Posts Categorized: Finance

The O’Doul’s of Value Investing

Note: Please also read part two which corrects for a few outliers in the below results Traditional index funds are gaining record market share. The weight of each stock in these index funds is determined by its market capitalization. But bigger is not better. Enter fundamental index. These improved indexes weight stocks by variables “smarter” than…

The Active Manager’s Toolkit

There are only so many aspects of the investing process that we can control. Categorizing these elements will serve as an outline for our research. Let’s outline the active management process and try to leave no aspect uncovered. Your comments here—on elements that I’ve missed—would be much appreciated! This outline will be for a portfolio…

The Rise of the Robots And What To Do About It

Companies need fewer and fewer employees to generate each dollar of profit. This trend is likely to continue. The best thing you can do is focus on areas which are less likely to be automated away: entrepreneurship, art, creation, ideas, and innovation. Let’s explore what is happening and what you can do about it. Martin…

The Rich Are Getting Richer

Profit margins have been steadily rising for huge companies, but margins have been stagnant or falling for smaller companies. Clearly, the large are getting richer. But viewed a slightly different way we see an even more exaggerated trend: the rich are getting richer. Forget market cap for a moment. Instead of sorting stocks on their size…

Tiny Margins for Tiny Companies

The U.S. market’s profit margin remains very high, but smaller stocks are suffering. While margins for the largest companies have remained well above their long-term averages, margins for the 40% of stocks in the market with smaller market caps have current margins well below their long-term average. This divergence highlights a broader key point: small caps provide…

Is Being Different Better? Dispersion and Active Management

Beating the market very obviously requires performance that is different than the market, which in turn requires portfolio holdings that are themselves different from the market. “Active Share”–or the percent of your portfolio which does not overlap with your relevant market benchmark (say, the S&P 500 or the Russell 2000)–has become a buzz word in…

Backwards Biking and Thinking Differently

We know that our brains create heuristics—rules of thumb—which act as energy savers. Heuristics are our brains’ attempt to automate certain processes so that they can happen beneath our conscious awareness. Heuristics are a collection of behavioral algorithms in our brain. They are, for the most part, great. They help us efficiently navigate the world. But…

Seeing the Future from the Past

Imagine an investor equipped with a crystal ball in 1963—we will call her Cassandra. She would have looked forward five decades and seen some bizarre outcomes. She’d have seen that the best performing stocks would be mundane, boring food & beverage companies, cigarette makers, and insurers. The worst performing (and most volatile) would be stocks…

Welcome to The Investor’s Field Guide

The stock market is a jungle. It is an ecosystem that is unpredictable, dangerous, fascinating, rewarding (to some), and full of life. To navigate it successfully, you need a guide. To write this guide, we are going to take a one year journey through the stock market jungle. If you are interesting in beating the…

Lessons for Investors and Entrepreneurs: The Nature of Value

It is always fun to read a book that is useful for investors and entrepreneurs/businesspeople. Nick Gogerty’s The Nature of Value covers a lot of ground—below I quote and highlight some of the most useful lessons and idea from the book. I also met Nick last week, and it helps that he is a very…