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Putting the Odds in Your Favour


Posted by Burton G. Malkiel

on Tuesday, 09 October 2018 11:07

Take a moment and read the advice of someone who many experts consider the most savy investor on Wall Street. ~MC

‘Mastering the Market Cycle’ Review: The Dangers of Optimism

In 2011 Mr. Marks published “The Most Important Thing,” which comprised 20 investment insights culled from these memos. In “Mastering the Market Cycle,” he focuses on what he regards as one of his most important insights: “If we study past cycles, understand their origins and import, and keep alert for the next one, . . . we can master these recurring patterns for our betterment.”

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It is not surprising that Mr. Marks considers mastering the market cycle so important. While most investors avoid market timing, it is in fact timing that has accounted for Mr. Marks’s success. During the 2007-09 market meltdown, he had the foresight to set up an $11 billion distressed-debt fund—aimed at buying the financial instruments of companies near or currently in bankruptcy. It was the largest such fund in history. Following the collapse of Lehman Brothers in September 2008, he began putting the money to work. According to Bloomberg, his distressed-debt funds returned 19% per annum after fees, a record that far outdistanced his peers.

Looking back on this period in a podcast, Mr. Marks described his thinking in this way: “All you had to do to make money in the crisis was have money to spend and the nerve to spend it. You didn’t need caution, conservatism, risk control, patience, selectivity, discipline, any of those things. All you needed was money and nerve. But not all the time, because sometimes money and nerve will get you killed. One of the keys to investing is to know which is which.”

Mr. Marks acknowledges that there are no real cycles in the market, and he has no illusions that he can make macroeconomic forecasts. He admits that he can never call market tops and bottoms or predict how far prices will fluctuate. But he believes that he can understand fluctuations in investors’ attitudes toward risk. Price declines tend to increase risk aversion and send investors to the sidelines just as prices (and actual risk) are at their lowest. The opposite effects can be seen when prices rise. “The greatest source of investment risk” is not, he writes, “negative economic developments” but “when risk aversion and caution evaporate.”

“Mastering the Market Cycle” comes down to the insights of behavioral finance. We know that investors tend to put money into the market at tops, when everyone is optimistic, and take the money out at bottoms, when panic is widespread. The key to investment success is to do the opposite and keep one’s emotions—aggressiveness and defensiveness—in balance. Mr. Marks’s recipe for success is much like that of Mr. Buffett, who has said that investors should be “fearful when others are greedy and greedy when others are fearful.”

In his longest chapter, Mr. Marks explains how he was able to profit from the events leading up to the 2008 market meltdown. His analysis closely parallels the theories of the late economist Hyman Minsky. Good times lead to overly optimistic forecasts and a loosening of credit standards. Excessive debt leads to a wave of defaults at the first signs of economic turmoil and ultimately to a market meltdown. The Minsky theory is that stability itself breeds behavior that leads to instability. As he put it: “The longer things are stable, the more unstable they will be when the crisis hits.”

Mr. Marks shows how good times from 2005 to 2008 caused investors to become so optimistic that they jettisoned caution and settled for skimpy premiums on risky investments. “The greatest source of investment risk,” he says, “is the belief that there is no risk.” When prices start to decline, investors panic and risk aversion goes from inadequate to excessive. Thus the reward for bearing risk is greatest just when people refuse to bear it. “The fluctuation—or inconstancy—in attitudes toward risk,” Mr. Marks writes, is “the cause or exacerbator” of cycles. At the bottom of the market lenders refuse to offer credit even to credit-worthy borrowers.

The volatility in the credit markets is equally evident in the real-estate and stock markets. The dot-com bubble of the late 1990s, when high-tech stocks sold at unprecedented triple-digit earnings multiples, and the real-estate bubble of the early 2000s bear witness to similar patterns of euphoria and depression.

“Mastering the Market Cycle” is not a perfect book. It is overlong and tends to be repetitious. But it is wise. A careful reading can make us better investors and protect us from the all too frequent errors that ruin investment results. I do worry, however, that the book may encourage some readers to engage in market timing. Few investors have the insight and ability of Howard Marks, who has been unusually skilled in his analysis of where we are in the market “cycle.” For many investors the takeaway should be: “Don’t try this at home.” Fortunately, Mr. Marks has included a chapter titled “Limits on Coping,” which says that, however important it may be to understand the market cycle, “it’s essential that you also understand the limitations, as well as the skills that are required and how difficult it is.”

Perhaps the smartest thing an ordinary investor can do is to engage in periodic rebalancing of a diversified portfolio. If one asset becomes so richly valued that it comes to represent a disproportionately large share of the portfolio, then reduce its weighting and place the proceeds in underweighted assets. Such rebalancing may not be “mastery” in the fullest sense, but it will generally reduce risk and often enhance a portfolio’s return.



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Wealth Building Strategies

Easy As ACB? Another Cannabis Company Applies To List On The NYSE


Posted by Alex Oleinic

on Tuesday, 09 October 2018 09:16

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Canada-based Aurora Cannabis Inc has applied to be listed on the New York Stock Exchange.

The company intends to list under the ticker symbol ACB, but it will continue to list on the Toronto Stock Exchange. Until the NYSE listing is approved, Aurora Cannabis will keep trading on the over-the-counter market.... CLICK for complete article



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Stocks & Equities

Markets Open Flat As Warnings Grow Louder


Posted by Paul Rejczak

on Tuesday, 09 October 2018 09:14

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Stocks continued their short-term downtrend on Friday following the monthly jobs data release. The S&P 500 index fell to its late January local high of around 2,873, before a quick intraday upward reversal. So, will the downtrend continue? Or is this just some profit-taking action before another medium-term leg up? CLICK for complete article



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Stocks & Equities

Google Will Not Bid For Pentagon's 10B Contract, Citing Its "A.I. Principles"


Posted by Catherine Shu

on Tuesday, 09 October 2018 09:09

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Google has dropped out of the running for JEDI, the massive Defense Department cloud computing contract potentially worth $10 billion. In a statement to Bloomberg, Google said that it decided not to participate in the bidding process, which ends this week, because the contract may not align with the company’s principles for how artificial intelligence should be used.... CLICK for complete article



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Timing & trends

Riotous spoofs reveal the scariest hack of all


Posted by Niall Ferguson

on Monday, 08 October 2018 14:38

hoaxauthors

Hoax academic papers expose the intellectual malware in our universities

Rosa Klebb is back — as a hacker. In April the heirs of 007’s foe attempted to hack the Organisation for the Prohibition of Chemical Weapons in the Hague, after it had exposed Moscow’s use of chemical weapons in an attempted assassination. The Russians also tried to get into the email accounts of anti-doping organisations.

Meanwhile, the Chinese have slipped microchips into the motherboards of servers used by the Pentagon, the CIA and the US navy — not to mention dozens of companies. The servers were made by Supermicro of San Jose, California, and sold by Elemental, based in Portland, Oregon. But the pin-sized chips were inserted by agents of the People’s Liberation Army embedded with manufacturing subcontractors in China. A probe by Amazon identified the chips, which created a stealth doorway into any network connected to the Supermicro servers.

In other news, Facebook announced last month that it had suffered yet another massive hack, affecting at least 50m users. It raises the possibility that Facebook Connect — the tool that allows users to log in to other sites via Facebook — has been compromised. The attackers have yet to be identified.

Yes, my fellow netizens (or “data cows”, as you are known to the folk who milk you for your personal information, contacts list and browsing history): cyber-war is here and we are all under attack, even if most of us don’t yet know it.

Yet none of the above was the biggest hack revealed last week. Raise a glass to my new heroes, Helen Pluckrose, James Lindsay and Peter Boghossian. In an article published on Tuesday, Academic Grievance Studies and the Corruption of Scholarship, the trio revealed that they had pulled off one of the greatest hoaxes in the history of academia.

In the space of 10 months they dashed off 20 spoof articles and submitted them to established journals in the fields of cultural studies, identity studies and critical theory. As Pluckrose, Lindsay and Boghossian say, their papers were all “outlandish or intentionally broken in significant ways”. Each contained “some little bit of lunacy or depravity”. The hack was devastating in its success. No fewer than seven of their articles were accepted for publication and four were actually published before the hoaxers were rumbled (by the Twitter account Real Peer Review and The Wall Street Journal).

It’s hard to choose a favourite. But let’s start with “Human reactions to rape culture and queer performativity at urban dog parks in Portland, Oregon”, published under the fake name Helen Wilson in Gender, Place & Culture, “a journal of feminist geography” owned by Taylor & Francis, an illustrious British brand.

The abstract gives a flavour of the authors’ genius: “This article addresses questions in . . . the geographies of sexuality by drawing upon one year of embedded in situ observations of dogs and their human companions at three public dog parks in Portland, Oregon. The purpose of this research is to uncover emerging themes in human and canine interactive behavioral patterns in urban dog parks to better understand human a-/moral decision-making in public spaces and uncover bias and emergent assumptions around gender, race, and sexuality.”

“Dr Wilson” posed three questions, each of them ludicrous:

■ How do human companions manage, contribute and respond to violence in dogs?

■ What issues surround queer performativity and human reaction to homosexual sex between and among dogs?

■ Do dogs suffer oppression based upon (perceived) gender?

The goal of the article was to “suggest practical applications that disrupts [sic] hegemonic masculinities”. But the authors’ implicit proposal was “to train men like we do dogs — to prevent rape culture”. This drivel was praised to the skies by academic peer reviewers (“a wonderful paper — incredibly innovative, rich in analysis and extremely well-written”) and recognised by the editors as one of the 12 best articles in their journal’s 25-year history.

Another article, published in Fat Studies (“an interdisciplinary journal of body weight and society”, also a Taylor & Francis title), was “Who are they to judge? Overcoming anthropometry through fat bodybuilding”. This Swiftian piece proposed “a new classification within bodybuilding, termed fat bodybuilding, as a fat-inclusive politicised performance and a new culture to be embedded within bodybuilding”.

Avid readers of Sex Roles (a Springer journal) were treated to “An ethnography of breastaurant masculinity: themes of objectification, sexual conquest, male control, and masculine toughness in a sexually objectifying restaurant”.

The journal of feminist philosophy Hypatia (Wiley) asked the fictional Dr Maria Gonzalez of the equally fictional Feminist Activist Collective for Truth (FACT) to resubmit a paper arguing that white males in college should not be allowed to speak in class, but should instead be made to sit in the floor in chains to “experience reparations”.

Sexuality & Culture (Springer) published “Going in through the back door: challenging straight male homohysteria and transphobia through receptive penetrative sex toy use”.

Pluckrose, Lindsay and Boghossian are not professional pranksters. Pluckrose is a scholar of English literature. Lindsay is a mathematician. Boghossian is an assistant professor of philosophy at Portland State University. Nor are they conservatives; they are self-proclaimed “left-leaning liberals”, which makes their verdict on the whole field of what they call “grievance studies” all the more damning. The fact that they were able to get “seven shoddy, absurd, unethical and politically biased papers into respectable journals” suggests to them that “these fields of study do not continue the important and noble liberal work of the civil rights movements; they corrupt it while . . . pushing a kind of social snake oil”.

The hoax articles are, of course, very funny. Much less funny are the non-phoney articles published alongside them. Much less funny are the affiliations of the editors of these journals. For example, two of the three editors of Gender, Place & Culture hold positions at UK universities. Both have had their research funded by the Economic and Social Research Council.

Yes, cyber-warfare is scary. But I have long believed that our most dangerous enemies are within. The monstrous regiment of grievance studies has established bases in nearly all the universities of the western world, not merely tolerated by administrators, but enthusiastically funded by governments and credulous donors. Now that’s what I call a successful hack.

The friends of the closed society are also hard at work. The rubbish they publish is the counterpart of the rubbish they teach, and the people they teach then graduate with rubbish degrees and live among us.

You could see some of them in Washington last week, carrying signs saying “We believe all survivors” and “Respect female existence or expect our resistance” and making believe that they were the heirs of Rosa Parks — as opposed to unwitting allies of the other Rosa’s hacker heirs.

Niall Ferguson is the Milbank Family senior fellow at the Hoover Institution, Stanford



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