[/caption]
Allied to this theme is: don't try to understand the whole world! (actually that was the original title, but I thought the low-hanging fruit thing sounds more professional)
Actually in my view, investing is a very simple process compared to most other forms of work in the world. Not making money from investing, mind you, but the process in itself. All the talk and academic theories about structuring portfolios, optimising risk-return etc, does it really do anything but add two or three percentage points of return over the market (if one is lucky)? But people actually make a good living out of this, not just fund managers, but also service providers like financial consultants, market forecasters, systems providers, and a myriad of financial-related cottage industries. I look at engineers and the gargantuan structures they come up with: aeroplanes, software, building systems .... and I wonder .... it's incredible that the financial industry is paid so much for coming up with so little! (albeit they have the uncanny ability to blow these little achievements up into monumental state-of-the-art triumphs).
The point to all the above rambling is that we are all exposed to, and have generally accepted, a certain line of thinking: that to achieve good market returns, we have to accumulate as much knowledge as possible about as many industries and countries as possible, so that we can find and take advantage of potential misvaluations. That is how the output of the broking industry has been structured: daily market research, continuous company reseach reports, economic strategy reports, etc.
While there is nothing wrong with building a competitive advantage based on superior knowledge, it makes more sense to identify a few key trends, what I call inevitabilities, that have a higher-than-average probability of materialising, and then focusing on them.
The alternatives are what many people tend to do: (1) try to read as many analyst reports as possible, end up being overwhelmed with the info and betting on the popular themes/sectors of the day; (2) try to enter or exit based on different analyst interpretations of the market outlook ie. market timing; (3) buying and holding stocks based on analyst recommendations of their potential. For (1), the investor tends to be late into the buying process, while passive buying into recommended themes based on day-to-day reports will tend to lead to a bloated and overly diversified portfolio. For (2) market timing based on reports has historically led to being whip-sawed by Mr Market. For (3) the buy-and-hold approach is fine but one must think deeply about the stock and be comfortable with holding it for a couple of years (or else you will end up in the value trap, like Temasek with Merrill Leech/ Bank of Assholes).
One can be inundated with all the information in the world, but there is no point if it cannot be converted into useful knowledge. Different economists, for example, can utilise the same facts and come up with diametrically opposite and yet equally plausible conclusions. Who to believe? Read more...[caption id="attachment_2498" align="alignright" width="192" caption="Photo by pshutterbug"][/caption]
Allied to this theme is: don't try to understand the whole world! (actually that was the original title, but I thought the low-hanging fruit thing sounds more professional)
Actually in my view, investing is a very simple process compared to most other forms of work in the world. Not making money from investing, mind you, but the process in itself. All the talk and academic theories about structuring portfolios, optimising risk-return etc, does it really do anything but add two or three percentage points of return over the market (if one is lucky)? But people actually make a good living out of this, not just fund managers, but also service providers like financial consultants, market forecasters, systems providers, and a myriad of financial-related cottage industries. I look at engineers and the gargantuan structures they come up with: aeroplanes, software, building systems .... and I wonder .... it's incredible that the financial industry is paid so much for coming up with so little! (albeit they have the uncanny ability to blow these little achievements up into monumental state-of-the-art triumphs).
The point to all the above rambling is that we are all exposed to, and have generally accepted, a certain line of thinking: that to achieve good market returns, we have to accumulate as much knowledge as possible about as many industries and countries as possible, so that we can find and take advantage of potential misvaluations. That is how the output of the broking industry has been structured: daily market research, continuous company reseach reports, economic strategy reports, etc.
While there is nothing wrong with building a competitive advantage based on superior knowledge, it makes more sense to identify a few key trends, what I call inevitabilities, that have a higher-than-average probability of materialising, and then focusing on them.
The alternatives are what many people tend to do: (1) try to read as many analyst reports as possible, end up being overwhelmed with the info and betting on the popular themes/sectors of the day; (2) try to enter or exit based on different analyst interpretations of the market outlook ie. market timing; (3) buying and holding stocks based on analyst recommendations of their potential. For (1), the investor tends to be late into the buying process, while passive buying into recommended themes based on day-to-day reports will tend to lead to a bloated and overly diversified portfolio. For (2) market timing based on reports has historically led to being whip-sawed by Mr Market. For (3) the buy-and-hold approach is fine but one must think deeply about the stock and be comfortable with holding it for a couple of years (or else you will end up in the value trap, like Temasek with Merrill Leech/ Bank of Assholes).
One can be inundated with all the information in the world, but there is no point if it cannot be converted into useful knowledge. Different economists, for example, can utilise the same facts and come up with diametrically opposite and yet equally plausible conclusions. Who to believe? Read more...
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Allied to this theme is: don't try to understand the whole world! (actually that was the original title, but I thought the low-hanging fruit thing sounds more professional)
Actually in my view, investing is a very simple process compared to most other forms of work in the world. Not making money from investing, mind you, but the process in itself. All the talk and academic theories about structuring portfolios, optimising risk-return etc, does it really do anything but add two or three percentage points of return over the market (if one is lucky)? But people actually make a good living out of this, not just fund managers, but also service providers like financial consultants, market forecasters, systems providers, and a myriad of financial-related cottage industries. I look at engineers and the gargantuan structures they come up with: aeroplanes, software, building systems .... and I wonder .... it's incredible that the financial industry is paid so much for coming up with so little! (albeit they have the uncanny ability to blow these little achievements up into monumental state-of-the-art triumphs).
The point to all the above rambling is that we are all exposed to, and have generally accepted, a certain line of thinking: that to achieve good market returns, we have to accumulate as much knowledge as possible about as many industries and countries as possible, so that we can find and take advantage of potential misvaluations. That is how the output of the broking industry has been structured: daily market research, continuous company reseach reports, economic strategy reports, etc.
While there is nothing wrong with building a competitive advantage based on superior knowledge, it makes more sense to identify a few key trends, what I call inevitabilities, that have a higher-than-average probability of materialising, and then focusing on them.
The alternatives are what many people tend to do: (1) try to read as many analyst reports as possible, end up being overwhelmed with the info and betting on the popular themes/sectors of the day; (2) try to enter or exit based on different analyst interpretations of the market outlook ie. market timing; (3) buying and holding stocks based on analyst recommendations of their potential. For (1), the investor tends to be late into the buying process, while passive buying into recommended themes based on day-to-day reports will tend to lead to a bloated and overly diversified portfolio. For (2) market timing based on reports has historically led to being whip-sawed by Mr Market. For (3) the buy-and-hold approach is fine but one must think deeply about the stock and be comfortable with holding it for a couple of years (or else you will end up in the value trap, like Temasek with Merrill Leech/ Bank of Assholes).
One can be inundated with all the information in the world, but there is no point if it cannot be converted into useful knowledge. Different economists, for example, can utilise the same facts and come up with diametrically opposite and yet equally plausible conclusions. Who to believe? Read more...
