Business and Investment on Graeme's

Not just a CO2 shortage - the economy is broken

Thu, 12 Jul 2018 09:27:19 +0000

Shortages happen. A shortage of a gas that is vital to the manufacture of everything from beer to pain killers may look like just another unfortunate occurrence, but it is really a product of the way a “neo-liberal” economy works: globalisation and centralisation.

Taylor Swift on Apple Music - translated

Mon, 22 Jun 2015 05:41:21 +0000

As Taylor Swift seems to have difficult saying what she means, so I thought I would provide a plain English translation of what she has to say about Apple Music.

Smarterer - a broken recruitement tool

Wed, 14 Aug 2013 11:21:57 +0000

Having taken a number of Smarterer tests I find it scary that people use it as a recruitment tool. The tests are unreliable and meaningless. First, I will explain what is wrong about my scores — and I am complaining more about scores being to high than too low, so there is no personal grudge here. Then a few quick thoughts on the reasons.

The real purpose of DRM

Wed, 27 Mar 2013 13:45:25 +0000

Ian Hickson, maintainer of the HTML5 specification, argues that the real purpose of DRM is to give content providers leverage over device manufacturers. Although this is true for some applications of DRM, in many cases the purpose is to lock customers to particular devices and services, and to raise barriers to entry against new devices and services.

Takeover Panel claims copyright on regulatory information

Thu, 14 Mar 2013 05:50:42 +0000

The Takeover Panel (which regulated mergers and takeovers inn the UK) has sent me an email telling me that reproducing the list of takeover offers (i.e. a list of company names and dates) would be a breach of copyright, and that they would be unlikely to allow commercial reproduction except though “official news channels”.

Insider trading IS harmful, but legalise it anyway

Wed, 26 Sep 2012 08:38:46 +0000

The usual argument in favour of legalising insider trading is that it is not actually harmful (or even beneficial) to investors. I think that insider trading is extremely harmful and in-ethical, but it should be legalised anyway. My reasons are the difficulties in enforcing the law, and the probable effects on markets of legalisation.

The greater fool effect outside bubbles

Wed, 02 May 2012 09:09:17 +0000

The greater fool effect is well established as a key mechanism that allows bubbles to inflate to ludicrous valuations: investors who know prices are too high keep buying. Prices can stay too high in a similar way outside a bubble: not necessarily massively over-valued or in the context of a broader market bubble.

The unnoticed megatrend

Sun, 04 Mar 2012 10:20:41 +0000

Investors, and others who try to predict the future, are often fond of thinking in terms of megatrends. Changes in demographics, climate, technology and culture are often discussed. One that I believe to be the most significant of all is rarely mentioned, and I have never seen the implications discussed. It is also hard to accept, because it appears to be disproved by experience.

What is wrong with price/book value

Mon, 20 Feb 2012 09:20:28 +0000

As so often, Richard Beddard tweeted something interesting that I had to respond to.

The linked PDF argues that price to book value is the most useful valuation measure, more so that earnigs, for two reasons:

Nokia + MS: two failures do not make a success

Fri, 11 Feb 2011 11:34:25 +0000

There are two things that strike me about the alliance agreed between Nokia and Microsoft:

Combining Nokia’s failed smartphone strategy, with Microsoft’s failed smartphone operating system, is not a receipe for success.
Nokia will now have three smartphone platforms, possibly falling back to two. This continued fragmentation is hardly a great way to get the critical mass then need.

Risk and rationality, investment and life

Wed, 24 Nov 2010 12:09:33 +0000

Its fairly obvious that people are not, except for a few analytical souls, rational about risk: they worry obsessively about small risks and ignore ones that matter, and they are often no more rational about investing.

Volatility is the best risk measure

Mon, 04 Oct 2010 18:46:27 +0000

I have just rewritten the Moneyterms article on volatility to cover common criticisms of volatility as a risk measure. The key points are that volatility makes intuitive sense when considered properly, correctly corrects for increased upside, and that the critics are unable to come up with a better measure.

Great crash and credit crunch similarities.

Sun, 20 Dec 2009 10:59:29 +0000

I have been reading Galbraith’s The Great Crash of 1929 and a lot of similarities have struck me, not all of which seem to have been noticed by everyone.

Gold is not an investment

Sat, 19 Dec 2009 09:16:22 +0000

Richard Beddard has been annoying the gold bugs. This puts me in the unusual position of agreeing with him.

Google's "concession" to Murdoch

Wed, 02 Dec 2009 22:12:39 +0000

Everyone seems to be interpreting the changes made by Google News as a victory for Murdoch and others who are trying t extract payments from Google in return for making their content searchable through Google. I disagree, and think it is designed to make life more difficult for those putting up pay walls.

How to fix the banking system

Wed, 02 Dec 2009 19:42:47 +0000

This is a bit less ambitious than my plan to reform capitalism, but the principles are the same.

Too big to fail is too big to exist

Big banks create too much systemic risk, and are far too much of a strain on government finances when they need to be bailed out.

Peak Google?

Mon, 23 Nov 2009 11:34:25 +0000

Alan Patrick is sticking his neck out and calling the top on Google’s growth. I am not convinced, and there are specific points that I have comments on.

The market is just inefficient enough

Sat, 21 Nov 2009 05:48:31 +0000

Richard Beddard’s extensive comments on my last post on efficient markets deserve a full reply. He is correct that I did not make it clear that the paper says that a behavioural explanation of the abnormal returns is possible.

Evidence for market efficiency

Fri, 20 Nov 2009 08:30:03 +0000

A working paper that is nicely summarised on the Empirical Finance Research Blog shows how markets react to information rapidly, that they are not perfectly efficient, and how those setting the efficient market price are rewarded.

Time for growth investing

Wed, 18 Nov 2009 14:37:19 +0000

I am hardly the first person to recommend switching to growth investing. There has recently been crop of strategists arguing that we are at the point in the cycle where growth is likely to out-perform, as economic growth returns.

Value investing, efficient markets and CAPM

Thu, 12 Nov 2009 07:00:04 +0000

The value effect, does not cast doubt on the efficient market hypothesis (as Richard Beddard suggests), but on CAPM. Nonetheless, I still think investors should use CAPM, or something very like it.

Proof clever people diversify.

Mon, 09 Nov 2009 17:03:10 +0000

its true. Research shows that the higher people’s IQ:

Efficient markets, bamboozled journalists and stupid regulators

Mon, 09 Nov 2009 08:03:38 +0000

The media seems to have reached a consensus that the efficient markets hypothesis (EMH) has been discredited by the financial crises. I have been somewhat bemused by this, as I could not see the connection.

What's wrong with software patents

Sat, 22 Aug 2009 09:17:44 +0000

A quick summary of things that came up in a discussion that I was surprised was not evident to most people:

Alan Sugar fails to understand education

Mon, 11 Feb 2008 07:20:47 +0000

Alan Sugar has called for “enterprise lessons” in schools. While a capitalist economy may benefit from there being some people like Alan Sugar, I see absolutely no evidence that we need more of them.

Blog split

Sat, 26 Jan 2008 09:57:57 +0000

I have effectively split this blog into two. I will stop posting on investment and finance related topics here, and instead post on my new blog on my Moneyterms site.

Good ratio, bad ratio

Thu, 13 Dec 2007 14:47:36 +0000

I recently added a page on the naked PE to Money Terms. A post in response to this by Richard Beddard (thanks to whom I came across the ratio in the first place) lead me to a clearer description of why it is good — and why the PEG is bad.

Wisdom of crowds does not apply to stock picking

Sat, 03 Nov 2007 17:22:04 +0000

I have, over the last few weeks, read a few different articles about “social stock picking” which aims to apply the “wisdom of crowds” to stock picking. This is neither new, nor a good idea.

CAPM: wrong but useful

Mon, 15 Oct 2007 16:25:11 +0000

I previously wrote a defence of CAPM in reply to this post. Even given that the empirical empirical evidence shows that high beta portfolios do not generate higher returns, the beta is still useful for investors.

Forget index tracking

Fri, 05 Oct 2007 15:20:33 +0000

I have been leaning towards passive investment for sometime, but I had not seen any evidence or argument that helped decide whether tracker funds or buy and hold mechanical strategies were better. Thanks to the Behavioural Investing blog I found this illuminating paper.

CAPM is OK

Wed, 03 Oct 2007 19:23:06 +0000

Richard Beddard not only endorses a condemnation of CAPM, but he wants to know if I am reading. I say it is the worst valuation model, apart from all the others.

New on Money Terms

Sun, 30 Sep 2007 10:55:02 +0000

The latest additions to Money Terms are:

passive investing, which adds a more general discussion to subjects already coverd by other entries,
the closely related trio of crash, correction, and bull run,
an explanation of what embedded computers are.

A better PEG ratio

Tue, 18 Sep 2007 15:18:10 +0000

While making some improvements to the Moneyterms explanation of the PEG ratio, I started thinking about ways of addressing the weaknesses of this ratio. The main problem with it is its short term nature, which makes shares that have mere enjoyed spikes in their growth, look like bargains.

Northern Rock should have been allowed to fail

Fri, 14 Sep 2007 10:05:45 +0000

Willem Buiter is quite right to criticise the Bank of England’s bailout of Northern Rock. The message to bank directors and shareholders is quite clear: “take big risks, and if they go wrong the taxpayer will pay for your mistakes, if they work, you can keep the profit”.

New Moneyterms site

Thu, 13 Sep 2007 08:10:59 +0000

I have moved Moneyterms to new hosting and to the wonderful Modx platform. The time spent developing the new site was minimal, but I also replaced all the automatically generated “related page” links with manually chosen lists, which was a lot of very tedious work. It should improve site navigation.

I also removed the “Guides” section, as it was simply not good enough. It will reappear with rewritten material.

Now that is behind me I have started adding new entries again, starting with style index, discount rate, long term PE, market neutral and synthetic security.

Actively manage your pension

Thu, 13 Sep 2007 07:47:26 +0000

Most people are quite happy to allow a fund manager to look after their pension, even those who actively manage other investments. I suggest the opposite. There are very good reasons for concentrating on your pension.

More bull market?

Fri, 07 Sep 2007 08:48:33 +0000

FT Alphaville is skeptical of Morgan Stanley strategist Teun Draaisma’s bullish outlook. Looking at the arguments he makes in detail, I think he has a point, although I would be more worried about the downside.

Lifecycle investing: when to switch?

Wed, 08 Aug 2007 14:35:24 +0000

The comments on a recent post questioned whether life cycle investing is a good idea. I think the idea is sound, but I think it is important to point out that thinking purely in terms of terminal wealth at retirement over-simplifies things.

Choosing tracker funds

Thu, 02 Aug 2007 09:43:51 +0000

In a comment on my recent post on why investor’s should not try to out-perform, Robin Sole brought up the important issue of how to choose tracker funds, and the lack of a good totally passive approach to investment.

What to avoid: Large cap growth

Tue, 31 Jul 2007 10:27:04 +0000

Given the size effect and the value effect, it would appear that the worst investment style is large cap growth. I spent some time looking at returns on the French Fama research portfolios and both effects seem to hold, but with some interesting twists.

The end of academic publishing

Thu, 26 Jul 2007 07:20:17 +0000

It has been clear to many analysts (including myself) for years that publishers of academic journals were facing the slow death of their business. Despite the view of publishers and the more optimistic analysts that peer reviews journals were irreplaceable, the evidence continues to emerge for a slow, but certain, decline.

You, investor, are a sucker: part 2

Wed, 25 Jul 2007 17:46:42 +0000

Richard Beddard’s response to my previous post, is not the end of the argument, although I will go along with his approach and answer his questionnaire.

My view of what it takes to out-perform is not very different from Richard’s, but it is an arithmetical necessity that most investors will not out-perform. I am very skeptical of anyone who claims that they are in the minority who can reliably do so.

The City and the tax haven

Mon, 23 Jul 2007 09:11:00 +0000

Richard Murphy has a good definition of a tax haven, but I disagree with his idea that having a large financial services sector is an important characteristic, although I do agree with his view that the UK and Ireland are both tax havens.

Moneysupermarket IPO and web business valuation

Fri, 20 Jul 2007 13:15:10 +0000

Whenever there is a website IPO, those of us with profitable websites pay attention. While a small, privately owned website will need to be valued at a steep discount to a large, listed business, it is a useful indicator of value.

Web metrics are insane

Sat, 14 Jul 2007 11:55:30 +0000

To be precise, trying to find a single set of metrics to compare the audience of different types of websites it insane. That is why Nielson/Netrating’s decision to measure time spent on websites, rather than page views, does not really matter much. Those looking for a single measure across all websites are reducing a mistake of the dotcom boom.

Fixed rates will not make housing affordable

Tue, 10 Jul 2007 09:38:29 +0000

I find it hard to believe that encouraging long term fixed interest mortgages, as the government plans to, will really make housing more affordable. Here is why:

The end of the housing affordability argument?

Fri, 06 Jul 2007 07:04:09 +0000

The Council of mortgage lenders says that yesterday’s interest rate raise “will leave more households financially stretched”, with an especially marked impact on the two million people close to coming off fixed rates. Are we hearing the end of the argument that housing remains “affordable” thanks to low interest rates, despite the high ratio of prices to incomes?

You, investor, are a sucker

Thu, 05 Jul 2007 12:07:11 +0000

You think you can out-perform the market do you? Millions of people apparently think they can: anyone who invests actively is implicitly claiming just that. Unless you are one of a tiny handful of people who have proven they can do it consistently, I do not believe you. You are just wasting money funding the huge industry that sells suckers like you financial information and advice.

Insider trading

Mon, 02 Jul 2007 11:39:10 +0000

There is nothing surprising about this FSA study found strong evidence that about a fifth of results announcements and a third of takeovers were preceded by insider trading. My own experience, the scale of the opportunities, and the number and nature of the people involved all lead to the expectation that it happends.

Money terms update

Fri, 29 Jun 2007 09:21:20 +0000

I have done too much on Money Terms recently to list it all here, but a few high lights are worth mentioning. I learnt a lot writing the piece on the value effect: it needed a fair amount of research on the evidence for it. The same goes for the dumb money effect. This was less true for the size effect which I have been interested in for a while. Having looked at the evidence, I think now think the dumb money effect is the most interesting of these.