Ten questions I’m pondering at the moment:
1. Why are people are always looking for soothsayers who will help them predict the future in the markets or the economy when they can’t even explain what just happened? I understand that life would be much easier if we could predict the future, but this always strikes me as odd considering so many of these “prophets” have a hard enough time explaining what happened in the past.
2. Aren’t bond market liquidity concerns really just investor fears that other people will panic at the exact same time as they do? Investors are quick to point out the mistakes of others, but have a much harder time finding fault in their own actions. If you’re worried about bond market liquidity, the easiest solution is to never put yourself in the position of being a forced seller of bonds. The obvious solution is broad diversification not only by asset class, but also within the fixed income asset class by quality and strategy.
3. Why is it that the financial markets are constantly forcing people to call into question their own process and strategy? This is probably the best and worst part about investing. The markets either keep you honest and humble or they can drive you crazy and cause mistake after mistake. Don’t ever let anyone tell you it’s easy.
4. Why does it seem that anytime someone mentions a currency war they only talk about who the losers are going to be from central banker actions? Do they not understand that there are checks and balances? Or that when one party loses another party usually gains? These currency wars aren’t one-sided.
5. Will the people who have been calling for a crash for the past 4-5 years miss out on the opportunity to buy at lower prices if the market does finally correct 10%, 15% or even 20%? When you’re constantly on the lookout for extreme events you end up missing out on a lot of opportunities to profit in the markets. Extremes are called extreme for a reason — they’re rare. In 2011, when stocks were down nearly 20%, how many crash-callers viewed that as a buying opportunity?
6. Will all the people who have magically turned into “long-term” investors panic at the first sign of a correction or bear market? I’m not convinced investors have changed their ways. The fact that the corrections continue to get shallower and shallower when they do occur makes me worry about how the markets will react to an actual correction. A few months ago I heard someone say that 3% is the new 10% correction. If people are really thinking that way there could be more panicked sellers than usual during the next bear market.
7. Are you a disciplined investor or are you just being stubborn about the way things really are? “I’m going to be proven right eventually…” could be the mark of a true contrarian who is confident in their analysis. Or it could be the mark of an investor who is unwilling or unable to be flexible in their approach and admit when they’re wrong. There’s a fine line between a disciplined process and overconfidence.
8. Who’s wins the best actor title in the battle of brokerage commercial voice-overs: Matt Damon for TD Ameritrade or Kevin Spacey for E*Trade? Here’s the tale of the tape:
Spacey: 2 Academy Awards, 1 Golden Globe, The Usual Suspects, American Beauty, L.A. Confidential, House of Cards and Seven.
Damon: 1 Academy Award (2 other nominations), 1 Golden Globe, Good Will Hunting, Rounders, The Bourne Trilogy, The Departed and School Ties.
I thought this one would be an easy choice for me since The Usual Suspects is one of my all-time favorite movies, but it appears Damon actually has a much better movie resume and far fewer duds than Spacey after going through their respective IMDB pages. Rounders was the tie-breaker that pushed me into Damon’s camp.
9. What if stocks take a hit if and when interest rates rise? The historical data shows that stocks tend to perform much better than financial theory would suggest when interest rates rise. What if it’s already priced in now that everyone seems to be in agreement that stocks will do just fine when rates rise?
10. Is this Carol Loomis interview on the Longform Podcast great or what? Loomis tells some amazing stories about her many decades working at Fortune magazine including some excellent career advice. But the best part is her background on how she formed a working relationship and friendship with a young Warren Buffett in the late-1960s, made an investment in Berkshire shares (which she still owns) and became the editor of his annual shareholder letters for nearly 40 years. A must listen for anyone interested in business or journalism.
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Great post! I’m still trying to learn to be a disciplined investor. I know I can’t time the market, but that doesn’t stop me from moving to cash. Smh.
You’re not alone. Biggest thing is just having a plan you can stick with. Create some rules and try to get out of your own way.
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I agree #6 is becoming and issue. The longer the bull market the more people forget markets also go down.
Regarding #2, do you think it’s really necessary to diversify within fixed income? What do you think of the strategy of all fixed income being short/intermediate term government bonds, (taking all risk on the equity side)? Either way with a fixed allocation you are always a forced buyer rather than forced seller of anything.
My sense is we generally have two camps of investors: those who can’t seem to let the crash thoughts go or those who have completely forgotten already.
Many investors go very high quality on fixed income (all treasuries) with the understanding that they’ll take most of their risk on the equity side, something of a barbell portfolio. I think the biggest problem for many bond investors is they don’t know why they’re invested in bonds. My take has always been have a reason for every allocation and do what works for you.
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I’ll take the other side of that trade.
Class A: Push. American Beauty cancels out Good Will Hunting, Suspects ties Bourne, Se7en does the same w/Rounders. Spacey killed in Margin Call & LAC while Damon was brilliant in Departed, Mr Ripley
Class B: Arguable push: Rainmaker, Courage in the Line of Duty, Syriana Oceans 1/2/3, True Grit Monuments Informant & Green Zone vs Shipping News, Glen Gary Glenn Ross Kpax
Class C: Whatever slight edge Damon had, he loses here with a string of forgettable stinkers and yawn fests: Adjustment Bureau, Invictus, Contagion, Hereafter, Elysium, Good Shepherd…
Tiebreak: House of Cards vs Behind the Candelabra
Result: Long Spacey (bull flag pattern) Short Damian (fade any spikes from the Martian)
That’s a good breakdown. Not sure if this is pro or con but Spacey had a really long break in-between American Beauty and his comback trail with Margin Call/Horrible Bosses/HOC. You’re right that Damon has taken mor paycheck movies. Spacey probably should also get points for his range whereas Damon usually takes on similar roles.
Great blog, consistently high quality. In particular, things you don’t understand was great; I’ve scratched my head on about seven of those at one time or another. I like # 7 on your post above, and i’d add another possibility – even if you want to do something, you don’t know what the heck to do or how to unwind it later!
Good point. Said another way – markets are hard.
Good point. Said another way – markets are hard.