Practical analysis for investment professionals
13 May 2016

Weekend Reads for Investors: Perma-Bear Edition

Posted In: Weekend Reads

By now, to those familiar with my writing, I must sound like a perma-bear: Global business fundamentals are sideways to down, the price of money is too cheap, massive misallocation of capital, and what is the next big secular technology shift post-The Internet? Before I share my Weekend Reads for Investors, I want to clarify something for each of you: Far from being a perma-bear, I am actually a perma-bull.

My guidepost for bullishness: There is always a solid foundation underlying the economy. It never wavers. It never alters. What is that thing? Human beings (most of us, at least) want our lives to get easier and better. This fundamental desire drives people to work harder, to put energy into innovating, and leads to positive economic outcomes. It is my estimation that this kind of fundamental economic growth is relatively small (1%–2% annually over human history), but it compensates for some wrong turns in capital investment and overcomes the intentionally self-destructive impulse in each of us (i.e., conflict that results in capital destruction).

Nonetheless, as I review the current state of the economy and of various markets (equity, fixed income, established, emerging), it is hard for me to connect the narrative with my assumption about foundations. Put another way, I do not see data to support that 1%–2% annual, actual economic growth in which I place my methodical faith.

Before diving into this week’s Weekend Reads, I must point out that this past week was the 69th CFA Institute Annual Conference in Montréal. This truly was a world-class event, and I hope that you review some of the amazing presentations and presenters.

Investing

If you have been following my Alpha Wounds series here on Enterprising Investor, you know that I am critical of the active management community for what I believe are some poor choices that led it to trail the passive management competition. The following missive by one of the United Kingdom’s financial geniuses, John Kay, is in a similar vein. It highlights that Warren Buffett is widely worshipped, but that few actually attempt to copy his success. I could not agree more. (Financial Times)

Since 2014, the fintech conversation has gained nearly perpetual motion status. In addition to robo-advisers, the other emerging fintech innovation attracting widespread press attention is blockchain technology. Here, a wry commentator discusses the monetary policy implications of blockchain technology. (MacroMania)

One of the most important yet least covered of all financial markets is that of US municipal bonds. In part, this is because it is so difficult to track. But that may be about to change. See, for example, “Why Consolidations in Municipal Evaluations Landscape Signal ‘Tectonic Shift’ for Industry.” (The Bond Buyer)

Next is this interesting series of posts about Indian e-commerce. One addresses the foundations that need to be laid for Indian e-commerce to thrive, while the other considers the likely success of these endeavors. (FinanceAsia)

Risks

If you are like me, you have been waiting for a hack of a major financial network. Did you catch the story that the SWIFT system was compromised in Bangladesh, and that the infiltrators made off with tens of millions of dollars? Prediction (with practically no risk involved): This kind of thing is here to stay. (The Japan Times)

Also, check out the distributed ledger post on SWIFT’s homepage. (SWIFT)

Here is a slightly overlong discussion about a speech by the chair of the US Federal Reserve, Janet Yellen, and how the use of one word tells the investment community what to expect. (Business Insider)

Part of the fallout from the zero interest-rate policy (ZIRP) is the evisceration of savers and their willingness to increase risk in the search for income. This review explains how this switch sends bad signals to chief executives. (Financial Times)

Technology

In my opinion, the technology industry is in hype territory. Though fortunately critics of the hype are starting to emerge. In this case, a chief information officer provides an overview of the state of “big data” technologies. (CIO)

I also try and check my enthusiasm for “artificial intelligence” by remembering the power of “natural intelligence,” as in this case, in which scientists realize the power of intuition in solving a thorny physics problem. (The Japan Times)

Last comes a heartening story that reminds me of the movie Gattaca, in which it turns out that DNA is not destiny. (Financial Times)

Environmental, Social, and Governance (ESG)

Though there were many ESG stories in the last month, there was not much that was new in the drum beat of “it’s going wrong.” Here, though, is a story about an unexpected effect of the large increases in atmospheric carbon dioxide coming from our carbon-based economy. (R&D)

Fun Stuff

Der Spiegel created this fascinating, though disheartening graphic entitled “The Health Globe,” to demonstrate the growing problem of global obesity. I am especially impressed by the animation, and think this is a superlative example of how an image can convey so much. (Der Spiegel)

Highlighted Story: Last, I want to strongly emphasize the quality of this deconstruction of an investment book by a person well-versed in derivatives. What I liked about this extended deep dive into the world of derivatives was not the criticism, but the overview and unique perspective of this derivatives investor. In short, I learned a lot from this masterful series. (Minyanville)

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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.

Image credit: ©iStockphoto.com/JLGutierrez

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

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