Asset managers have different approaches, and I don't wish to suggest there is only one way to run money. There are many ways one can attempt to reduce risk, improve performance, lower drawdowns and reduce volatility.
Once you research an idea, you begin to develop a perspective. Writing about anything in public, often in real time, has helped fashion my views.
Twitter has become a group conversation of that type that used to take place on trading floors.
You, your employer and your plan's investment managers fail to follow even the most basic rules of investing. You overtrade, chase performance, do not think long term. All of you – All Of You – have done a horrible job managing your retirement plans.
Indeed, eventually, random outcomes all revert to the mean, meaning that streaks eventually end. Understanding this is a key part of intelligent and rational investing.
It is in your DNA to love a good story. You know, neat tales with heroes and villains and conflicts to resolve. A good story pushes our buttons, is exciting and memorable.
Investors tend to discover 'hot' mutual fund managers just after a successful run and just before the inescapable force of mean reversion is about to kick in.
If you think too-big-to-fail banks are not worthy of investment because of their impossible-to-read balance sheets, well then, don't buy them.
If your investing approach requires that you become Nostradamus to succeed, then you are destined to fail.
Any time you speak to people about their posture, you learn about their most recent investment activity. When someone just bought stocks, they tend to be bullish; someone who just sold is bearish.
The bottom line is this: Cash, in modest increments, has a role in any portfolio. But unless you are Warren Buffett, you should limit it to 2 or 3 percent.
Based on a lifetime of observations and a few decades in the markets, I understand that societies, beliefs and fashions all move in long arcs of time. We call these arcs several things: cycles, periods, eras.
Whenever I see a forecast written out to two decimal places, I cannot help but wonder if there is a misunderstanding of the limitations of the data, and an illusion of precision.
Google's founders have had a good eye for imagining what technologies will be significant in the near future. No one asked Google to develop self-driving cars, but it helped them with street views for Google Maps.
When you buy anything with lots of leverage, it does not require a whole lot to go wrong to lose it all.
Rather than engage in the sort of selective retention that so many investors tend to do and pretend mistakes never happened, I prefer to 'own' them. This allows me to learn from them and, with any luck, avoid making the same errors again.
Most of the time, economic data is fairly benign. I don't wish to imply it is meaningless, but it is not a driver of stock markets. Indeed, the correlation between economic noise and how equity markets perform has been wildly overemphasized.
You have a natural tendency to want an emotionally satisfying tale – and to make investments based on that – despite times when the actual data may be telling you something different.
Here is a dirty little secret: Stock-picking is wildly overrated. Sure, it makes for great cocktail party chatter, and what is more fun than delving into a company's new products? But the truth is that individual stocks are riskier than broad indices.
Have a well-thought financial plan that is not dependent upon correctly guessing what will happen in the future.
There is a shortage of doctors, and the American Medical Association is aiming to keep it that way.
When markets are rallying, cash in the portfolio is a drag on performance, returning about zero.
If I am going to trash others for their dumb predictions, I must at least hold myself to the same sort of accountability.
A well-designed 401(k) plan is an enormous competitive edge when recruiting and retaining employees.
Narrative drives most of economics. Everything seems to be part of a story, and how that story is told often leads to critical error.
One thing I detest most about the financial press is the lack of accountability. All sorts of nonsense is said without penalty.
What you pay for an investment is the single biggest determinant for how successful that investment will be. When equity prices are high, your returns will be lower. When they are cheap, your returns will be higher.
People who work in specialized fields seem to have their own language. Practitioners develop a shorthand to communicate among themselves. The jargon can almost sound like a foreign language.
TV producers want ratings and are willing to do nearly anything to get them. They gin up artificial conflicts and create an urgency for even the most minor of economic data points.
Gains in corporate profits depend in large part on accelerating global economic growth.
Footage of people camped out at Best Buy or elsewhere is not remotely a celebration. Rather, it's a reminder of just how economically distressed a large percentage of our populace is.
Whenever you try to pick market tops and bottoms, you are making a prediction. Guessing what stock is going to outperform the market is forecasting, as is selling a stock for no apparent reason. Indeed, nearly all capital decisions made by most people are unconscious predictions.
Amongst the financial Twitterati, the term 'muppets' has come to describe any client used and abused by some financial predator. I've adopted the term to describe portfolios that have been assembled for purposes other than serving the clients' best interests.
I credit Google for having the foresight to identify threats to its main business of selling advertising against search results. The potential loss of market share in the mobile space led them to the Android acquisition.
Commissions add up, taxes are a big drag, margin ain't cheap. A good accountant costs money as well. The math on this one is obvious, yet investors often fail to recognize it: Keep your costs low and your turnover lower, and you will win in the end.
In New York, the former lack of real competition allowed taxis to extract excessive charges, regardless of the poor service.
Getting more and more of our news from the social network is having significant repercussions for markets – and your money.
Yearly data put the rest of the noise into perspective. Most of the weekly or monthly random up-and-down movements get smoothed out. Ultimately, this is where long-term investors should be focused.
In social media, people cannot build big followings organically unless what they are putting out to the world has value.
Mutual fund managers want your money in their funds. They get paid based on assets under management.
Investing is about making probabilistic decisions with limited information about an unknowable future. The variables are well known, as are the possible outcomes.
Outcome is simply the final score: Who won the game; what numbers came up in a roll of the dice; how high did a stock go. Outcome is the result, regardless of the method used to achieve it. It is not controllable.
Many hedge fund managers have become billionaires; perhaps this – plus their reputations as the smartest guys in the room – is why they have captured the investing public's imagination.
Content is king. When you are asking people to read you several times a day, you better have some fine content.
No one knows what the top-performing asset class will be next year. Lacking this prescience, your next-best solution is to own all of the classes and rebalance regularly.
As investors, we want to believe we are smart, insightful and uniquely talented – even though we often fail to do the heavy lifting, put in the long hours, and make the uncomfortable but necessary decisions to achieve success.
Despite all the media coverage, glitz and glam of hedge funds, they have not done well for their investors. They have high – some say excessively high – fees; their short- and long-term performance has been poor.
The ability to select stocks, manage them over time and know when to sell them is incredibly difficult, even for professional fund managers.
Any investment bought via credit always runs the risk of margin calls and, eventually, liquidation.
If you are not making any mistakes, you are being excessively risk-averse. Investing involves risk, and that means you will occasionally be wrong. And although it is okay to be wrong, it is not okay to stay wrong.
Never forget this simple truism: Forecasting is marketing, plain and simple.
The simple reality of life is that everyone is wrong on a regular basis. By confronting these inevitable errors, you allow yourself to make corrections before it is too late.
If you have read me for any length of time, you know I am less than enthralled with much of what passes for financial news.
Owning a variety of asset classes means that some part of your portfolio will be doing well when the cyclical turmoil arises. A broadly diversified portfolio includes large capitalization stocks, small cap, emerging markets, fixed income, real estate and commodities.
Little white lies are told by humans all the time. Indeed, lying is often how we get through each day in a happy little bubble. We spend time and energy rationalizing our own behaviors, beliefs and decision-making processes.
History shows us that people are terrible about guessing what is going to happen – next week, next month, and especially next year.
The good news is that economists are intelligent, engaging and often charming folks. The bad news is their work is often of little use to investors.
Truth be told, most financial television bores me. Two or more people discussing the latest economic trends or hot stocks is not especially entertaining.
Much of the traditional thinking about cash is well intentioned but unrealistic. Should you have six months of living expenses in the bank for emergencies? Sure. Do you? Probably not.
You want less of the annoying nonsense that interferes with your portfolios and more of the significant data that allow you to become a less distracted, more purposeful investor.
The data strongly suggest that very good years in the U.S. stock market are followed by more good years.
You can blow on the dice all you want, but whether they come up 'seven' is still a function of random luck.
Any Wall Street advertising that does not go into the boring details of methodology is most likely to be pushing past performance.
People forget that although we can pinpoint the price, we can only guess at future earnings. The past isn't much help: It simply tells whether a market was pricey or cheap.
To know whether stocks are cheap or pricey, we typically look at price-to-earnings ratio. Valuation is a tougher question than many folks realize.
Hedge funds are not especially liquid. Many are 'gated' – meaning there are only small windows when you can withdraw your money. They typically have a high minimum investment and often require investors keep their money in the fund for at least one year.
Whenever you hear a discussion about the short-term swings in any given stock's price, your immediate thought should be whether it matters to why you are investing.
Secular cycles are the long periods – as long as decades – that come to define each market era. These cycles alternate between long-term bull and bear markets.
History is replete with examples of tech firms that were marginalized by new companies and technologies.
Most of Google's home technologies have failed to catch on in a major way.
Even when you are right, there are costs and taxes associated with being tactical. When you are wrong, there are opportunity costs.
Often, investors will discover a manager after he's had a terrific run, usually when he lands on a magazine cover somewhere. Invariably, funds swell up with new investor money just before they revert to their long-term averages.
A hedge fund manager whose clients demand monthly performance reports has different needs than any individual investors with a 20-year time horizon. The needs of that long-term investor differ markedly from someone who is retiring in three years.
The way we finance homes in this country is slow, filled with middlemen, who run a nonstandardized evaluation process. This makes financing a home cumbersome and difficult.
The consumption and production of energy is a major component of the global economy.
We must recognize our own behavioral errors. To be blunt, you are not likely to become a cognitive Zen master anytime soon. But a little enlightenment could keep you from making some common investing errors.
We love a tale of heroes and villains and conflicts requiring a neat resolution.
With Twitter, you can build your own virtual trading floor and research department, populated by the smartest people on earth. Almost any subject or sector has you can think of, you can find a few people with an expertise in that area.
It is important for investors to understand what they do and don't know. Learn to recognize that you cannot possibly know what is going to happen in the future, and any investment plan that is dependent on accurately forecasting where markets will be next year is doomed to failure.
A number of bloggers in economics and the financial sector have risen to prominence through the sheer strength of their work. Note it was not their family connections nor ties to Ivy League schools or elite banks, but rather the strength of their research, analysis and writing.
The beauty of diversification is it's about as close as you can get to a free lunch in investing.
Shopmas now begins on Thanksgiving Day. Apparently, escaping the families you cannot stand to spend another minute with on Thanksgiving Day to go buy them gifts is how some Americans show their affection for one another. Weird.
When it comes to investing, there is no such thing as a one-size-fits-all portfolio.
Hedge fund managers charge so much more than mutual fund managers; alpha is even harder to come by. They end up selling a variety of things beyond mere outperformance.
How are the cabs in your city? In Manhattan, where I work, they are rather awful.
Active management leads to lots of poor investor behavior. It sends people chasing after whoever has the hot hand at the moment.
The electronics industry expanded rapidly and the seeds for the semiconductor and software revolution were planted. The postwar period also saw the suburbanization of America, the rise of the homeowner, the build-out of the interstate highway system, and the rise of automobile culture. Credit availability expanded dramatically.
Forecasting is simply not a strength of the species; we are much better with tools and narrative storytelling.