Good reads from around the Web.
I really enjoyed today’s spirited column by Ken Fisher in the FT [Search result] on the doomster-ism implied by the negative bond yields we’re seeing across Europe.
Monevator started life a year before the financial crisis, and its early articles were often trying to help people understand that the case for buying shares hadn’t changed just because they’d crashed – quite the opposite – and that the elevation of gold and the likes of Zero Hedge to cult status were typical over-reactions to a severe market dislocation.
A couple of years later, and the fight had turned to making the case for developed market shares – US and European companies.
Many out there, including some readers and Monevator commentators, were convinced that everyone should sell out of supposedly sclerotic mature markets in the West because the emerging markets were going to overrun us.
(A few of these Monevator commentators seem to have forgone their previous certainty, as we may well see again in comments on this post… 🙂 )
Of course, emerging markets have underperformed since then and the US has shot the lights out.
I didn’t know that was going to happen, but I was pretty convinced the doom-and-gloom theory was bogus.
A decade ago I was having arguments with people who thought peak oil was about to cripple us (never even slightly likely in our lifetimes, even back at higher prices) and a couple of years ago The Accumulator was arguing that most investors should still have money in bonds.
He was called irresponsible and reckless or worse; bonds went on to deliver excellent returns (which was unexpected and wasn’t his point, but it goes to show…)
You usually sound like a happy-clappy idiot if you take the opposite side in these arguments.
The bear case always sounds smarter.
A balanced mind and a balanced portfolio
None of this is about being particularly clever, or being seen to be clever.
It’s just a reminder that betting on extremely bad and unusual outcomes is very rarely a winning strategy.
The flipside is true, too.
For instance, those believing dotcom valuations in 2000 were justifiable because the world had changed forever were making a similar mistake.
But to stick with the doomsters, Fisher writes:
If it’s Armageddon or total societal collapse you fear, you don’t want any securities. Not stocks. Not bonds. They’ll just be worthless paper, no use for anything except lighting fires. Gold? You can’t eat gold bars.
If you really fear the total collapse of western civilization, then invest in canned food, bottled water, armour, guns, bullets, bows, arrows, knives and a bunker. Do you need a cave? Can I sell you a rock to crawl under? A shovel to dig your moat?
Does that all sound crazy? If so, go back to question one: why buy a negative-yielding long-term bond
If you do, you’re betting on a scenario you don’t remotely believe in.
Markets move on probabilities, not possibilities. If you don’t think economic doom has a snowball’s chance, don’t invest like it is inevitable.
Put your money on what’s likeliest — the world keeps turning, advancing and growing.
The unpalatable fact for the perma-bearish is that it pays to be optimistic as an investor.
Also, the most sensible hedge to that optimism being misplaced is a diversified portfolio – not a theory that everything is rigged / about to crash / unsustainable / different this time.
Have a good weekend!
From the blogs
Making good use of the things that we find…
- People still believe in active management? – White Coat Investor
- Mike points out a move to give John Bogle a Presidential Medal of Freedom – [You can sign the petition here]
- Love and stock picking – The Value Perspective
- One way to beat the market – A Wealth of Common Sense
- Beddard: How UK small cap Tristel saved itself – iii blog
- Beware the very cheapest price-to-book stocks – Millenial Invest
- The case for selling ICAP – UK Value Investor
- The calamity that is Petrobras – Musings on Markets
- Why is good news still bad news? – Investing Caffeine
- An interesting talk from economist Daniel Kahneman – ThinkAdvisor
- Real-life portfolios are more complicated – RIT
- Tracking expenses with MoneyDashboard – theFIREstarter
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
- Is diversification worthwhile? – Asset Builder
- Mike Piper expects passive portfolio management to become free – WSJ
- Spin-ready Yahoo looks cheap – Dealbook
- The gloomy outlooks for US equity returns – Morningstar
- Assets at hedge funds still growing, despite lousy performance – Bloomberg
Other stuff worth reading
- Which life insurers are offering true pension freedom? [Table] – Telegraph
- Pensions minister proposes £1 extra for every £2 saved – Telegraph
- Who could afford to live in Albert Square? – Guardian
- 40-something would-be pensioners: Case studies – Guardian
- How a janitor amassed $8 million [Living to 92 helps!] – CNBC
- Meet a professional dumpster diver – Wired
- The nascent field of financial therapy – NY Times
- Hustle for higher pay while you’re still young – Bloomberg
Book of the week: This year marks the 50th anniversary of famed investor Warren Buffett assuming control of his vehicle, Berkshire Hathaway. If you’re relatively new to this game and you haven’t yet learned much about this singular individual, then The Snowball is a comprehensive place to start.
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- 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”. [↩]