Author: shyam
The Fundamentals of Market Tops
- The Investor Base Becomes Momentum-Driven
- Valuation-sensitive investors accumulate cash
- The quality of IPOs declines
- There is a high degree of visible and/or hidden leverage
- Elements of accounting seem compromised
The Fundamentals of Market Tops
Three Steps to Effective Decision Making
- Understand causality
- Improve forecast – inside vs. outside view
- Sorting relevance – integrate new information
How do you increase luck?
- Monitor the environment for new uses for your existing resources
- Experiment with resources at hand
- Ask for more than you can reasonably expect
- Network to increase serendipitous connections
The ghettoization of China’s new towns
The idea:
Consolidate the villages into one new town that would take up less than one square mile, versus the three square miles that the dozen villages had occupied. A portion of the remaining 59 square miles could be sold to developers to pay for construction costs, meaning the new buildings would cost farmers and the government nothing. The rest of the land would stay agricultural, but worked by a few remaining farmers using modern methods.
Reality:
The villagers ended up with less than the space they were living in previously and they found themselves unqualified for the jobs around where they lived. Shoddy construction means that the apartments are barely habitable. One term that residents repeatedly use is “biesi” — “stifled to death” in the new towers.
The markets got crushed this week. The Nifty ended -2.64% (-3.92% in USD terms).
Index Performance
The biggest losers were banks but pharma was spared most of the pain.
Top winners and losers
| ADANIENT | +6.43% |
| SAIL | +6.87% |
| TECHM | +9.77% |
| SRTRANSFIN | -12.84% |
| UBL | -12.39% |
| BANKBARODA | -10.46% |
Tech Mahindra rallied on better than expected results and outlook…
ETFs
| INFRABEES | +0.47% |
| GOLDBEES | -0.35% |
| JUNIORBEES | -1.68% |
| NIFTYBEES | -2.58% |
| PSUBNKBEES | -5.57% |
| BANKBEES | -6.12% |
Bank ETFs continued to see red. Shouldn’t an improving economic outlook help banks manage their bad loans? I’ll chalk this one up to profit-taking…
Advancers and Decliners
Yield Curve
Long-bonds would have got shellacked this week…
Interbank rates
… however, interbank lending rates (MIBOR) continued to stabilize.
Sector Performance
Titan, a big component of the “Gems Jewellery and Watches” sector got trounced when the RBI refused to hike the FII investment limit in the company…
Investment Theme Performance
| Quality to Price | +7.14% |
| Balance-sheet Strength | +2.27% |
| Magic Formula Investing | +1.33% |
| Financial Strength Value | +0.75% |
| Growth with Moat | +0.50% |
| Market Elephants | -0.40% |
| Efficient Growth | -0.63% |
| Momentum 200 | -1.06% |
| Enterprise Yield | -1.55% |
| ADAG Mania | -2.21% |
| Market Fliers | -4.22% |
Our Quantitative Value Investment Theme continued to beat out other model portfolios…
Thought for the Weekend
Scott McNealy — a co-founder of Sun Microsystems:
It’s important to make good decisions. But I spend much less time and energy worrying about “making the right decision” and much more time and energy ensuring that any decision I make turns out right.
Merely selecting the “best” option doesn’t guarantee that things will turn out well in the long run, just as making a sub-optimal choice doesn’t doom us to failure or unhappiness. It’s what happens next (and in the days, months, and years that follow) that ultimately determines whether a given decision was “right.”
Did an investment theme catch your fancy? Do you want to keep track of what the creator of the theme is doing? Now you can! Just click on the “Follow” button and drag the theme into your portfolio.
Your one-click to portfolio-management nirvana.
If recent research (pdf) has to be believed, then the problem with conventional economics is that it tries to model how individuals choose from a range of options. But how do they know what these options are? Many feasible options might not even occur to them. Customers who don’t know of alternative products get ripped off; potential rivals who don’t know the technology or market don’t enter the industry, etc.
The worst part is that we know not that we know not. Decision makers are often unaware that they are choosing in ignorance.
The paper makes some interesting hypothesis:
- Ignorance often goes unrecognized
- Even when we worry, plan, and prepare for the future while explicitly recognizing our ignorance, Consequential Amazing Development, CADs, will occur
Investors tend to make significant errors because much of their training prepares them only for the world of risk and uncertainty, with probabilities that can be estimated. But real life involves a series of amazements, not just contemplated events. Also, most of these are singular occurrences, making it difficult to learn from past mistakes.
Worth a read.