Weekend Reads for Advisers: Emerging Markets, Meditation, and Monetary Policy

I don’t know about you, but to me it seems as if summer flew by. Here in the United States, Labor Day — the symbolic end of summer — is just around the corner. With that in mind, I thought I’d do something a little different this week: before I recap some of the most interesting content I’ve come across recently, here’s an ode to summer, in the form of a bit of musical memorabilia: Janis Joplin singing “Summertime” — live in 1969. And if Janis is not your thing, who can resist Ol’ Blue Eyes? Here Frank Sinatra sings “Summer Wind.” A few other classics: “Hot Fun in the Summertime” by Sly and the Family Stone, “Summertime Blues” by Eddie Cochran, Nat King Cole’s “Those Lazy, Hazy. Crazy Days of Summer,” and “Summertime” by DJ Jazzy Jeff & the Fresh Prince. Last, but not least: “In the Summertime” by Mungo Jerry (look at those lamb chop sideburns!).

Risk and Financial Innovation

• Mark Thoma, a professor of economics at the University of Oregon and author of Economist’s View blog, has an interesting post — “Rethinking Investment Risk” — that cites a new paper, “Speculation and Risk Sharing with New Financial Assets,” published this month in the Quarterly Journal of Economics. “Financial innovation,” he writes, “is supposed to reduce risk — in theory, at least. Yes, new financial instruments based on the housing market helped cause the financial crisis of 2008. But in the abstract, those same instruments have the potential to spread risk more evenly throughout the marketplace by making it possible to trade debt more extensively, rather than having it concentrated in a relatively few hands. Now a paper published by MIT economist Alp Simsek makes the case that even in theory, financial innovation does not lower portfolio risk. Instead, it raises portfolio risks by creating situations in which parties sit on opposing sides of deep disagreements about the value of certain investments.” (Economist’s View)

Behavioral Finance

• Wisdom of the crowds? Not always. In “Sometimes 1,000 Heads Aren’t Better Than One,” Cass Sunstein cautions that “crowds may have much less wisdom when their members are listening to one another. In such cases, we can end up with forms of herding, or social cascades, that reflect serious biases.” (Bloomberg)

Investing

• If you are a regular reader, you will have come across previous mentions of @TrenGriffin‘s “A Dozen Things I’ve Learned . . . ” series. His latest: “A Dozen Things I’ve Learned about Investing from John Maynard Keynes.” If this is your first foray, here’s another: “A Dozen Things I’ve Learned about Strategy, Business, and Investing From Michael Porter.” (25iq)

Emerging Markets

• “Turmoil in Emerging Markets: Is It 1997 All Over Again?” (Enterprising Investor)
• Paul Krugman’s take: “This Age of Bubbles.” (New York Times)
• “Volatility in Emerging Markets: Resources on Currency and Capital Flows” (Enterprising Investor)
• “Emerging Market Rout Is Too Big for the Fed to Ignore” (The Telegraph)

Aptitude vs. Skill vs. Genes vs. Luck

• Peter R. Orszag writes that like many others who read Malcolm Gladwell’s book Outliers: The Story of Success when it came out five years ago, he was impressed by the 10,000-hour rule of expertise. But David Epstein‘s new, The Sports Gene, “pretty much demolishes the 10,000-hour rule — and much of Outliers along with it.” See: “Practice Makes Perfect, If Your Genes Play Along” (Bloomberg)
• Malcolm Gladwell responds to his critics in “Complexity and the Ten-Thousand-Hour Rule.” (The New Yorker)
• Shane Parrish (@farnamstreet) has published an excellent and wide-ranging Q&A with Michael Mauboussin, author of numerous books, including More Than You Know: Finding Financial Wisdom in Unconventional Places, Think Twice: Harnessing the Power of Counterintuition, and most recently The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing. (Farnam Street)

Meditation/Mindfulness

• In “Meditation Tips for Advisors,” Deena Katz shares insights from a mediation retreat she went on with her husband and business partner, Harold Evensky. (Financial Planning)
• My colleague, Jason Voss, CFA, author of The Intuitive Investor, has also blogged about meditation. See: “Leading from the Center: Dalio, Hagan, and Freeman on Meditation and Leadership.” He also interviewed Ng Kok Song, adviser and chair of global investments at the Government of Singapore Investment Corporation (GIC), about meditation. In this short video, Ng discusses in detail one way to meditate, plus meditation’s benefits for practitioners: stress relief, greater clarity of thought, and a greater sense of ethical purpose. Additionally, he considers the possibility that meditation may be one answer for how to avoid the errors of judgment highlighted by behavioral finance. (Enterprising Investor)

Retirement

• “To Solve The U.S. Retirement Crisis, Look To Australia” (Forbes)
• “Do Income-Oriented Portfolios Reduce Safe Withdrawal Rates?” (Advisor Perspectives)

Math/Stats

• Who can resist a title like this: “Oedipus and the Difficult Relationship between Maths and Economics.” (Magic, Math and Money)
• A model that explains our right-handed world and the dominance of left-handed athletes. (Journal of the Royal Society Interface, PDF)
• “The Man Who Invented Modern Probability“: Chance encounters in the life of Andrei Kolmogorov by MIT professor Slava Gerovitch (Nautilus)
• For an interesting discussion on the use (and misuse) of statistics, see the comments below the article “Science’s Significant Stats Problem.” (Nautilus)
• “What is Algebra?” As @stevenstrogatz noted in a tweet, this is a “superb post by @profkeithdevlin on why algebra is not ‘arithmetic with letters.’” (profkeithdevlin)
• “Math Experts Split the Check” (Math with Bad Drawings)

The Financial Crisis

• In “Lehman’s Morbid Legacy,” PIMCO’s Mohamed El-Arian reflects on four “previously unthinkable outcomes that have become reality.” (Project Syndicate)
• What has happened since Lehman failed? (The New Yorker)

Hedgies

• “Sleepless nights, second guessing, minds racing, almost a split personality. . .” According to Andy Kessler, “Hedge Funders Are All a Little Nuts.” (WSJ)

And Now For Something Completely Different

• Have you ever wondered if it would be possible to be Spider-Man? Watch as mathematician Skip Garibaldi discusses whether Spider-Man’s powers are mathematically possible. (YouTube)
• James Surowiecki on the surprising complexity of lobster prices. (The New Yorker)
• The wonder-food that is honey: “The Science Behind Honey’s Eternal Shelf Life.” (Smithsonian)
• And now for a good laugh — it’s a holiday weekend after all — Monetary policy, explained. Brilliantly:

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

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