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Weekend reading: Nobel Prizes for all

Weekend reading

Good reads from around the Web.

Never let it be said that the Scandinavians lack a sense of humour, or at least a strong sense of irony.

This week saw the Nobel Prize go to three famous economists who’ve done a lot of work on asset pricing.

But as Bloomberg reports:

Eugene F. Fama, Robert J. Shiller and Lars Peter Hansen shared the 2013 Nobel Prize in Economic Sciences for at times conflicting research on how financial markets work and assets such as stocks are priced.

No kidding! Whereas Fama’s work laid much of the framework for the efficient market hypothesis, Shiller has concentrated on the behavioural tendencies that I think undermine some of its key assumptions.

Writing in the FT, Tim Hartford wasn’t perturbed about this “all shall have prizes” approach from the Nobel committee, noting:

In the light of the financial crisis, the contribution of Prof Shiller to economic thought is obvious. Prof Fama’s is more subtle: if more investors had taken efficient market theory seriously, they would have been highly suspicious of subprime assets that were somehow rated as very safe yet yielded high returns.

Any follower of Eugene Fama would have smelled a rat.

We have our own modest version of the Fama/Shiller dichotomy here on Monevator. I actively invest quite a bit, despite believing it’s a bad idea for most investors, whereas The Accumulator (rightly) follows a pure passive approach.

Neither of us expect to win the Nobel Prize, of course.

A bit of financial freedom – one way or another – would be a good result for us.

From the blogs

Making good use of the things that we find…

Passive investing

  • College endowment funds don’t beat the market – Rick Ferri
  • Twitter-form notes from the Bogleheads conference – Wade Pfau

Active investing

Other articles

  • When energy saving is an emergency – Mr Money Mustache
  • How cheaper gasoline can cost you more – Len Penzo
  • Becoming less productive and less competitive – E.R.E.
  • “Strivers” in the UK are still behind in real terms – R.I.T.

Product of the week: As interest rates on savings continue to fall – latterly because of the government’s Funding for Lending scheme – more of my friends are asking me about Zopa. A quick recap. While I think it’s a decent bet for some of your money, especially since the introduction of the Safeguard guarantee, it’s not fail-proof. The Safeguard only aims to protect the expected bad loans (plus a buffer), not a catastrophe that raises the bad loan rate. Zopa is a welcome part of the mix, but it’s not equivalent to cash.

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

Active investing

  • A new ETF tracks IPOs, if you think that’s a good idea – ETFdb
  • Losing hedge funds are still bearish – Bloomberg
  • How Neil Woodford turned £1,000 into £23,000 – Telegraph
  • The danger with investment trusts – Telegraph

Other stuff worth reading

  • The middle-class exodus from London… – New York Times
  • …and here’s where you could move, with Help to Buy – Telegraph
  • Student property looks a poor investment [Search result]FT
  • Some hedge fund managers feel poor people’s pain [Video]CNBC
  • How to invest like a psychopath – Motley Fool (US)
  • Mistakes our brain makes and how to avoid them – Fast Company
  • There will be 11 trillionaires within two generations [Video]WSJ

Book of the week: Blame my inner-contrarian, but booming stock markets have me re-reading The Great Crash, J.K. Galbraith’s account of the 1929 stock market nosedive. It’s funnier than I remembered – Galbraith is one of those vanishing patrician dry wits – even if the events described weren’t a great laugh at the time.

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  1. Reader Ken notes that: “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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{ 8 comments… add one }
  • 1 Luke October 19, 2013, 12:44 pm

    I have now sold out from Zopa and don’t regret the decision.

    With the average couple currently able to stash away £7.5k in Nationwide accounts paying c. 5% gross (ok, only for a year), the 4.8% currently being offered by Zopa has very much lost its shine.

    Our cash savings are currently being recycled through a variety of current accounts and regular savers, with home improvements and debt (mortgage) repayment being the other focus. Any leftover monies can go in the S&S ISA for now.

  • 2 John Kingham October 19, 2013, 1:04 pm

    I would probably take the opposite position to Tim Hartford,

    “if more investors had taken efficient market theory seriously, they would have been highly suspicious of subprime assets that were somehow rated as very safe yet yielded high returns.”

    They took it seriously (that everything is efficiently priced) and therefore didn’t do due diligence because the risk/reward trade-off was correct.

    If they had listened to Shiller they would realise that investors are often very bad a pricing assets and so they would do well to do the work and come to their own conclusions as to the merits of those investments.

  • 3 dearieme October 19, 2013, 2:02 pm

    Come, come, it’s not a Nobel prize – it’s a counterfeit, set up by the Swedish Central bank to assuage economists’ physics envy. I’ll believe that economists search for the truth when more of them make this distinction.

  • 4 dearieme October 19, 2013, 2:07 pm

    “College endowment funds don’t beat the market”: could be. But I understand that King’s Cambridge’s endowment did when Keynes ran it, and Trinity’s more recently when Bradfield ran it.

    One of the Cambridge colleges (Trinity Hall?) has been investing lately under the sway of an economic Notable: perhaps it’ll do well too.

  • 5 dearieme October 19, 2013, 3:35 pm

    “Dow Jones UBS Commodity Index tracks a diversified selection of commodities”: that’s all very well, but where’s the correlation with Gold? No wonder the goldbugs sometimes think there’s a giant conspiracy going on.

  • 6 gadgetmind October 19, 2013, 4:22 pm

    Correction: The gold bugs *always* think there is some giant conspiracy going on!

  • 7 Vile vermin October 19, 2013, 8:13 pm

    That Jacob ERE article is old – he doesn’t do many new posts. He has all his old posts automatically reposted periodically. It’s still good but I can remember reading it before he released his book which I re-sold to my brother for more than it cost me 2nd hand. haha!

    Zopa wouldn’t do for me, I would have to add it to my self assesment tax form, pay 9% in student loans and 40% in tax. I much prefer my Vanguard Lifestrategy. It frees up a lot of time to knaw on books and recycle other peoples rubbish

    I like this weekly round up. Thank you. I stay in my ratpit during the week and only scurry about reading the internet financial press at weekends.

  • 8 The Investor October 20, 2013, 1:20 pm

    @Vile Vermin — Glad the roundup works for you, it’s a good few hours work every week but it’s popular according to my stats. Keep gnawing away!

    @John — I suppose I’m of a similar frame of mind. We get into the thorny question here of the EMH’s various flavours, and whether it was bad information or bad interpretation. Some would say even deception or even fraud was at the root, which the EMH doesn’t claim to address as far as I’m aware.

    All told I think the EMH is fine as far as it goes, but I wouldn’t go as far as Fama et al. (For most investors, it’s proven efficient enough to make beating it sufficiently unlikely to be worth trying when tracking markets is so easy. But I believe there can be exceptions, whether through temporary mispricings or more systemic behavioural factors identified by Shiller and others).

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