Well, it does miss, and almost always. Why? It's all about human nature. People very rarely know what they really want. What they say they want in surveys is almost never what they actually end up buying. One of the very basic skills that advisers are trained to do is evaluate a client's risk tolerance. This is where the boat sinks every time. It is almost inevitable that a client will say they want safety and are mostly only interested in preventing losses. But they are the first to complain during a bull market when everyone else is seeing more profits than them. Conversely, the clients who say they want big yields and are not bothered by risk are the first to start screaming when the risk-laden high yield investments you have them in (and by definition all high yield carries risk) start going south.
And that is what Mr NorAm was commenting on yesterday, all the clients he's had who first come to him wanting high yield, claiming to be not at all risk averse, yet prove to be risk averse when risk happens. Keeping emotions (aka greed) out of your decisions is one of the most basic essential skills for being a successful investor. The good news is that there are a ton of protocols one can train in to teach you to remove emotions from your process so that you don't get burned. Advisers even offer to give their clients this training. The bad news is that very few investors actual "invest" in this very valuable tool. That is why today's Sunday bonus is an article on Get-Rich-Schemes entitled, "No Free Lunch" from today's Ritholtz column offering advice on how to avoid the plethora of sales pitches that you will be subjected to by con artists offering fast, fat, and easy profits once your name is out there that you're a serious investor. Behavioral dynamics is the new frontier for investments in the 21st century. The classic book on this subject is "Trading For A Living" by Alexander Elder, 1993. (About $50 on Amazon)
This weekend's second bonus goes back to having some fun. There is what looks like a very entertaining made-for-cable movie called "Billions" coming to Showtime in January all about our "corrupt" financial system. With Paul Giamatti in the cast, it should certainly be well worth a look. For those of us (including myself) who do not take premium movie channels, most everything that comes from the likes of Showtime and HBO ends up pretty soon on Netflix.
And while you're waiting for all that, here's the traditional weekly wrap-up. Hope you all had a great weekend.
Positives:
1. U.S. stocks rose for the fourth straight week.2. Initial jobless claims came in at 259k, the 4-week average is down to 263k. This is the lowest since 1973.3. Existing home sales came in at 5.5 million — 2nd best print since early ’07 — above the 5.4 expected, up from 5.3mm in August.4. Mortgage applications rose 16% w/o/w.5. European stocks had a strong week, with the Dax gaining nearly 7%.6. U.S. Housing starts came in at an annualized rate of 1.2 million, above the 1.1 expected.; NAHB home builder sentiment increased from 62 to 64.7. U.S. manufacturing PMI came in at 54, vs the 52.7 expected.8. Eurozone manufacturing and services composite index rose to 54 from 53.6 in September and vs 54.3 in August.9. China GDP grew 6.9% y/o/y in Q3 vs 7% in Q2 and vs the estimate of 6.8%.
Negatives:
BONUS #1:1. China GDP grew 6.9% in Q3, down from 7% previously.2. FHFA home price index grew 5.5% y/o/y vs the expected 5.8% gain.3. Eurozone consumer confidence fell .6 pts to the lowest level since January.4. China cut rates for the sixth time since November, as Industrial production in China slowed to 5.7% growth vs 6.1%
No Free Lunch | The Big Picture
My Sunday Washington
Post Business Section column is out. This
morning, we look at the very human habit of seeking something for nothing. Its a
suckers play that leaves investors vulnerable to sharpies and clever
salesmen.
There are numerous examples where pursuing a
free lunch (not unlike Alpha) leads to losses.
Here’s an excerpt from the column:
last year, Americans spent more than $70 billion on state-run lotteries. To put that into context, that’s more money than Americans spent on sports tickets, books, video games, movie tickets and music plus all of the apps, games and programs bought from Apple’s iTunes App Store — combined. That is a whole lot of money, poorly spent . . .The obvious truth is that people who buy a lottery ticket want the free lunch. They want riches and financial security and oodles of discretionary income — and with very little effort. What they do have, to paraphrase New York State’s lottery logo, is “a dollar and a dream.”
And of course, the money shot:
“If you want anything — especially something lots of other people want, too, like money — there is a simple formula that few really want to hear about. It’s no secret. In fact, it’s fairly obvious. All you need to do is work your tail off; be smarter or at least more insightful than your competition; treat every task as an opportunity to enhance your reputation; exercise good judgment; have great patience; be attentive to what matters and what doesn’t; develop social skills; learn what motivates people; avoid getting sidetracked by distractions and nonsense; continue to learn; have valuable, marketable skills; and occasionally, get lucky. Just apply some combination of the above for a few decades, becoming more efficient and productive and luckier as time goes on..”
Obvious, yes, but it needs to be said.
Source:
On the hunt for the financial free lunch? Don’t.
Barry Ritholtz
Washington Post, October 25, 2015 http://wapo.st/1i1QpW5
On the hunt for the financial free lunch? Don’t.
Barry Ritholtz
Washington Post, October 25, 2015 http://wapo.st/1i1QpW5
BONUS #2:
Billions | The Big Picture
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