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So What Does This Mean?

In my junk folder I have for the past upteen decades been getting random charts by a group called Chart of the Day. Surprisingly, I dont get them everyday – so the implication that you get a chart everyday that is interesting is perhaps a little bit of an oversell. This morning I go the following piece of wisdom –


This chart as the title suggests looks at the S&P 500 PE ratio back to the turn of the century. Putting aside the obvious gaping methodological flaws such as the S&P500 was only started in 1957 I do always find these sorts of things interesting. Markets and their history should be a topic of investigation for every trader, simply because there is nothing new. Bubbles and crashes have been a feature of markets since they began and the driving force behind such things has always been the capriciousness of market participants. Curious as to what our own market looked like I dug up some data from the folks at Market Index and plotted the local PE ratio against the All Ords to see what I could see.


On the chart above I dropped a series of vertical lines – the three black ones denote a time when valuations according to the markets PE ratio could be considered extreme, the red one is the GFC. Pundits who look at valuation models work on the notion that markets or their component equities have a fair valuation and deviations from this point indicate that something is either overvalued or undervalued. Decisions are then made upon this interpretations. The first black line is easy to identify – its the 1987 crash.  The second one took me a little while to remember until I remembered the tail end of the 1991/2 recession combined with the banks nearly sending themselves under after property bit the dust.  The third black line is the tech wreck, The question when looking at any methodology is what value does it add to your decision making.  This is an important question since our decision making is bounded by the time we have to make the decision, the amount of information we have and our cognitive ability. None of these components can be infinite so our decision making is always somewhat half arsed. However, we need to add to this the notion of decision fatigue. It is estimated that during an average day we make anywhere between 20,000 and 25, 000 conscious and unconscious decisions and each of these decisions extracts a toll. Decision making is not a free ride, everything has a cost. Therefore efficiency of decision making is of paramount importance. If you have to force a decision then you are merely adding to your own mental loading without achieving anything.

As to whether the chart above tells me anything I dont already now about market extremes is doubtful As to whether it adds anything to my overall view of the world and approach to trading I am certain it doesn’t. But your mileage may vary.

The surprising benefits of anxiety

“Anxiety can just as well express itself in muteness as with a scream,” wrote existential philosopher Søren Kierkegaard in 1844.

While Kierkegaard spent much of his work analyzing the agonizing nature of anxiety, he did not think that it was an emotional state to be avoided. Instead, the philosopher argued that one cannot live an authentic life without grappling with anxiety.

In the centuries since, advances in psychiatry have led to increasingly better methods for treating crippling anxiety. But, in the process, we have culturally abandoned Kierkegaard’s key idea—that, however unpleasant, anxiety can be beneficial.

Simon Wolfe Taylor, whose Columbia Ph.D. thesis and upcoming book, The Conquest of Dread: Anxiety From Kierkegaard to Xanax, charts anxiety’s progress from a malady of the soul to a disease of the mind, believes that embracing the potential positives is a useful way of coping with the emotion.

“It’s a romantic-sounding view and I’m not saying there’s no role for medication,” he says. “But the literature, at least for 150 years and arguably for 1,500 years, always tried to show us the potential upside of anxiety… Kierkegaard says anxiety sucks, it’s really horrible and one of the most agonizing things you can go through, but you cannot be a creative, imaginative human being without anxiety. That’s the cost of entry for being that kind of a person.”

More here – Quartz

The Path To Financial Disaster Is Closer Than You Think

I have always been acutely aware that financial success can often disappear with a single misstep. I have over the past three decades seen many people who have made a single error and never recovered. I have known high flying brokers who after the 1987 crash went to work in their local news agency and I had a friend whose $14M trading account evaporated in a few days. This had lead me to play defence when it comes to money. Granted I do operate under the mantra of the fewer fucks I give the more I make but I am always firm on when to pin the pin and I never verge into recklessness. I am always fascinated by the stories of athletes who earn staggering sums and then have nothing to show for it. Many undoubtedly receive appalling financial advice. In the 1980’s the standard advice given to AFL footballers was to buy a pub and become a piss head behind the bar. Some are undoubtedly victims of fraud whereas others are probably just useless.

What intrigues me are the sums of money that many can go through in a very short period of time as shown in the ESPN documentary below. Whilst, many say they wouldn’t make the same mistakes think of all the stupid things you have done and then just add a few zero’s to the equation and see if you are so cocky then. I know from my own experience in my early days I was a bees dick away from doing something stupid and sometimes only the good grace and luck of a move in my direction saved me.

I am reposting the video below because it came back into my consciousness when reading this piece on former NFL player Clinton Portis who both squandered and was swindled out of the $43 M he made during his playing career.



Remember, Money Doesn’t Have to Be the Root of All Evil

It may cost more than $100 million, but many social problems could be alleviated with the creative infusion of cash. Compensating organ donors could increase the supply of organs and save thousands of lives annually. Paying opium farmers in Afghanistan and Latin America to grow something else could bring an even larger dividend in averted addictions and wars. And why not neutralize opposition to reducing carbon emissions by reimbursing coal miners, or the entire fossil fuel industry, for their losses?

More here – The New York Times

Professional Short Seller – Marc Cohodes

In our newest conversation on Bespokecast, we sit down with short seller Marc Cohodes. Marc manages his portfolio from San Francisco, and has had great success with high profile bear cases focused on frauds, fads, and failures in recent years. His investment industry experience dates to the early 1980s, and has helped him hone his process for picking out companies unlikely to succeed. Marc goes into detail on his approach, including how he thinks about finding potential shorts, timing, and risk management. He discusses with us recent successful shorts including Valeant, Concordia, and Home Capital Group, as well as another new bear case he has been building a position in Badger Daylight. You can read more about Badger at Marc’s website discussing the company. Marc is the first short seller we’ve had on Bespokecast, and we learned a ton about his approach to the market. We hope you do too! If you like what you hear today, you can learn more about our firm by visiting our website, Bespoke…

Click here to listen on Overcast

Japan 1989

I am not one for historical comparisons because they are largely specious and mostly irrelvant but this one gives a nice bit of history that I lived through so consider it a nostalgia piece.

……The Nikkei stock index rose more than 900% in the 15 years before it finally topped. It was a frenzy powered by a belief that Japan Inc. was on its way to taking over nearly every major industry worldwide. The stock market bubble was further fueled by a massive real estate bubble at least twice the size of the one the US experienced in the 2000s. Tokyo alone became more valuable than all the land in the US.  In short, it was the product of a tsunami of monumental and concurrent events that are unlike anything present in the US today…..

It is hard to comprehend the apprehension that was rolling around markets and the business world with what was called the coming Japanese century. There was a belief that just 45 years after the end of the Second World War that Japan would rule the investment world. Even popular fiction writers such as Michael Crichton got in on the act with his novel Rising Sun. Japan was the flavour of the month, we were both fascinated and frightened.


Ferrari 812 Superfast review

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