With the n-th iteration of Euro-crisis now including taxes on depositors, felt it good to re-link an old video of Larry Summers:
While events are changing by the hour and so the agreement may be revised to be less severe, I can't help but believe that the the EU continues to make the same mistakes by valuing political decisions over the economics. This is a structural and indeed a behavioral/psychological issue, as having only a common currency benefits both sides (Germany with competitive exports, Greece with lower debt rates pre-crisis) but only if the former is willing to fully backstop the latter and if it truly leads to fiscal union (the original goal, I believe?).
In my opinion, this is exactly the same as 1992 and the exchange-rate-mechanism crisis, except that there is no way out (devaluation). Great Britain was weak economically but Germany did not want even the thought of inflation/money printing, pushing Britain into a recession. Had it not devalued, it would have been in for a deflationary/recessionary spiral - just like Spain/Italy/other PIIGS. After all, if there ~7% less money in the banking system as yesterday, it is not deflation? Devaluation is the normal market process, but because of structural limitations (spain euro = italy euro), there is no way to soften the blow. In other words, Europe is a man swimming with an anvil attached.
As a result, I don't think it's easy to say "buy Europe, it's cheap" and believe that bottom-pickers may be in for a tough struggle.
Monday, March 18, 2013
Sunday, March 10, 2013
Why Investing Has Nothing to Do with Being "Right"
Over the weekend, I read this article about Andy Zaky, a well-known aapl (bull) analyst who raised $10mm and lost all of it. This is not unique, as traders/funds all over have fallen on the aapl road-kill highway. Nonetheless, Zaky is unique because he often lost money when aapl was going up and going down.
Quote for the article:
"...the fund missed both of Apple's big 2012 rallies -- in April when it hit $644 and in September when it hit $705. Zaky lost nearly nearly 50% of the fund's capital in one month (March) by buying bearish put spreads just before the stock rose 10%..."
(Source: http://tech.fortune.cnn.com/2013/03/04/apple-zaky-bullish-cross/)
This is from the same analyst who often forecasted earnings better than wall street analysts for many years. It was this ability that drew investors and commentators'-awe. He was spot on for so many years - what happened?
The short answer: he went all-in on one derivative position (aapl calls). The long answer - he confused predictions with the ability to manage money. And he wasn't the only one, with up to 700 newsletter subscribers which paid up to $200/month (same article). It's never just about hit-rate - it's how much you make when you are right and how much you lose when wrong (simple probability no?). The problem is correct calls are what make the headlines (and dare I say get you investors?).
An institutional level equivalent could be Paulson & Co. - he made 1 giant call correct and investors flooded in. The result? $15 billion of gains in 2007 were nearly overwhelmed by roughly $13 billion of losses 2011 (I did assume net flows of 0 that yr). Paulson can still claim +10% etc. time-weighted returns, but dollar-weighted, e.g. how much money investors have actually made? I think it is far less (dare I say negative?).
This is not an indictment of either person/firm- they have definitely made a real impact in the world (far more than I) and may continue their profits. I do believe, however, that investor focus on % correct and famous calls are not good predictors of fund performance. what do you guys think?
Disclosure: no position in aapl
Quote for the article:
"...the fund missed both of Apple's big 2012 rallies -- in April when it hit $644 and in September when it hit $705. Zaky lost nearly nearly 50% of the fund's capital in one month (March) by buying bearish put spreads just before the stock rose 10%..."
(Source: http://tech.fortune.cnn.com/2013/03/04/apple-zaky-bullish-cross/)
This is from the same analyst who often forecasted earnings better than wall street analysts for many years. It was this ability that drew investors and commentators'-awe. He was spot on for so many years - what happened?
The short answer: he went all-in on one derivative position (aapl calls). The long answer - he confused predictions with the ability to manage money. And he wasn't the only one, with up to 700 newsletter subscribers which paid up to $200/month (same article). It's never just about hit-rate - it's how much you make when you are right and how much you lose when wrong (simple probability no?). The problem is correct calls are what make the headlines (and dare I say get you investors?).
An institutional level equivalent could be Paulson & Co. - he made 1 giant call correct and investors flooded in. The result? $15 billion of gains in 2007 were nearly overwhelmed by roughly $13 billion of losses 2011 (I did assume net flows of 0 that yr). Paulson can still claim +10% etc. time-weighted returns, but dollar-weighted, e.g. how much money investors have actually made? I think it is far less (dare I say negative?).
This is not an indictment of either person/firm- they have definitely made a real impact in the world (far more than I) and may continue their profits. I do believe, however, that investor focus on % correct and famous calls are not good predictors of fund performance. what do you guys think?
Disclosure: no position in aapl
Monday, March 4, 2013
Remark
Late night thought: for certain companies, does a falling stock price reflect falling business prospects as much as cause them?
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