Wednesday, May 03, 2006

Invest Like the Best & Prosper

Invest Like Tony Soprano
According to this insightful article, the key to succeeding in the long run is simply to buy an investment, and FORGET about it.


Here's an interesting observation by the author:
Shelby Davis turned $50,000 into a fortune greater than $800 million during a lifetime of saving and investing, landing him on the Forbes list of the richest Americans before his death.

Davis is frequently called a B-list money manager, but there's nothing B-list about his returns. Like Buffett, he bought stocks to hold and said that he, too, would have been better off if he had never sold a single investment.

Does any one here notice how things are completely different today - in general?? Are we too impatient today? Or have the times changed?

Quite frankly, I think technology forces you to react quicker thereby making a combination of good and bad decisions. On the other hand, it can also make you jump too soon - passing up on excellent long-term potential.

Stalemate perhaps? :-)
Filed under: Money Talk, UpNaira, investing, advise, stock market


geon said...

I'm too picky perhaps - it's hard to find companies that are worth buying...

Maxwell said...

"I'm too picky perhaps - it's hard to find companies that are worth buying..."

Not only is it hard "to find companies that are worth buying", but it's also hard to find companies with really good "vision" leadership a la Steve Jobs (Apple). Look at what he's done (Ipod, OS/X, iMac, Mini, Powerbook, Pixar, Disney deal, Intel-based Macs, etc.) since returning to the fold. Heck, I'd like to find companies with 30-40% leadership of Job's quality. Does any one know any? If you do, you might want to ride their coat tails - if they have something to worthwhile to SELL. :-)

t said...

In my pre-US pre-university days, I learned about a thing called dividend. Shares helped you buy a piece of a public company, dividend was what you got in return for being a part owner, your share of the profit.

These days, what is tracked is the price of the stock. Now stock price is important if you want to buy the stock (low) to sell (high).

I suppose it's because there is a lot of money invested in the stock market...the companies are overcapitalized, so that per share earnings (dividends) are not impressive when compared to potential for earning with a jackpot stock or even when compared with just sticking the money in the bank.

I don't know for sure if in the past people poured money into stocks as today. I don't know that...If this is a new development, your suggestion is probably right, that technology has something to do with it, by making it easy for folks to buy stock in companies they barely heard of.

That takes us back to the question, how do buy-and-hold investors make money? The answer is probably in company fundamentals. I'm eager to learn more...

if you're reading this, you may also be interested in this. Peace.

t said...

Comments on hyperactive trading, and now hyperactive hedging.

The rich are getting richer. So are the bankers serving them

In designing controllers in engineering, when you act based on the derivative, your output is jumpier, less smooth.

I'm not in the mood to do the analysis of what the result of hedging is on the overall gains as a stock market investor (ignoring fees and penalties for playing). It's pretty likely that while it improves performance in the sense of raising the worst-case gain (or decreasing the worst-case loss, I should say), it does nothing for the average by implication it hurts the best case (decreases the best-case gain) as well. Add in fees...

This is not the whole story of course, because for instance, risk-exposure may then be used as a basis for valuing the underlying stock, so that things get more complicated and there is a very high price to pay for not participating...higher than would be without this artificial fad effect. I'm reading a book on derivatives from an anthropological perspective. Skimming a bit because social scientists write a lot - many words - and I want to read other things too.

Caltech is so twisted that social science here means math - game theory and econometrics perhaps, but not anthropology.

Luckily for those selling these strategies, they're in VOGUE, as much as Louis Vuitton was so in vogue a few years ago. Maybe it's lucky for theory too, since no doubt people are writing good papers (and a lot of poor ones) about this.

If you don't like to think about markets, and you live in a Western country in which you normally buy insurance for your car, think about THAT instead. Truly imagine life without car insurance and how you would fare in a life without it. Or what aspects of the culture produced it. Or how much we pay for it.

t said...

Re: comment on August 23, 2006 10:26 AM
The above confuses different concepts. That's my current opinion.

t said...

More on risk in the financial markets in the article below. I'll try to read some of Bernstein's writings. I mostly want to see how derivatives fit in to the markets, such that one can deduce the effect on gross market properties (such as volatility and risk)

Here's part of the article:
By Chris Farrell | Apr 9, 2007 | 1082 words

"Peter Bernstein is the financial market's leading philosopher of risk. The octogenarian Bernstein, long an adviser to institutional investors, is known to a wider audience through his books explaining how modern financial theory operates in today's capital markets and how we can use it to shape our own investments. Among his best-known are 1992's Capital Ideas, an examination of how concepts developed in academia transformed Wall Street, and Against the Gods, a sweeping history of risk and return in the financial markets, published in 1996. Capital Ideas Evolving, a follow-up to the 1992 work, is due out this month. Contributing Editor Christopher Farrell recently caught up with Bernstein. The following are excerpts from their chat:

How do you define risk?
The definition is not mine, but I like it. It's from Elroy Dimson at the London Business School: Risk means more things can happen than will happen.

That means you don't know the limits of what can happen, but you still have to make decisions. So you manage risks by comparing them to potential returns, and through diversification.

Remember, just because more things can happen than will ... "
/82% unread, more in BusinessWeek April 9, 2007, subscription required/

The journalist Farrell writes a very nice blog on markets
See Recent Posts

t said...

I find it gratifying that the "expert" on risk is a little muddled on the systemic effect of derivatives.
I don't have time to do this at the moment, but this would be the cool, yet simple, academic question to pursue. Like later.

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