Indices. This year alone through Nov. 16, Alphabet (the parent company of Google) has returned 32%, Amazon.com 52%, Apple 50% and Facebook 56%, including dividends. Bitcoin, the digital currency, has gained more than 700% so far this year.

Against that backdrop, even what investors used to regard as a generous annual gain — say, 10% — starts to feel paltry. New research into a mental process called “contrast effects” shows how that works and how it can alter your behavior.

Finance professors Samuel Hartzmark of the University of Chicago Booth School of Business and Kelly Shue of Yale University’s School of Management analyzed nearly 76,000 earnings announcements from 1984 through 2013 in which companies earned either more or less than investors were expecting.

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stockarchitect September 12, 2018

Alphabet / Amazon / Apple / Bitcoin / Dow / Facebook / gains / Jason Zweig / Returns / S&P 500 / Samuel Hartzmark / Wall Street /

Reblog: Morningstar: Value Investing: Patience Will Be Rewarded


Here’s a great article from Morningstar which discusses the importance of patience as a value investor. One of the key takeaways is:

“However, by anchoring investment decisions to value, we can navigate challenging circumstances and look through market noise and emotion to identify and take advantage of opportunities that may present in times of market stress. This often sees our views as contrarian to others in the market.”

Here’s an excerpt from the article:

It is difficult to know how long it will take for an attractively priced asset to appreciate towards its fair value, long-term investors must be prepared to wait.

Value investing has a prominent place in our investment process and is backed up by a vast body of empirical evidence that supports this approach to investing.

Perhaps it can be best described through illustration in the diagram below:

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stockarchitect August 13, 2018

acquirersmultiple.com / Investment / Johnny Hopkins / Morningstar / Returns / The Acquirer’s Multiple /

Reblog: The Illusion Of Risk


When we find an attractive stock to invest in, we outlay money, aka invest, to earn an attractive return and the investment will involve a degree of risk.

One of the most dangerous, commonly accepted and ill thought out concepts in investing is the risk / return trade off.

That is: high returns equals high risk.

Unfortunately, Investopedia continues to spread this type dogma, as you can see by the graph below.

Illusion Of Risk

Volatility (standard deviation) is not risk!

The appropriate definition of risk is from the Oxford dictionary (or any other branded non-financial dictionary) as: Exposure (someone or something valued) to danger, harm, or loss.

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stockarchitect December 13, 2017

3G Capital / Adam Parris / Charlie Munger / Enchiridion / Epictetus / Howard Marks / Invest / Investor / Kay Graham / Return / Returns / Risk / risk reward ratio / Seth Klarman / valuewalk.com / Warren Buffet / Washington Post /

Reblog: Why you shouldn’t try to trade like George Soros


George Soros, founder of Soros Fund Management LLC

 

Traders tend to be overconfident and discount what they don’t know about the market and individual securities. They see patterns instead of random noise. And they have a hard time admitting their losses and focus too much on gains.

In summarizing the science of behavioral finance, Statman says we’re pretty much hard-wired to consistently make these mistakes — and lose money. Since we tend to think of ourselves as better than average on most everything from driving to investing, it clouds our rational judgment. A body of research has found this to be particularly true when it comes to amateur stock traders.

Statman said that average returns of frequent traders “lag those of infrequent traders and the average returns of infrequent traders lag average returns of investors who abstain from trading.”

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stockarchitect October 30, 2017

CNBC / George Soros / John Wasik / Meir Statman / Psychology / Returns / Trade / Trading Psychology /

Reblog: How to Maintain Control and Discipline in Your Trading


If as a TRADER you want to have disciplined and profitable trading, The Core Concept you need to Understand is

As a Trader, you do not have any control on the market.

Nil Control on Market

You’ve either figured out or you will figure out the fact that not much at all remains under your control as a trader. Dealing with an endless set of variables using a mind that’s geared by nature to defining constants is a tough task.  Most of traders focus on returns and not focusing on the process of trading.

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stockarchitect July 5, 2017

Brahmesh / Bramesh / Emotions / Profit / Returns / Stop Loss / strategy / trader / Trading /

Reblog: YES, MUTUAL FUNDS CAN STAND OUT FROM THE HERD


Forbes Magazine, Dec. 19, 1994

At the typical stock-fund office, phalanxes of computer screens glow like the control room of a nuclear reactor. The portfolio manager is an intense young MBA. He can recite earnings estimates by rote for each of the 100 stocks in his billion-dollar fund. He’s a high-pressure guy, the atmosphere is electric with excitement, and the phones are always ringing. All this costs money, but the managers have to justify themselves. What are they for if not to trade in and out of stocks?

Yet all this striving does nothing for most fund investors. Although the industry has its good years, over long periods of time the average U.S. stock fund does worse than a market index. No wonder: Typical annual expenses run to 1.3% of assets.

George Mairs, 66, does things differently. Mairs & Power, Inc., founded by Mairs’ father in 1931, has nine employees and runs a total of $300 millon out of the old First National Bank Building in St. Paul, Minn. Nearly all that money is in separate accounts. Mairs & Power Growth Fund has $41 million in assets; a balanced mutual fund, Mairs & Power Income Fund, runs $13 million.

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stockarchitect May 10, 2017

Forbes / Jason Zweig / Mutual Funds / Price to Earnings / Returns /

Reblog: On outperformance


Some excerpts from my annual review to subscribers. Hope you will find it useful

Sources of outperformance

Superior performance versus the indices can usually be broken down into three buckets

  1. Informational edge – An investor can outperform the market by having access to superior information such ground level data, ongoing inputs from management etc.
  2. Analytical edge – This edge comes from having the same information, but analyzing it in a superior fashion via multiple mental models
  3. Behavioral edge – This edge comes from being rational and long term oriented.

I personally think our edge can come mainly from the behavioral and analytical factors. The Indian markets had some level of informational edge, but this edge is slowly reducing with wider availability of information and increasing levels of transparency.

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stockarchitect May 8, 2017

Cera Sanitaryware / Fixed Deposits / Portfolio / Portfolio Management / Real Estate / Returns / Stock portfolio /

Reblog: Mohnish Pabrai’s Approach To Beating The Market


Mohnish Pabrai, managing partner of Pabrai Investment Funds, speaks during the Value Investing Congress in New York. Photographer: Daniel Barry/Bloomberg News

Since inception, Mohnish Pabrai has beat the stock market by triple digit returns. What was the key to his success? Pabrai would argue nothing unexpected or surprising.  In fact, he attributes his massive success to a keen sense of cloning other super-investors like Warren Buffett and Charlie Munger. On the investing podcast, Pabrai discussed a range of topics to help explain his way of thinking and methods for achieving such strong performance.

Preston Pysh: [2:29] You have an IT background that not a lot of people know about. Would you have taken a different career path if you had found value investing first?

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stockarchitect February 22, 2017

Berkshire Hathaway / Charlie Munger / Coca Cola / Mohnish Pabrai / Peter Lynch / Returns / Southwest / Warren Buffet /

Reblog: 1980 to 2014: Sensex Vs. Fixed Deposits, Gold & Silver


apples-orangesWhile this article may seem dated, it does not in any way diminish the importance even at this point in time.The article has been written by D. Muthukrishnan (Muthu) and can be found on his blog

The article has been written by D. Muthukrishnan (Muthu) and can be found on his blog here.

For last 3 years, I’ve made it a practice to give performance comparison of various asset classes- Sensex (Equity), Fixed Deposit (Debt), Gold and Silver and the impact of inflation on them beginning from the financial year 1979-80. Why 1979-80? That is the year from which Sensex came into existence with a base as 100.

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stockarchitect September 14, 2016

FD / Fixed Deposits / Gold / Investment / Returns / sensex / Silver /

Reblog: 40,000 times in hundred years = 11.3%


This hard hitting article is written by D. Muthukrishnan (Muthu). The original post can be found here.

I was reading this article written by Vivek Kaul.

A bungalow in Nepean Sea Road, South Mumbai was bought for around Rs.1 lakh in 1917. It is now going to be sold for Rs. 400 crores. The value of the bungalow has multiplied by whopping forty thousand times in 100 years.

Real estate is always discussed in terms of how many times it has multiplied. Rarely anyone in that industry calculates XIRR or annualised returns. 40,000 times in 100 years when expressed in terms of XIRR is 11.3%. Not a bad return at all. But nowhere as glamorous as saying 40,000 times.

Many tell me something like that the property they bought 25 years ago has multiplied by 10 times. Sounds fantastic. But the annualised return works out to 9.6%.

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stockarchitect August 29, 2016

Annualised / Equity / Fixed Deposits / Gold / Inflation / Real Estate / Returns / XIRR /