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Due Diligence Disasters

I have always been surprised at the claims by stock analyst/fundamental analysts that they are intimately familiar with the workings of a given organisation and that this familiarity somehow translates into a perception of where price is going.

Within the world of the corporate buyout the analyst is king and has enormous resources at their disposal – despite this they still cock it up. So how is reading the Fin Review going to help you in your decision making.


Top Due Diligence Disasters

[Via: Firmex: Virtual Data Rooms]

Oh Look A New Ad For Bigpond/Foxtel

Its Friday….The Good Friday Edition

Stillness Revisited

Within the current mentor group we have been having a bit of a discussion regarding the desperate need for activity that drives many (most) traders . As such I thought it was revisiting this concept on the blog.

Traditionally Westerners equate activity with productive effort, as such the more noise and the more fuss you make the more productive you are. The same philosophy drifts into trading, as such trading becomes an activity-based endevour, which then migrates into entertainment. Research by W.B. Canoles, S.R. Thompson, S.H. Irwin, and V.G. France in their paper An Analysis of the Profiles and Motivations of Habitual Commodity Speculators found most tellingly that being in the action is more important than the financial consequences for the vast majority of traders they interviewed.

Activity rather than the consequences of that activity are more important to the trader. In the words of Thoreau it appears that all men lead lives of quiet desperation and trading is a way of outrunning this desperation. When we consider the reasons behind the motivations of many traders it is easy to see how seductive “action” related metaphors are to us.

My view of trading is very different. I view trading as a profession of stillness and patience not activity. This notion can best be described by a series of Japanese philosophical concepts. The first is known as Mushin or no mindedness. Such a notion is often confusing since the idea of no mindedness implies a vacuum with limited resources. This is incorrect, the closest western concept is unconscious competence it is a mind that is free from extraneous considerations.

As such it is free to act unencumbered by emotion. Mushin by definition is also firmly rooted in the present so notions of past and present are irrelevant by extension fear and worry are not present. Since these concepts depend either upon a concern about events past or a fear of future consequences. Therefore what has occurred with past trades is irrelevant, as is what might happen with any future trades.

The second stage is Zanshin which is a state of mind that enables you to retain control of both your conscious and unconscious mind whilst engaged in a course of action. It is the ability to engage both the market and be aware of the impact of your engagement upon your subconscious mind. Zanshin is activity based you are aware of the trade and all the possible consequences of that trade. Yet the notion of Mushin still permeates this transition since both states of mind are fully present in the moment. Worry cannot seep into the trading system if it is set in the present.

The final phase is Jikishin or the taking of opportunity without fear or hesitation. Consider these moments within the context of a given trade. Trading systems consist of a generic set of principles. A set up followed by a trigger leading to an eventual exit. Mushin is our set up phase it is our point of stillness where we wait. Zanshin is the movement out of Mushin into an active phase. We have taken our trigger and are aware of all the things that could happen. The notion of Jikishin floats between entry and exit since both require action without fear.

It is easy to see how such a philosophy contradicts that put forward by Western ideals such as the need for a work ethic which in turn prompts traders to create activity for the sake of it. The basic philosophies are very different since one is activity based the other based in stillness followed by brief moments of action. Yet at all times your mind remains still and free.

Trading is an internal endevour since our trading only takes place in our mind. For example as I write this I have a dealing screen open that is telling me the prices of options on the Dow. My only representation of the market is my screen; my only perception is what my subconscious mind filters. It would be difficult for me to point to the market where these options were traded since that is most likely another aggregation of screens which are in turn reflections of other peoples perceptions.

Too often traders look outwards for what is essentially an internal problem. The ability to create a calm still mind solves a myriad of trading problems, as does the creation of safe metaphors. Whilst notions such as Mushin are difficult for those who are first exposed to them it is possible to build metaphors that are calm. Other traders have told me that they regard trading as surfing, sailing or skiing, all endeavours they find pleasant, safe and most importantly peaceful.

 

The Venn Diagram of Irrational Nonsense

This is brilliant…wonder if its available as a t-shirt to send to people…

From The Reason Stick

 

 

Women Make Better Decisions Than Men

Mar. 25, 2013 — Women’s abilities to make fair decisions when competing interests are at stake make them better corporate leaders, researchers have found.

A survey of more than 600 board directors showed that women are more likely to consider the rights of others and to take a cooperative approach to decision-making. This approach translates into better performance for their companies.

This is probably true and is undoubtedly related in some way to the work of Odean and Barber. However, any evolutionary biologist could have probably told you this when you consider the different evolutionary pressures in each sex.

 

Passive Investing: The Evidence the Fund Management Industry Would Prefer You Not to See

This is quite an interesting video from a group known as Sensibleinvesting.tv. I do agree with its overall thrust – fund managers of all ilks do a rubbish job for the extraordinary amount of money they rip off investors. They do such an ordinary job because they cling to ideas that simply no longer have any currency, yet they are too stupid to realise that these ideas are no longer valid.

Anyone with the smallest amount of intellectual horsepower can look at the notion of the Efficient Market Hypothesis and see that it is a rubbish idea built upon a series of fallacies. Despite this it is still the cornerstone of most investment managers.

Investing for the future… It’s an issue none of can afford to ignore.

No one’s job is safe these days… How would you cope if you lost yours?

We’re all living longer too… So are you saving enough to fund 25 years or more of retirement?

Can you really afford to pay for your children or grandchildren to go to university – or help them onto the property ladder?

And what about all those holidays you promised yourself?

We entrust the vast bulk of our investments to fund managers.

Here in the UK, according to Her Majesty’s Treasury, the industry has more than four TRILLION pounds of investors’ money under management.

Fund managers invest people’s savings wherever they see fit – mainly in equities, or shares in listed companies.

They claim to be experts at making our making grow, using their expert knowledge to pick the shares that will outperform the market.

But all too often the returns they produce are considerably lower than the average return of a benchmark index like the FTSE 100 – or the S&P 500 in the States.

For veteran investment guru John Bogle, the problem is simple. Fund managers just aren’t as smart as they like to think they are.

As it means trading against the view of numerous market participants with superior information, buying or selling a security is effectively just a bet. So, whilst your fund manager might lead you to believe it’s his knowledge or intelligence that enables you to beat the market, he’s really no better than a gambler.

So, you might be lucky enough to choose the right fund manager. But you could just as easily pick the wrong one.

According to the financial services company Bestinvest, there are currently nearly £10 billion of UK investors’ money languishing in what it calls dog funds – in other words, funds which have underperperformed their benchmark index for at least three consecutive years.

Ultimately, of course, fund managers are businesses. They exist to make money for themselves. They want our business – even if it means persuading us to invest in a fund which they themselves wouldn’t want to put their own money in.

It’s now time to look at what it actually costs us to invest.

Fund managers are, of course, businesses. And, like all business, they have overheads.

Running a big fund management company doesn’t come cheap – especially when top managers earn around £2 million a year, including bonuses. And remember, it’s you, the customer, who picks up the tab.

Ultimately, though, fund managers need to make a profit. In fact they’re making around £10 billion from us every year – and that’s regardless of whether or not they manage to produce a profit for us.

Part of the challenge is working out exactly what we are being charged. Investors typically use something called the annual Total Expense Ratio, or TER, to compare the cost of investing in different funds. But, the TER excludes dealing commission, stamp duty and other turnover costs that can add considerably to the expense of investing over time.

So, apart from those hidden charges, what else are we having to pay? More importantly, what sort of impact do charges have on the value of our investments? And the bad news doesn’t stop there. Despite a marked increase in competition, management charges in the UK have been steadily rising over the last ten years.

There are some encouraging signs for consumers. The FSA’s Retail Distribution Review will require fund managers to be fairer and more transparent when it comes to charges. In the meantime, investors should be on their guard.

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