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The Aleph Blog wrote a new blog post titled The Crisis Lending Fund
Photo Credit: Barron’s===================Last week, there was an article in Barron’s describing how many mutual fund families take advantage of a provision in the law allowing them to have funds lend to one another.  Quoting from the article:Under normal circumstances the Securities and Exchange Commission bars funds from making “affiliated transactions,” but there’s a loophole in the Investment Company Act of 1940 for funds to apply for an exemption to make such “interfund loans.” Until recently, few fund families applied for this exemption. None had before 1990. From 2006 to...
3 days ago
The Aleph Blog wrote a new blog post titled Short-Term Rational, but Intermediate-Term Irrational
Don’t look at the left side of the chart on an empty stomach==================This will be a short post.  At present the expected 10-year rate of total return on the S&P 500 is around 4.05%/year.  We’re at the 94th percentile now.  The ovals on the graph above are 68% and 95% confidence intervals on what the actual return might be.  Truly, they should be two vertical lines, but this makes it easier to see.  One standard deviation is roughly equal to two percent.But, at the left hand side of the graph, things get decidedly non-normal.  After the model gets to 2.5% projected...
28 days ago
The Aleph Blog wrote a new blog post titled The Little Market that Could
Picture Credit: Roadsidepictures from The Little Engine That Could By Watty Piper, Illustrated By George & Doris Hauman | That said, for every one that COULD, at least two COULDN’T======================================So what do you think of the market?  Why are both actual and implied volatility so low?  Why are the moves so small, but predominantly up?  Is this the closest impression of the Chinese Water Torture that a stock market can pull off?Why doesn’t the market care about external and internal risks?  Doesn’t it know that we have divisive, seemingly incompetent...
32 days ago
The Aleph Blog wrote a new blog post titled “Bank” Some of Your Gains
Photo Credit: Scoobyfoo=======================Recently I read Jonathan Clements’ piece Enough Already.  The basic idea was to encourage older investors who have made gains in the risk assets, typically stocks, though it would apply to high yield bonds and other non-guaranteed investments that are highly correlated with stocks.  His pithy way of phrasing it is:If I have already won the game, why would I keep playing?His inspiration for the piece stems from a another piece by William Bernstein [at the WSJ] How to Tell if Your Retirement Nest Egg Is Big Enough.  He asked a question like...
35 days ago
The Aleph Blog wrote a new blog post titled The Many Virtues of Simplicity
Photo Credit: Christopher || Maintaining a marriage is simple… if you do it right…==============There are at least eight reasons why taking a simple approach to investing is a wise thing to do.UnderstandableExplainableReduced “Too smart for you own good risk”Clearer risk managementLess tradingTaxes are likely easierNot TrendyCheapUnderstandableYou have to understand your investments, even if it’s just at the highest overview level.  If you don’t have that level of understanding, then at some point you will be tempted to change your investments during a...
44 days ago
The Aleph Blog wrote a new blog post titled Book Review: The Best Investment Writing, Volume 1
I was pleasantly surprised to be invited to contribute a chapter to this book.  I am going to encourage you to buy this book, but let me give some of the reasons not to buy this book:Don’t buy it to give me something.  I don’t get anything from sales of this book.  Neither does Mebane Faber, who is giving all of the profits to charity.Don’t buy it to read my article.  You can read it for free here.  Better, you can read the updated version of the article, which I publish quarterly, here.  (Those reading this at Amazon, there are links at my blog.  Google “Alephblog The...
47 days ago
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...
60 days 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...
61 days ago
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...
61 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...
74 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...
76 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...
76 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....
103 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...
105 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’...
107 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...
117 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...
118 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...
118 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...
121 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...
132 days ago