Practical analysis for investment professionals
19 February 2016

Weekend Reads for Investors: Gravity Edition

Posted In: Weekend Reads

Wow, how quickly the past three weeks flew by!

Before we get started, a celebratory shout-out to my beloved Denver Broncos (and apologies to my international readers), winners of US football’s Super Bowl. It has been 17 years since the Broncos won the National Football League (NFL) championship. And there is rich material in this victory for investors, I promise.

Specifically, many of you know that I am an advocate of meditation for helping investment professionals reduce stress, improve thinking, and assist with ethical dilemmas. It turns out that Von Miller, the Super Bowl’s Most Valuable Player (MVP), is a passionate advocate of creative visualization. In his post-game comments to the media, he said (and I am paraphrasing) that he had “spoken the result into existence over many years.” Two years ago, when my Broncos were defeated in the Super Bowl by the Seattle Seahawks, I took away some small measure of satisfaction knowing that the Seahawks, as a team, engage in meditation practices.

Now let’s return to the regularly scheduled bit about interesting stories for investors.

China (Again)

It seems China cannot avoid being the match sparking stock market fires around the globe. China is at a fork in the road: The right-hand path is to continue having a quasi-market economy with heavy government nudging, while the left-hand path is for the government to let markets “do their thang.” This interview with Asia Pacific investors is especially telling: Investors want less-tampered-with markets in China. (FinanceAsia)

It turns out that Chinese billionaire Zhang Xin is also clamoring for more openness in China. In fact, she declares in this interview that “the old model doesn’t work anymore.” I found her framework remarkably simple to understand. Namely, all business people and nations need to recognize two megatrends: globalization and digitization. China needs to understand that the economic system is “one,” according to Xin. (Der Spiegel)

However you look at the Chinese situation, it appears as if, like always, gravity is winning.

Investing

For China to be the match that sets equity markets on fire, there has to be lots of kindling, kindling that is still in place despite the raging infernos of the Great Recession. Or as this piece, “Not Yet Out of the Woods,” states, “The good times are ending before they had really begun.” (Economist)

I am a big fan of tracking demographic data because they are essentially pre-determined elements when creating different investing scenarios. Of course, millennials are among the most interesting of demographics, both in their sheer numbers and in the degree to which their values depart from previous generations. How are millennials starting to change equity markets? (Bloomberg)

Normally I do not feature my own writings when sharing my choices for Weekend Reads, but in this case I need to make an exception. Did you know that the Swiss are holding a referendum in the next year or two about whether or not to end fractional reserve banking? Few are covering this very interesting story. My piece provides an overview of much of the pertinent material you need to keep informed. (Enterprising Investor)

Iceland is also considering ending fractional reserve banking. Would this be the sprinkles on the cupcake for how Iceland handled the reformation of its national economy following the Great Recession? If you were unaware of the bold choices made by the country in the last decade, then you will love this piece. (BBC News)

Speaking of the Great Recession, did you know that the crack cocaine of the finance industry in the lead up to the shock and awe — no doc(umentation) mortages — are making a comeback? Time to gather the Wagnerian clouds. By the way folks, I am a believer in markets, no doubt. But I also recognize that competition leads to a tragic fight for the incremental unit of earnings. If banks were private — not public entities — would they have fought so fiercely for poor credit consumers in the lead up to the Great Recession? Probably not. (Wall Street Journal)

Another bizarre Frankenstein created by the finance industry is the negative-yielding convertible bond. The product mostly has appeal to volatility arbitraging hedge funds. For the rest of us? There is no “rest of us.” These products are iffy, at best, for the rest of us. (Financial Times)

However you look at the state of investing, it appears that there is a gravitational force pulling people toward safety.

Environmental, Social, and Governance (ESG)

Folks, I almost always cover ESG issues. This is, in part, because I think everyone benefits from respect and accountability for the health of the environment. But from an investment standpoint, it is because ESG includes risks not normally accounted for by financial statements but which, nevertheless, have gravity.

I would really like to commend BlackRock’s Larry Fink for committing the heresy of suggesting that Wall Street analysts begin to look past quarterly earnings. Wow! To me this is a bold statement, and I hope that others follow Fink’s lead. Why? It is impossible to ride a bicycle well if you constantly stare at the front wheel. It is not that the front wheel scale is unimportant, but that you cannot only consider the front wheel, lest you lose your balance and fall off of the bicycle. I hope you agree that Fink’s comments have gravitas. (The New York Times)

Many, rightly or wrongly, still blame what happened during the Great Recession on finance. In fact, several years ago Edelman conducted a a global survey and found that people trusted financial professionals less than politicians. Clearly, the public regards finance as an ethics black hole. Frequent commenter John Kay believes that the finance industry is years away from rebuilding trust. (FinanceAsia)

Recently, an EU commission completed a review of how bailouts were handled in Europe in the midst of the Great Recession. In short, the group found that the response was weak and inconsistent. Yes, it is not just financial professionals who should be held accountable for the huge economic downturn. Regulators and central bankers, I believe, also bear some responsibility. (Reuters)

Last in the ESG space, this story states that renewables now account for the biggest source of new energy in the United States. (Bloomberg)

The Mind

One of the most interesting things I have read in long time is this piece about a stubborn behavioral bias that seems hardwired with inescapable gravity. Namely, it turns out that “We Are All Confident Idiots“! Researchers over the last two decades conducted a number of surveys of people asking them to recount factual information. Beyond asking people for the right answer, they also ask respondents their level of confidence with their answers. When they divide these groups into quintiles (or smaller increments), they find that the confidence of the top and bottom answerers is identical. That is, the more ignorant we are, the more confident we are in our answers! Noteworthy? The researchers have observed that this finding applies to all groups of people, regardless of IQ. Put another way, I am guilty, and so are you! In other words, there is inescapable gravity in overconfidence. (Pacific Standard)

Other Interesting Stuff

Now, let me turn to some more eclectic readings. Many conspiracy theorists believe that the US government has top secret information about alien visits. Here the CIA had some fun with the conspiracy theorists. They released a high number of previously classified documents, and indicated which of the documents would appeal to different characters on the old television show The X-Files. To my knowledge, there was no disclosure about anti-gravity levitation, but I could be wrong. (R&D)

This spectacular 3-D animation of the ascent up Mount Everest was made as part of an effort to document the deadliest day in the mountain’s history — 18 April 2014 — when an avalanche took the lives of 16 Nepalese Sherpa guides, and to help raise funds for the families of the deceased. Thanks goes out to my father-in-law and fellow investor Steve Morgan for sending it to me. It gave me goose bumps to see just what people risk when they attempt the climb. Amazing! (Everest Avalanche Tragedy)

Finally, scientists just announced that they have discovered evidence of gravitational waves. Einstein predicted their existence a century ago, and now science has caught up to his intuition. If you had not guessed it yet, this is the gravitational center of my Weekend Reads. (MSN)

If you liked this post, don’t forget to subscribe to the Enterprising Investor.


All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Photo credit: ©iStockphoto.com/Photoevent

About the Author(s)
Jason Voss, CFA

Jason Voss, CFA, tirelessly focuses on improving the ability of investors to better serve end clients. He is the author of the Foreword Reviews Business Book of the Year Finalist, The Intuitive Investor and the CEO of Active Investment Management (AIM) Consulting. Previously, he was a portfolio manager at Davis Selected Advisers, L.P., where he co-managed the Davis Appreciation and Income Fund to noteworthy returns. Voss holds a BA in economics and an MBA in finance and accounting from the University of Colorado.

Ethics Statement

My statement of ethics is very simple, really: I treat others as I would like to be treated. In my opinion, all systems of ethics distill to this simple statement. If you believe I have deviated from this standard, I would love to hear from you: jason@jasonapollovoss.com

Leave a Reply

Your email address will not be published. Required fields are marked *



By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.

Close