Reblog | StockArchitect

Reblog: Diversification Overrated? Not a Chance!

In February 2000, a financial advisor named Bob Markman wrote an article that got a huge amount of attention online. Called “A Whole Lot of Bull*#%!” (that’s how the original was spelt) and published by Worth magazine, the article attacked the idea of diversification, arguing that any money put into currently underperforming investments was money wasted. Internet and other technology stocks had been so hot for so long that nothing else was worth owning, Markman argued. He was far from alone in saying that.

Markman and I exchanged long emails and even longer letters (that’s how people communicated in those Neolithic days), but the “debate” boiled down to one point: Can the typical investor predict the future with precision, or not? Markman insisted the answer was yes. I felt then, as I still do, that the answer was no.

In Markman’s defence, there is a case to be made that if you have inside knowledge or superior analytical ability, then you should bet most or all of your money to capitalize on it. Warren Buffett and Charlie Munger have long argued exactly that. If you are as analytically brilliant as Buffett or Munger, diversification will lower your returns. The rest of us, however, should have much less courage about our convictions. And inside knowledge or superior analytical ability are best applied to individual securities, not to broad market views.

Continue Reading →

stockarchitect December 3, 2018

Bob Markman / Charlie Munger / Diversification / Investment / Jason Zweig / S&P 500 / Warren Buffet /

Reblog: To Be a Great Investor, Worry More About Being Wrong Than Right

If you were a Hillary Clinton supporter, every statement by Donald Trump fortified your faith that he would lose the election, and you took the consensus of polls as proof she would win. Mr. Trump gave supporters reason to think he’d chasten Wall Street, and as the election approached, pundits predicted a market meltdown if Mr. Trump won. Yet the S&P 500 has returned more than 5% since his election.

Ever since Nov. 8, voters have been scrambling from all sides to avoid admitting that we were wrong. If that requires fibbing to ourselves, so be it.

Likewise, instead of opening their minds to the possibility of being wrong, investors often wall themselves off from new information that could threaten their views.

When the U.S. stock market produced its worst start to a year in modern history, losing 10.5% in January and early February, terms like “contagion,” “panic” and “fear and loathing” filled the air. Stocks promptly shot up.

Continue Reading →

stockarchitect November 28, 2018

Jason Zweig / Wall Street Journal /

Reblog: Seth Klarman: Mainstream Investing Has It Backwards

Some years ago Seth Klarman gave a fantastic speech at the MIT Sloan Investment Management Club. During his speech Klarman suggested that the mainstream approach to investing has is backwards saying:

“Right at the core, the mainstream has it backwards. Warren Buffett often quips that the first rule of investing is to not lose money, and the second rule is to not forget the first rule. Yet few investors approach the world with such a strict standard of risk avoidance. For 25 years, my firm has strived to not lose money—successfully for 24 of those 25 years—and, by investing cautiously and not losing, ample returns have been generated. Had we strived to generate high returns, I am certain that we would have allowed excessive risk into the portfolio—and with risk comes losses.”

He went on to discuss how you can successfully exploit opportunities by remaining calm, cautious and focused in the manic world of investing. Here is an excerpt from that speech:

As the father of value investing, Benjamin Graham, advised in 1934, smart investors look to the market not as a guide for what to do but as a creator of opportunity. The excessive exuberance and panic of others generate mispricings that can be exploited by those who are able to keep their wits about them.

Continue Reading →

stockarchitect November 26, 2018

Benjamin Graham / Johnny Hopkins / Seth Klarman / The Acquirer’s Multiple / Value Investing /

Reblog: Learning From Jamie Dimon

There are a number of letters that I look forward to reading each year. Some of them are well known and Buffett’s are, of course, a classic example. There are also others that have added enormous value to my thinking over the years, and that have opened my eyes to many new and varied investment opportunities. They have also helped me spot emerging themes, new ideas, thought processes and mental models. I mentioned Buffett because his 2011 letter is a case in point. In that Buffett recommended reading Jamie Dimon’s annual letters. And it’s little wonder; Buffett has said this about Dimon in the past…

“I think he knows more about markets than probably anybody you could find in the world.”

Jamie Dimon, the son of a stockbroker, has been at the helm of JP Morgan [and it’s predecessor firm ‘Bank One’] since March 2000. In that time the tangible book value has compounded at 11.8%pa vs 5.2%pa for the S&P500. Not surprisingly, the stock price has followed, delivering a 12.4%pa return vs the S&P500’s 5.2%pa over that period. A cumulative gain of 691% versus 147% for the S&P500. Not bad considering the multitude of challenges that have faced global banks over that period, including the worst financial crisis since the Great Depression.

Continue Reading →

stockarchitect November 21, 2018

Balance Sheet / Banks / Buyback / Earnings per share / EPS / J P Morgan / Jamie Dimon / mastersinvest.com / Risk mitigation / Warren Buffet /

Reblog: What To Do In A Selloff? Avoid Emotion And More

The most important factor which determines if you successfully deal with a selloff is how you are positioned before one. When faced with a correction or a bear market your portfolio’s risk needs to be properly set to your personality, age, goals, savings and overall position in your life. It’s very tempting when starting a portfolio to take more risk when stocks are moving up and less risk when stocks are moving down. However, if you’re investing for the long term, there will be many of both scenarios. You need to visualize how you’d react when you make 20% in a year or lose 30% in 6 months. When deciding on the amount of risk you’re willing to take, one of the most important aspects is to avoid basing your choice on where you think the market will go up or down in the short term. You need to have a baseline plan for all markets to avoid scenarios where you panic. It’s easy to panic when you don’t have a plan in place. If your risk profile is wrong, you will likely underperform. Taking too much risk can cause quick painful losses. If you switch to a more conservative approach after you lost money, it will be difficult to make the money back.

Stay Disciplined

No matter how much you plan or how closely your portfolio matches your risk profile, if you want to go against your plan on a whim of a decision, it’s possible. There can be some circumstances where you need to wait a defined period before you can get your money back, but eventually, you will be able to. You can override your personal financial advisor if you have one and you can take your money out of passive funds at inopportune times if you are making emotionally charged investing decisions. These are all mistakes you can make if you don’t follow through on your discipline. Recognizing you have the freedom to mess up your finances is daunting for some people who aren’t experienced. The key for inexperienced and even experienced investors is to take a methodical approach rather than being reactionary.

Continue Reading →

stockarchitect November 19, 2018

Discipline / Emotional / Emotions / Market selloff / UpFina / valuewalk.com /

Reblog: 37 Amazing Lessons I Learned About Investing From Jim Cramer

Every day I jot down on yellow legal paper a list of ideas and subjects that I think will be interesting to our subscribers and that I can add value to — topics for future opening missives in my Diary.

Each morning, at around 4:45, I think about what I will write as the subject of my opener for the day.

I typically contemplate the prior day’s market action and the overnight price changes in the major asset classes and regional markets around the world and I try to come up with something relevant, topical and actionable.

Something on my list, for many moons, is the subject of the lessons I have learned from Jim “El Capitan” Cramer.

Over the years I have written about the contributions that Jim has made and I have defended Jim as well against the wrong-footed criticism that he often faces in his role as a high-profile and visible public figure.

My defence of Jim is not done because I essentially have worked for him over the last two decades. Rather, it is heartfelt and done in the recognition of the contributions that Jim has made since he invented and founded TheStreet. I do this in large part because Jim has been my professor, an important contributor to my investment experience.

Continue Reading →

stockarchitect November 14, 2018

Doug Kass / Investing / Investment / Jim Cramer / Lessons / thestreet.com /

Reblog: Candlestick patterns – 21 easy patterns (and what they mean) Part 3 of 3

In the first part of the post, we looked at Equal open and close, Doji patterns and in the second part, we looked at Short body candles. In today’s post, we will discuss Long body candlestick patterns.

Long body candlestick patterns

Dark Cloud Cover:

Dark cloud cover candlestick patterns indicate an incoming bearish reversal.

A two candle pattern, the first candle is a long green bullish candle.

The next candle opens higher but reverses and declines, the candle then closes below the center of the first candle.

Continue Reading →

stockarchitect November 12, 2018

Candlestick Sandwich / Dark Cloud Cover / Enda Glynn / Engulfing Pattern / humbletraders.com / Piercing Line / Three green Soldiers /

Reblog: Candlestick patterns – 21 easy patterns (and what they mean) Part 2 of 3

In the first part of the post, we looked at Equal open and close, Doji patterns. In today’s post, we will discuss Short body candles.

Short body candles.

Long Shadow candles:

Long shadows are one of the more reliable candlestick patterns.

Candles with a long top shadow and short lower shadow show us that buyers dominate the market, these can lead to or continue a bull run in prices.

On the other end.

Candles with a long lower shadow and short upper shadow show us that sellers dominate the market and these candles can lead to or continue a bear run in prices.

Continue Reading →

stockarchitect November 7, 2018

Enda Glynn / Evening Star / Hammer / Hanging Man / humbletraders.com / Inverted hammer / Long Shadow candles / Morning Star / Shooting Star / Spinning Top / Upside Gap with Two Crows /

Reblog: Candlestick patterns – 21 easy patterns (and what they mean) Part 1 of 3

Here’s the deal, learning just a few key candlestick patterns WILL improve your ability to recognize trading opportunities and enter better trades! The Japanese have been using these patterns for centuries, to trade rice of all things! So, there is a rich history to the art of candlestick trading. Candlestick patterns are an integral part of technical analysis, candlestick patterns emerge because human actions and reactions are patterned and constantly replicate and are captured in the formation of the candles. So, by recognising these patterns and applying the lessons that the patterns teach, can and does yield results in your trading!

And isn’t that the aim of trading?

Now I know what your thinking!

BUT!

Don’t think of this as a list to memorize.

Think of this as a guide that you jump in and out of, whenever you need to jog your memory!

Continue Reading →

stockarchitect November 5, 2018

Abandoned Baby / Doji / Dragonfly Doji / Enda Glynn / Evening Star Doji / Gravestone Doji / Harami Cross / humbletraders.com / Morning Star Doji /

Reblog: Seth Klarman: Investing Requires A Degree Of Arrogance Tempered With The Humility Of Knowing We Could Be Wrong

Several years ago Jason Zweig did a great interview with Seth Klarman titled – Opportunities for Patient Investors, which was published by the CFA Institute. While the entire interview provides a number of value investing insights, one answer, in particular, provides a unique insight into Klarman’s psychology towards investing saying:

“In investing, whenever you act, you are effectively saying, I know more than the market. I am going to buy when everybody else is selling. I am going to sell when everybody else is buying. That is arrogant, and we always need to temper it with the humility of knowing we could be wrong—that things can change—and acknowledging that we have a lot of smart competitors.”

Here is an excerpt from that interview:

Zweig: In a Forbes article in the summer of 1932, Benjamin Graham wrote, “Those with enterprise haven’t the money, and those with money haven’t the enterprise, to buy stocks when they are cheap.” Could you talk a little bit about courage? You make it sound easy. You have great clients and great partners. Was it easy to step up and buy in the fourth quarter of 2008 and the first quarter of 2009?

Klarman: You may be sceptical of my answer, but, yes, it was easy. It is critical for an investor to understand that securities aren’t what most people think they are. They aren’t pieces of paper that trade, blips on a screen up and down, ticker tapes that you follow on CNBC.

Continue Reading →

stockarchitect October 31, 2018

acquirersmultiple.com / Investing strategy / Jason Zweig / Seth Klarman / The Acquirer’s Multiple /

1 … 10 11 12 13 14 … 40