Sunday 30 September 2018

The Venezuelan economic policy manual (satire)

For the good governance and prosperity of the Venezuelan people, we recommend policymakers adhere to the following policy framework:

Saturday 29 September 2018

Kavanaugh-gate and human irrationality

I'm going to wade - perhaps unwisely - into some fraught and controversial territory with this post, but I can't help myself because I think there are so many interesting things to be learned from the ongoing Kavanaugh saga with respect to the psychological fallibility of humankind. And, believe it or not, it does have investment implications.

Wednesday 19 September 2018

The Australian housing bust: Why this time is different

In recent months, media articles have begun to surface highlighting the fact that Australian property prices have started to fall, and indeed in some suburbs of Sydney, have already fallen about 5-10% from their peaks. The response from the establishment has been predictable - there is no need to worry; prices will moderate somewhat, but a crash is far fetched. We have heard all this doom-mongering before, they argue, and the doubters have always been proven wrong. This time will be the same.

Monday 17 September 2018

On China's (putative) real estate construction bubble... facts vs narratives

The consensus opinion in many parts of global financial markets is that China's economy is little more a giant leveraged real estate and infrastructure construction site at present, coupled with an export manufacturing sector that is soon to have its competitiveness undercut by US tariffs. Most value managers will not touch iron ore stocks, for instance, despite low valuations, believing that it is only a matter of time before steel and iron ore demand collapses as an unsustainable pace of Chinese debt-fueled real estate and infrastructure construction comes to an inevitable end.

Friday 14 September 2018

The correct way to think about risk

In my opinion, most stock market investors fundamentally misunderstand risk and think about it in the wrong way. Most investors abhor risk and see it as their goal to minimise their exposure to it, to the maximum extent possible. They try to pick companies to invest in which have the most assuredly positive and low risk outlooks. They want strong businesses, and stable earnings/cash flows/dividends, and so abhor cyclicals. They want good management and pristine corporate governance. They want strong balance sheets, and they don't want any sort of uncertainty about the company's future, including risks from new competition or technological change. And they want to invest in countries where the macroeconomic and political outlook appears strong and stable. They want all these things because they want to avoid risk, because the absence of any of these factors does, in fact, increase the chance of subsequent investment losses. They don't mind paying a higher price, because it's all about investing with (seeming) assurance of a decent outcome.

Thursday 13 September 2018

The ethics of ethical investing

In recent years, there has been a trend towards the launch and promotion of 'ethical' funds, that forbid investment in companies engaging in various activities considered unethical. Common exclusions include 'sin' stocks involved in industries such as gambling, tobacco, and alcohol, and companies considered to be occasioning harm to the environment (such as coal miners). In addition, even outside of 'ethical' funds, it is sometimes argued that it ought to be incumbent on investment managers to take into account the ethics of the activities undertaken by the companies they invest in, and avoid companies engaged in 'unethical' activities.