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Weekend reading: The end of open outcry

Weekend reading

Good reads from around the Web.

You might find it strange to read on Monevator a slight sniffle on news that the CME Group in Chicago is going to close most of its futures trading pits.

After all, shouting incomprehensible phrases while pushing and shoving and sticking two fingers up at the person next to you is the stuff of a Saturday night out in Blighty, not the kind of sober-minded investing we espouse around here.

But in truth I’ve long been attracted to the romance of the markets. I admit that unlike my die hard passive investing co-blogger, I’m partly an active investor for that reason.

I mean, one of my favourite investing books is Reminiscences of a Stock Operator, an old classic which The Accumulator would probably round up and burn if he was ever made Chancellor.

(Of course I’m well aware of the downsides of excitement in investing, too…)

Buy buy buy! Sell sell sell!

Doesn’t everyone love this scene in trading places?

Here’s a few eloquent words from somebody who knew the trading pits (which incidentally disappeared from London with the financial Big Bang back in 1986):

The floor was the place for dreamers.  It was the place for entrepreneurs, because that’s what independent traders really were.  It was a place where a guy that never graduated from high school but had his wits about him, and a high appetite for risk could make a living.  Some even got rich.

The floor was a place for everyone and anyone.  It was like America, democratic.  All walks of life.  All you needed was enough money to rent a seat and you were a trader.  No special qualification or certification. No degree.  Sure, there were cliques.  It was clubby.  Not everyone was ethical.  Not everyone liked everyone else.  There were fights.  But, the floor reminds me of startup companies today.

The floor was a constant vaudeville show.  Colorful.  Frenzied.  Loud.  Smelly.  Smoky.  It was on the run entertainment from 5AM to 4PM. Every day. Tourists would come like the zoo, stand behind thick panes of glass and point at the animals.

The floor was an economic engine that built all of the cultural institutions in Chicago.  All of them.  They have roots in the floor.  The banks that line LaSalle Street are here for one reason.  Chicago would be nothing without its exchanges.  Fortunately we made the right choices in the late 1990’s and Chicago still has its exchanges.  The city and state would be in even worse shape without them.

But maybe most of all, the floor was about hope.  It was a place where you could realize some of your wildest dreams.  You could go from electrician, cop, milk man, farmer, military, to wealthy trader.

You and I know that sensible investing for your retirement is about rebalancing a portfolio of index tracking funds.

But nobody is ever going to make a movie about that.

Have a good weekend!

From the blogs

Making good use of the things that we find…

Passive investing

  • The centre of gravity for retirees – Rick Ferri
  • Fund managers don’t beat market with their own money, either – CRR
  • What happens if factor investing /Smart Beta gets too popular? – AWOCS
  • The trouble with currency-hedged index funds – Canadian Couch Potato

Active investing

Other articles

  • Bankers, bonuses, tumbleweed, hookers – Under the Money Tree
  • Increase earnings to bring financial independence closer – RIT
  • Why some retirees choose dividends for income – Simple Living in Suffolk
  • Alternatively, how about a Smart Beta fund? – Maven
  • A bare-all on expenses, plus a spreadsheet you can use – FIREStarter

Product of the week: Want to boost the savings rate on your cash ISA? Check out this table of the best contenders courtesy of The Telegraph.

Mainstream media money

Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1

Passive investing

  • Ferri: How my daughter learned about stock market crashes – WSJ
  • Sizemore: Every investor should own REITs [US but relevant]Tumblr
  • Buffett’s $1million bet pays off as index funds beat hedgies – Fortune

Active investing

  • Nestle’s bond yield has gone negative – Washington Post
  • Seth Klarman: What I’ve learned from Buffett [Search result]FT
  • The future of iron ore – Motley Fool Australia
  • Shareholder value is an outcome not an objective [Search result]FT
  • Neil Woodford is launching an investment trust – ThisIsMoney
  • The biggest companies tend to lag the market – Market Watch
  • Man wants bonds to be more complicated [Nerdy]Bloomberg View

Other stuff worth reading

  • What do negative yields in Europe mean for investors? – WSJ
  • …cheaper fixed-rate mortgages for one, even with small deposits – Guardian
  • Crowd-funding for the buy-to-let crowd – ThisIsMoney
  • 41 things I’ve learned about investing – Motley Fool US
  • Carl Richards: On standing apart from the herd – New York Times

Book of the week: I haven’t read it yet, but Hipster Business Models sounds intriguing, especially to an owner of a fairly successful investing website that should surely be generating more money. If you want to find out how to stick it to the man by selling him stuff, it looks a good read.

Like these links? Subscribe to get them every week!

  1. Note some FT articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. []

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{ 9 comments… add one }
  • 1 ermine February 7, 2015, 11:24 pm

    No pits no comment, eh?

    Seems a summary on our times, really

    It was a place where a guy that never graduated from high school but had his wits about him, and a high appetite for risk could make a living. Some even got rich.

    The floor was a place for everyone and anyone.

    Makes you wonder if that Piketty dude hasn’t got a point…

  • 2 Neverland February 8, 2015, 3:49 pm

    Open outcry good riddance

    Those cliquey little clubs were all about insiders ripping off outsiders with big commissions and rigged markets

    LIBOR, FX all markets run by voice trades made by a cliquey little club of spivs who had more allegiance to each other than the banks they notionally worked for

    Then those little spivs were so stupid and lazy to do all their fixing on Bloomberg chat and leave a paper trail

  • 3 Thisisnot Living February 8, 2015, 4:00 pm

    A casino black jack table is another such place where someone with a high appetite for risk could make a living, but comparisons with startups are misguided in my opinion.

    Really, what economic value did the pit traders add to a given transaction? Well, every time they “got rich”, everybody else got a little bit poorer, so the answer is that if anything they sapped value (ovrrall) from the system.

  • 4 grey gym sock February 8, 2015, 5:02 pm

    “You and I know that sensible investing for your retirement is about rebalancing a portfolio of index tracking funds.
    But nobody is ever going to make a movie about that.”

    [movie trailer voice]
    in a world of spivs and speculators …
    there’s only 1 thing more dangerous than not knowing what the markets will do: not knowing that you don’t know what the markets will do.
    by day, jane monevator is a mild-mannered office worker.
    at night, she sleeps soundly, because her portfolio only carries risks which she has the ability, knowledge, and need, to take.
    it was the perfect retirement plan.
    but there was 1 thing she didn’t count on: the biggest global slump since the 1930s.
    now, asset prices have risen, and expected returns have fallen.
    she’s going to have to stay the course.

  • 5 Gregory February 8, 2015, 7:11 pm

    I have finished the book of Lars Kriojer (Investing demystified) but I don’t understand the following sentence:
    „Suppose an alternative weighted index has an overlap of 66% with the wider market, but costs 0.3% more a year to implement. In that case you are paying 1% a year on the part of your investment that is different from the general market, or fees akin to those demanded by some active managers.” How does Lars calculate the 1%?
    (The advantage of diversification/Do alternative weightings do better? part)
    Would somebody ecplain the 1%? Thanks.

  • 6 Andy February 8, 2015, 8:49 pm


    I imagine the 1% is calculated like this.

    Overlap of 66% with the wider market, therefore you only have 33% which is different from the wider market.

    You are paying 0.3% more for the alternative index, but only 33% of it is different. So that is like paying £0.30 more for every £33 of non index weighting, which is 0.30 / 33 or approximately 1%.

    Alternative weightings can do better before costs are considered, but they tend to have higher costs as more trading is necessary, reducing their advantage in practice. Lars doesn’t like them since he is skeptical of the idea of having an edge.

  • 7 The Investor February 8, 2015, 9:12 pm

    @Andy @Gregory — Beat me to it! 🙂 Yes, that’s exactly right.

  • 8 The Investor February 8, 2015, 9:16 pm

    @grey gym sock — Hah! Okay, so I’d go and see that movie. But I’m probably in a minority. 😉

    Perhaps someone could make a film about young Bogle, ejected from his first role (/or something like that) and back with index funds, battering away at the walls of Wall Street. Well, perhaps. 😉

    @Neverland — Sounds like romance to me. 🙂 It’s like they made Pirates of the Caribbean, not Container Ship Transporters Of South Korea.

    @ermine — Tend to agree. Now you need a degree and a family connection to work in the appropriate wealth manager in Kensington or Mayfair in order to rip people off.

  • 9 Gregory February 9, 2015, 9:36 am

    @Andy @ The Investor – Thanks!

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