PushmiPullyuInvesting

https://www.youtube.com/watch?v=GcdxOlEhpII

These lyrics were scribbled on a small piece of notepaper found by the janitor cleaning up one of the smaller rooms at the Fed before yesterday’s press conference. We believe Yellen was planning on singing this but her guitar was taken away by Plosser:

"ImPatience"

Interview with Michael Mauboussin by the Motley Fool on Youtube.

1) Collect mental models like tools in a tool box - read broadly in different topics, don't worry about cul de sac.

2) Have knowledge of statistics.

3) How does Gladwell's 10k hours of deliberate practice work? It doesn't: You need an investment process: analytical (how you make decisions), behaviour (how you react to the market), organisational (environment for making good investment decisions).

4) How do you evaluate the investment process? - repeatable over time (reliability), - fundamentally sound, - Journal (keep track of what you've done, fights creeping determinism, hindsight bias).

5) Once you've trained at poker, start finding easier games.

6) What's fundamental about P/E? Shortcut for present value of future cash flows. Steady state value + future growth value. Rule of thumb steady state Base P/E is 12.5x, anything over that means you're paying for growth.

7) Moats: three component parts - i) process advantage (low-cost, capital velocity), ii) consumer advantage (product differentiation), iii) regulatory advantage.

8) Teams - combined gender groups have more diversified perspectives.

9) Fundamentals = Value, Expectations = Price: make money by finding the difference between fundamentals and expectations.

10) Set up a checklist for fundamentals & expectations.

Rings so true for the investment profession

A THOUGHT FOR TODAY courtesy of AWAD:

New ETF Grants Access to A-Shares Small-Caps

May 21st at 11:27am by Tom Lydon

Looking to capitalize on the success of the db X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR),Deutsche Asset & Wealth Management today launched the small-cap equivalent of ASHR, the db X-trackers Harvest CSI 500 China A-Shares Small Cap Fund (NYSEArca: ASHS).

ASHS tracks the CSI 500 Index of Shanghai- and Shenzhen-listed small-caps. The new ETF charges 0.82% per year.

Deutsche’s partnership with Harvest Fund Management, China’s second-largest asset manager, is a key element in the bank being able to offer an A-shares ETF that holds actual equities. Harvest is a Renminbi Qualified Foreign Institutional Investor (RQFII), which means it meets Chinese regulatory requirements to be a foreign owner of A-shares. [A-Shares ETF Comes to Market]

Due to restrictions on foreign ownership of A-shares, China is far behind other large markets, both developed and emerging, in terms of foreign ownership of its equities. Even including Chinese stocks listed in Hong Kong or New York, foreign ownership of Chinese stocks was just 11.4% at the end of 2012, half the level seen in Japan and barely more than 20% of foreign ownership of German stocks.

The new ASHS is the fifth A-shares ETF to list in the U.S. and the fourth to offer physical access to A-shares. ASHR, which has $147.8 million in assets under management, was the first U.S-listed ETF to offer direct access to A-shares equities.

ASHS allocates no more than 0.71% to any of its holdings and the ETF’s top-10 holdings combine for less than 6% of the fund’s weight. To be considered for inclusion in the index, securities must meet minimum liquidity requirements, according to a statement issued by Deutsche Asset & Wealth Management.

Industrials are the largest sector weight in ASHS at nearly 24.5%. Consumer discretionary follows at almost 17.2% while materials and technology combine for nearly 29%.

ASHS is Deutsche Asset & Wealth Management’s third China ETF to list in the U.S. The firm recently launched the db X-trackers Harvest MSCI All China Equity Fund (NYSEArca: CN).

db X-trackers Harvest CSI 500 China A-Shares Small Cap Fund Index Weights

"I had all the disadvantages required for success"

What matters in charts?

trend

turning points

cycle stage

frequency of cycle 

amplitude

Risk factor:

Growth

Inflation

Liquidity

Tail Risks

Interest Rate Risk

Credit/Default/Business Risk

Strategy Style:

Trend: Winners / Laggards

Value: Cheap / Expensive

Volatility

Carry: HY / LY

Asset Class

Stocks

Credit

Govt Bonds

Alternatives

Portfolio Construction:

Harvest many return sources

Allocate risk, not dollars

Seek negative/low correlations

Risk Management:

Limit risk concentrations with well-chosen constraints

Target constant volatility over time

Use dynamic overlays to control drawdowns

Cost Control: Keep trading costs low and pay fair fees

There's been a couple of well-regarded fund managers coming out now and saying distortions from the US Fed will lead to a dramatic correction in the markets (cf Grantham's "Very Painful Bust").

Interview here with Mark Spitznagel on economics and finance. Key take-aways to come.

Interesting point from MicroFundy about selling Yahoo when Alibaba gets listed.

Came across Lountzis AM's year-end letter. Not very insightful, but provided one interesting quote and one interesting graph:

Rupert Murdoch: "The world is changing very fast. Big will not beat small any more. It will be the fast beating the slow"

Graph & Investment idea: Long US online retail / Short floorspace retail (JCPenney, Sears, Macy's)

This is so true:

Knowledge: What's something that is common knowledge at your workplace, but would be mind-blowing to the rest of us?

Confessions of a former investment banker - I worked on several multi-billion transactions and this is what I've learned:

'Investment' banking has little to do with investments.  Your primary job is to advise corporations on equity/debt issuance and mergers & acquisitions.  Heck, that's not even true, you are really a 'salesman', and your primary job is to maintain a relationship with corporations and convince them to hire you on financing and M&A activities.

While presentation and advice appear sophisticated and precise, you really don't want to see how the sausage was made.  Opinions range from educated guesses to made-up-stuff frequently masquerade as facts and well-researched advice.  I've seen and performed my fair share of number fudging/massaging to justify a conclusion.

Which brings me to my next point, investment bankers are pretty bad project/people managers.  The working hours I mentioned above could be cut in half if someone slightly higher up just managed a little better.  Some people justify this as a hazing ritual.

Most bankers know they are generally overpaid.  But every banker thinks they are underpaid compared to other bankers.  It is all relative.

It is a culture of greed and envy.  Envy being the more toxic one, in my opinion.

This one cracks me up:

Jobs: What is the sexiest thing about your job?

After reading a Forbes article on WisdomTree and Steinhardt and seeing the different views being presented there ("WisdomTree is a marketing company trying to find something the public wants" vs. a firm that has "disruptive potential, with individual investors ... reaping the benefits"), I'd like to see just how the different ETF providers individuate themselves.

As such, my Google Spreadsheet will track this train of thinking on ETFs.

I see this becoming a database for i) best value ETFs for particular markets, ii) providing commentary on the nature of these ETFs

Some interesting perspectives from First Adopter: 

For long ideas Mandel wants:

-solid return on capital  -good cash flow  -prudent balance sheet  -competitive barriers (aka moat)  -strong management team

For short ideas Mandel wants:

-avoid private equity targets (companies with good cash flow etc.)  -competitively challenged (aka no moat)  -fads, 1 product companies  -falling knives (results will be much worse than consensus)

Only noticed this today, absolutely hilarious (via Claire Barnes and Macroman):

The Charge of the Euro Brigade.    Half a year, half a year ,   Half a year onward, All in the valley of Debt   Rode the unfunded 'Forward, the Euro Brigade! Charge for the loans they said: Into the valley of Debt    Rode the unfunded 'Forward, the Euro Brigade!' Was there a bond unpayed? Not tho' the Eurocrats knew   Some one had blunder'd: Theirs not to make reply, Theirs not to reason why, Theirs but to do or die: Into the valley of Debt   Rode the unfunded Spending  to the right of them, Spending  to the left of them, Spending in  front of them   Follied and blunder'd; Storm'd at, all rushing to sell, Boldly they bought and well, Into the jaws of Debt, Into the mouth of Hell   Rode the unfunded Flash'd all their policies bare, Flash'd as they turned into air Shattering  the investors there, Meetings and summits while   All the world wonder'd: With policy of mirrors and smoke  the global economy they broke; Chinese and Russian Reel'd from a rate cutting-stroke Shatter'd and sunder'd. Then they rode back, but not Not the unfunded Selling to right of them, Selling  to left of them, Selling behind them   Follied and Blundered  Storm'd at, all shot up to hell, While investors continued to sell, They that had bought so well Came thro' the jaws of Debt  Back from the mouth of Hell, All that was left of them,   Left and unfunded  When can their story fade? O the wild charges they made!   All the world wonder'd. Honour the blunders they made? Honour the Euro Brigade?   Forever unfunded!