Archive for the ‘Finance’ Category

tips for personal investors

Monday, February 19th, 2018

It is best to ignore short-term fluctuations in financial markets. “Staggering amounts of time and intellectual energy,” writes Miles Johnson, Capital Markets Editor of the FT, “are expended by market watchers who treat the latest leg up or down in US Treasuries or stock markets as imbued with meaning, only to reverse their view the following week.”

Benjamin Graham (1894-1976), a British-born American economist and investor, would agree. A prudent investor should either buy-and-hold, when prices are steady, or purchase assets when the price is low, and sell when they are high. Most investors do the opposite. Graham’s seminal text on investing, The Intelligent Investor, was first published in 1949, and reprinted many times during and after his death. It is still relevant today, and continues to be ignored by most investors.

Ben Graham, the famed father of value investing, used the analogy of the market as a business partner so mentally unstable he would on some days offer to sell you his share for a rock bottom price, and on better days would ask for a stratospheric valuation. This character, Mr Graham noted, would be a fantastic person to do business with.

“Price fluctuations have only one significant meaning for the true investor,” he wrote. “They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market.”

Miles Johnson, “Beware the all-knowing macro forecasting genius“, Financial Times, 19 February 2018 (gated paywall).

 

Why is the US dollar falling?

Saturday, January 27th, 2018

No one knows. Last Thursday, the day before Trump’s scheduled arrival for the World Economic Forum’s annual meeting at Davos, Treasury Secretary Steven Mnuchin endorsed the dollar’s decline and said that its short term value was of no concern. (more…)

billionaire Ray Dalio on income inequality

Sunday, January 14th, 2018

Ray Dalio, founder of the investment firm Bridgewater Associates, last week had lunch courtesy of the Financial Times at the Jackson Hole burger bar in midtown Manhattan . In the Great Recession he “propelled his flagship fund, Pure Alpha, to gains of almost 10 per cent in 2008, at a time when most funds suffered searing losses”.

Surprisingly, the billionaire is not bullish on markets today, for political reasons. We know the world economy is in trouble when billionaires worry about unequal distribution of income and wealth. (more…)

speed trading in financial markets

Tuesday, January 2nd, 2018

High-frequency trading (HFT) by computer replaced trades on traditional exchange floors a decade ago, and the speed of trading is fast approaching the speed of light. The increased speed of transactions makes it difficult to make money trading equities and bonds. In addition, financial markets are increasingly vulnerable to flash crashes such as the one experienced in May of 2010.

The following timeline, from a Big Read column in the Financial Times, summarizes the accelerating pace of trading since a telegraph cable was first laid beneath the English Channel in 1851. (Much of the early history is left out, including a successful transatlantic cable, laid in 1866 between England and the USA.) (more…)

the Bitcoin bubble

Monday, December 11th, 2017

The Bitcoin bubble is rather unusual, because it is pure speculation. Prices go up today only because they are expected to go up tomorrow. An FT reader, in an online comment, expressed this very clearly:

Bitcoin is speculation pure and simple because everyone can deduce that it can have no long-term value since new cryptocurrencies can be produced infinitely and at better quality ….

 

Still, there can be no doubt that at least some bulls are playing in this market. The twin brothers Cameron and Tyler Winkelvoss, who run the digital currency platform Gemini Exchange, last Friday predicted that Bitcoin would rise by 10 to 20 times its current value. Did they say when this might happen, though? My source for this information is the Financial Times, which did not provide a date for their forecast.

For more information, see Philip Stafford and Gregory Meyer, “Prices soar as new bitcoin futures start trading“, FT.com, 11 December 2017 (gated paywall).

 

the bitcoin bubble

Thursday, December 7th, 2017

The value of Bitcoin cryptocurrency, worth US$1,000 at the beginning of the year, has soared to more than US$16,000. Would its crash hurt the global economy? Not in the opinion of the Financial Times. But there are other reasons to control bitcoin trade. Here are two paragraphs from an editorial in tomorrow’s newspaper. (more…)

longevity insurance (annuities)

Saturday, August 5th, 2017

Here is excellent advice from a British expert in personal finance. Longevity risk – the risk of outliving one’s savings – is underestimated or ignored by many.

[T]he most important type of risk that most people fail to buy insurance against is living too long — longevity risk. Many people are now shunning using at least some of their pension fund to buy a level or inflation protected guaranteed annuity, because they focus on the perceived poor value of annuities, compared with the rates on offer 10 years ago.

Jason Butler, “Insurance — a vital component of financial planning”, Financial Times, 3 August 2017 (gated paywall).

robots in finance

Monday, July 31st, 2017

They are already here, and are said to be more efficient than human traders!

JPMorgan will soon be using a first-of-its-kind robot to execute trades across its global equities algorithms business, after a European trial of the bank’s new artificial intelligence (AI) programme showed it was much more efficient than traditional methods of buying and selling. ….

The [job of the] AI — known internally as LOXM — … is to execute client orders with maximum speed at the best price, by using lessons it has learnt from billions of past trades — both real and simulated — to tackle problems such as how best to offload big equity stakes without moving market prices. ….

One possible evolution of LOXM is teaching the machine how to get to know individual clients, so that it could consider their behaviour and reaction as it decides how to trade.

Laura Noonan, “JPMorgan develops robot to execute trades“, Financial Times, 31 July 2017 (gated paywall).

Amazon battles Walmart

Saturday, June 10th, 2017

The competition is different than you might expect, folks. There is a strong focus on finance, in addition to ecommerce.

The dominant US ecommerce company [Amazon] has been dabbling in lending for nearly six years, and has made $3bn in loans to some of the small businesses that sell through its online platform.

Now Amazon is substantially expanding its offer of instant loans and considering whether to provide other bank-like services. ….

The Seattle-based juggernaut also this week stepped up its battle with the world’s largest retailer, Walmart. Targeting the lower income customers that have long been Walmart’s bread and butter, Amazon said it would offer substantial discounts on its Prime membership programme to US shoppers who are on public assistance. ….

Over the short term, both initiatives sound like great news for consumers and small businesses. Amazon’s move into banking has already created new borrowing opportunities for businesses that had struggled to get bank loans. And its offer to low-income customers will give them more equal access to the benefits of the digital economy.

Brooke Masters, “Amazon’s quiet domination merits greater scrutiny“, Financial Times, 10 June 2017 (gated paywall).

Walmart Financial Services provides credit cards and other bank-like services, including cash transfers to Mexico and other countries, in addition to transfers within the United States and Canada.

Shiller on housing bubbles

Friday, May 19th, 2017

Yale economist Robert Shiller worries that a housing bubble could form in the USA, creating conditions for another financial crisis. (more…)