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The Aleph Blog wrote a new blog post titled On the Migration of Stock
Photo Credit: ashokboghaniThis should be a brief article.  I remember back in 1999 to early 2000 how P&C insurance stocks, and other boring slower-growth industries were falling in price despite growing net worth, and reasonable earnings.  I was working for The St. Paul at the time (a Property & Casualty Insurer), and for an investment actuary like me, who grew up in the life insurance business it was interesting to see the different philosophy of the industry.  Shorter-duration products make competition more obvious, making downturns uglier.The market in 1999-2000 got narrow.  Few...
8 hours ago
The Aleph Blog wrote a new blog post titled On a Letter from an Old Friend
Photo Credit: jessica wilson {jek in the box}David:It’s been a while since we last corresponded.  I hope you and your family are well.Quick investment question. Given the sharp run-up in equities and stretched valuations, how are you positioning your portfolio?This in a market that seemingly doesn’t go down, where the risk of being cautious is missing out on big gains.In my portfolio, I’m carrying extra cash and moving fairly aggressively into gold. Also, on the fixed income side, I’ve been selling HY [DM: High Yield, aka “Junk”] bonds, shortening duration,...
yesterday
The Aleph Blog wrote a new blog post titled Since 1950, the S&P 500 in 2017 Ranks First, Fourth, Tenth or Twenty-third?
Credit: Roadsidepictures from The Little Engine That Could By Watty Piper Illustrated By George & Doris Hauman c. 1954=========================================I wish I could have found a picture of Woodstock with a sign that said “We’re #1!”  Snoopy trails behind carrying a football, grinning and thinking “In this corner of the backyard.”That’s how I feel regarding all of the attention that has been paid to the S&P being up every month in 2017, and every month for the last 14 months.  These have never happened before.There’s a first time for...
14 days ago
The Aleph Blog wrote a new blog post titled On Finding a Job in Finance
Photo Credit: Chris-Håvard BergeI was approached by a younger friend for advice.  This is my response to his questions below:Thank you for agreeing to do this for me. I would love to have an actual conversation with you but unfortunately, I think that between all of the classes, exams, and group project meetings I have this week it would prove to be too much of a hassle for both of us to try to set up a time.1. What professional and soft skills do you need to be successful in this career and why? 2. What advice would you give to someone considering working in this field? 3. What are some...
29 days ago
The Aleph Blog wrote a new blog post titled Favorite Aleph Blog Post of 2017?
As you might recall, I was invited to participate in The Best Investment Writing, Volume 1. Well, volume 2 is being discussed. This time, I thought I would let my readers offer their opinion on the matter. So, let me know, you can take this poll — oh, and can vote for as many as you like.Thanks,David Note: There is a poll embedded within this post, please visit the site to participate in this post's poll.
39 days ago
The Aleph Blog wrote a new blog post titled Classic: Wrecking Ball Looms for Big Housing Spec
Photo Credit: Rhys A.====================I thought this old post from RealMoney.com was lost, never to be found again.  This was the important post made on November 22, 2006 that forecast some of the troubles in the subprime residential mortgage backed securities market.  I favored the idea that there there would be a crash in residential housing prices, and the best way to play it would be to pick up the pieces after the crash, because of the difficulties of being able to be right on the timing of shorting could be problematic.  In that trade, too early would mean wrong if you had to lose...
39 days ago
The Aleph Blog wrote a new blog post titled Estimating Future Stock Returns, September 2017 Update
Another quarter goes by, the market rises further, and the the 10-year forward return falls again.  Here are the last eight values: 6.10%, 6.74%, 6.30%, 6.01%, 5.02%, 4.79%, and 4.30%, 3.99%.  At the end of September 2017, the figure would have been 4.49%, but the rally since the end of the quarter shaves future returns down to 3.99%.At the end of June the figure was 4.58%.  Subtract 29 basis points for the total return, and add back 12 basis points for mean reversion, and that would leave us at 4.41%.  The result for September month-end was 4.49%, so the re-estimation of the model added 8...
40 days ago
The Aleph Blog wrote a new blog post titled Notes from an Unwelcome Future, Part 1
Photo Credit: Tim Harding==============================================================Dear Readers, this is another one of my occasional experiments, so please be measured in your comments.  The following was written as a ten-year retrospective article in 2042.==============================================================It was indeed an ugly surprise to many when the payments from Social Security in February 2032 did not come.  Indeed, the phones in Congress rang off the hook, and the scroll rate on incoming emails broke all records.  But as with most things in DC in the 21st century, there...
50 days ago
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...
60 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...
85 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...
89 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...
92 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...
101 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...
104 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...
117 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...
118 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...
119 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...
131 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...
133 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...
134 days ago