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The Aleph Blog wrote a new blog post titled Estimating Future Stock Returns, June 2017 Update
I’d say this is getting boring, but it’s pretty fascinating watching the rally run.  Now, this is the seventh time I have done this quarterly analysis.  The first one was for December 2015.  Over that time period, the expected annualized 10-year return went like this, quarter by quarter: 6.10%, 6.74%, 6.30%, 6.01%, 5.02%, 4.79%, and 4.30%.  At the end of June 2017, the figure would have been 4.58%, but the rally since the end of the quarter shaves future returns down to 4.30%.We are now in the 93rd percentile of valuations.Wow.This era will ultimately be remembered as a hot time...
3 hours ago
The Aleph Blog wrote a new blog post titled How to Invest Carefully for Mom
Photo Credit: stewit========Just a note before I begin. My piece called “Where Money Goes to Die” was an abnormal piece for me, and it received abnormal attention.  The responses came in many languages aside from English, including Spanish, Turkish and Russian.  It was interesting to note the level of distortion of my positions among those writing articles.  That was less true of writing responses here.My main point is this: if something either has no value or can’t be valued, it can’t be an investment.  Speculations that have strong upward price momentum, like penny...
yesterday
The Aleph Blog wrote a new blog post titled Redacted Version of the September 2017 FOMC Statement
July 2017September 2017CommentsInformation received since the Federal Open Market Committee met in June indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year.Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year.No change.  Feels like GDP is slowing, though.Job gains have been solid, on average, since the beginning of the year, and the unemployment rate has declined.Job...
2 days ago
The Aleph Blog wrote a new blog post titled Book Review: University of Berkshire Hathaway
I feel like the skunk at the party here. I have no argument with the authors, per se. They came up with their concept and executed it adequately. No one else that I know of has done a book of their notes from Berkshire Hathaway annual meetings, in this case extending over 30 years.But the bar for writing Buffett books is low, because they sell so well.  Many marginal concepts get written about that aren’t as good as simply reading the writings of Buffett and Munger themselves.  This is true of this volume in two ways. 1) It is notes, not a transcript.  Notes aren’t as good; if I...
14 days ago
The Aleph Blog wrote a new blog post titled Book Review: Big Money Thinks Small
Joel Tillinghast, one of the best mutual fund managers, runs the money in Fidelity’s Low-Priced Stock Fund.  It has one of the best long-term records among stock funds over the 28 years that he has managed it.The author gives you a recipe for how to pick good stocks, but he doesn’t give you a machine that produces them.  In a style that is clever and discursive, he summarizes his main ideas at the beginning and end of the book, and explains the ideas in the middle of the book.  The ideas are simple, but learning to apply them will take a lifetime.Here are the five ideas as written...
16 days ago
The Aleph Blog wrote a new blog post titled Where Money Goes to Die
Photo Credit: eFile989==============It is often a wise thing to look around and see where people are doing that is nuts.  Often it is obvious in advance.  In the past, the two most obvious were the dot-com bubble and the housing bubble.  Today, we have two unrelated pockets of nuttiness, neither of which is as big: cryptocurrencies and shorting volatility.I have often said that that lure of free money brings out the worst economic behavior in people.  That goes double when people see others who they deem less competent than themselves seemingly making lots of money when they are...
17 days ago
The Aleph Blog wrote a new blog post titled The Crisis at the Tipping Point
Photo Credit: Fabio Tinelli Roncalli || Alas, there were so many signs that the avalanche was coming…==================Ten years ago, things were mostly quiet.  The crisis was staring us in the face, with a little more than a year before the effects of growing leverage and sloppy credit underwriting would hit in full.  But when there is a boom, almost no one wants to spoil the party.  Yes a few bears and financial writers may do so, but they get ignored by the broader media, the politicians, the regulators, the bulls, etc.It’s not as if there weren’t some hints before this....
44 days ago
The Aleph Blog wrote a new blog post titled The Best of the Aleph Blog, Part 33
Photo Credit: Renaud CamusIn my view, these were my best posts written between February 2015 and April 2015:One Dozen Reasons Why the Average Person Underperforms In Investing, Part 1One Dozen Reasons Why the Average Person Underperforms In Investing, Part 2Most of this boils down to chasing past performance, neglecting fundamentals, and neglecting basic risk control.Learning from the Past, Part 4Learning from the Past, Part 5a [Institutional Bond Version]In this series, I disclose my WORST investing mistakes ever.  Personal errors: cellular auctions, mistiming small cap value, and small deal...
45 days ago
The Aleph Blog wrote a new blog post titled Why is the Stock Market So High?
Photo Credit: Carl Wycoff || It is a long way to the end of retirement.  People are getting ready for it.  Are you?==========================Assuming that you could throw stones on the financial internet, it would be hard to toss a stone and miss articles talking about how high the stock market is.  One good article from last week was Why Do U.S. Stocks Keep Hitting Records? Here Are Five Theories from the Wall Street Journal.  Here were the five theories:Stocks Reflect the Resurgent Health of American CorporationsThe Global Outlook Is Looking BrighterThe U.S. Economy Is in a ‘Goldilocks’...
47 days ago
The Aleph Blog wrote a new blog post titled Redacted Version of the July 2017 FOMC Statement
Photo Credit: Leo Newball, Jr. || I visited that building when I was 24.===========June 2017July 2017CommentsInformation received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year.Information received since the Federal Open Market Committee met in June indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year.No change.  Feels like GDP is slowing, though.Job gains have moderated but have...
58 days ago
The Aleph Blog wrote a new blog post titled The Best of the Aleph Blog, Part 32
Picture Credit: Rocío Garcia Montes==============================In my view, these were my best posts written between November 2014 and January 2015:Stay CalmPolitical changes rarely create the policy/legal changes that people fear or hope for, so relax.Problems in Simulating Investment ReturnsThere are seven problem areas in investment return modeling that are rarely dealt with, and certainly never as a group.  That’s why I would encourage you to be at least least slightly skeptical of any simulation analysis that you might receive.  This goes 10x for the schmendricks that propound...
59 days ago
The Aleph Blog wrote a new blog post titled The Best of the Aleph Blog, Part 36
Photo Credit: Renaud CamusIn my view, these were my best posts written between November 2015 and January 2016:Don’t be a Miser in Retirement (Or Ever)“There is a fine line between over-saving and under-living.”Another way to phrase it: God isn’t a miser; you shouldn’t be either.On Lump Sum DistributionsManaging a lump sum distribution for income is one of the hardest things to do in investing.Easy In, Hard Out (III)Continuing the series on the troubles the Fed will have shrinking its balance sheet.Understand Your LiabilitiesYour investment decisions should be driven by when you will need to...
59 days ago
The Aleph Blog wrote a new blog post titled Overvaluation is NOT Due to Passive Investing
Photo Credit: Hagens_world || I want to buy 1% of all of the items there in one nice neat package! ============There’s been a lot of words thrown around lately saying that indexing has been leading to overvaluation of the US stock market.  I’m here to tell you that is wrong.  I have two reasons for that:1) Active managers have been pseudo-indexing for a long time.  The moment they get benchmarked to an index they do one of two things:a) accept it, gain funds for mandates that are like the index, and then they constrain their investing so that they are never too different from the...
62 days ago
The Aleph Blog wrote a new blog post titled Perceived Versus Real Risk Tolerance
Picture Credit: Denise Krebs || What RFK said is not applicable to investing.  Safety First!  Don’t lose money!=======Investment entities, both people and institutions, often say one thing and mean another with respect to risk.  They can keep a straight face with respect to minor market gyrations.  But major market changes leading to the possible or actual questioning of whether they will have enough money to meet stated goals is what really matters to them.There are six factors that go into any true risk analysis (I will handle them in order):Net Wealth Relative to...
72 days ago
The Aleph Blog wrote a new blog post titled The Best of the Aleph Blog, Part 31
Picture Credit: Sharon Pazner========================During this era, I started contributing articles via tumblr to Yahoo Finance.  That also meant that every article would start with a picture, graph, or photo.In my view, these were my best posts written between August and October 2014:The Investments Matter More than their FormHedge funds and mutual funds are shells — what goes into them matters more than the form itself.On GenworthDown 70%+ since then.  In general, complexity is not rewarded in investments, and particularly insurance companies.  It also helps if you choose lines of...
84 days ago
The Aleph Blog wrote a new blog post titled The Doubling Rule, Redux
This is a small update of my last piece.  I wish that I had put this graph in that piece, because it completes it.Over the interest rate range of 0% to 30%, the average absolute deviations from perfect doubling using the Rule of 72 was 2.794%.  Given the simplicity of the Rule of 72, that is wonderful.But the “Rule of K” is virtually exact.  The average absolute deviations from perfect doubling using the Rule of K was 0.036%.Is this great?  Well, with modern computers, exactitude is easy to come by.  But if you are in a pinch to figure out the time to double, and all you have is a...
88 days ago
The Aleph Blog wrote a new blog post titled The Doubling Rule
Picture Credit: Vincent Brown || Einstein never said this, either…=======================If you are famous and dead, many people will attribute clever sayings to you that you never said.  As Yogi Berra said: I really didn’t say everything I said.Except that Yogi did say that.  Now, if Einstein didn’t do enough for us, he supposedly made many statements praising compound interest, but the articles I have seen haven’t been able to trace it back to an original source.  Personally, I think compound interest is overrated, because business processes can’t forever compound...
93 days ago
The Aleph Blog wrote a new blog post titled Redacted Version of the June 2017 FOMC Statement
Photo Credit: Craig Hatfield May 2017June 2017CommentsInformation received since the Federal Open Market Committee met in March indicates that the labor market has continued to strengthen even as growth in economic activity slowed.Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year.Shades GDP upJob gains were solid, on average, in recent months, and the unemployment rate declined.Job gains have moderated but have been solid, on average,...
100 days ago
The Aleph Blog wrote a new blog post titled Why Social Security Should not be Invested in the Stock Market
Photo Credit: Cameron Daigle======================================Stocks always return more than Treasury Bonds.  So why doesn’t Social Security invest the trust funds in stocks rather than Treasury bonds?The first reason is simple.  The government wanted Social Security to be free from accusations of favoritism.  Why should public businesses have access to government capital, when private capital doesn’t have that same advantage?  The second reason is also simple: do we want the government to be an owner of a large percentage of the businesses of the country?  Do you want the...
101 days ago
The Aleph Blog wrote a new blog post titled Estimating Future Stock Returns, March 2017 Update
26 paths, and all of them wrong========================I lost this post once already, hopefully it will be better-written this time.  I’ve been playing around with the stock market prediction model in order to give some idea of how the actual results could vary from the forecasts.Look at the graph above.  it shows potential price returns that vary from -1.51%/year to 4.84%/year, with a most likely value of 2.79%, placing the S&P 500 at 3200 in March 2027.  Add onto this a 2% dividend yield to get the total returns.The 26 paths above come from the 26 times in the past that the model...
103 days ago