Great articles on value investing, from the best of Aleph Blog
These articles appeared between May 2012 and July 2012:
Most formulas for distributing income from an endowment or a a savings/investment fund are too liberal. If you want the purchasing power to last, distribute less.
How do correlations come into existence with risky assets. This piece explains.
An exploration of Eddy Elfenbein’s simple stock valuation model.
When any firm becomes the dominant provider of a good or service, it should ask whether it has mispriced. A veiled critique of JPM’s whale trade in the credit markets.
Manufacturing is overrated. We’ve got enough things, now we need services to make our lives richer.
When leverage is high, little things failing can lead to large and bad results.
Labor is not scarce, so profit margins are high. Will that last forever? No, but it might be a while.
A pair of pieces suggesting that the markets could be better off if we held auctions once a second, or once a minute.
Dynamic hedging only has the potential of working on deep markets.
Arbitrage pricing can reveal proper prices in smaller less liquid markets if there are larger, more liquid markets to compare against. The process cannot work in reverse, except by accident
When politicians don’t have answers, they blame speculators, financiers (Wall Street), or foreigners. They do anything to take the spotlight off their culpability or ineptitude.
Very basic advice that tells you that the best returns come from taking moderate risk.
Another bogus theory of asset allocation that works today, because markets favor it, and not enough people are using it.
On the value of long-term investors holding stocks that you hold.
If there are a lot of links in a chain of reasoning, it is likely to be wrong.
I suggest a number of reforms that would be more effective than reinstating Glass-Steagall.
On the hypocrisy of the SEC and the banking regulators
The answer is probably, but not certainly. Really, it is a mess.
Explains why I like the life reinsurance oligopoly
The most robust strategy for interest rates; always second-best, and never the worst.
In most scandals, not enough attention is paid to those who should have been questioning the situation and did not. There were parties angling for higher LIBOR and lower LIBOR. Anytime you borrow or lend using an index, you assent to the method of the index. What, you didn’t analyze it?
The government has almost no control over prosperity, and yet it tries to take credit for it, and ends up ruining prosperity through deficits and loose monetary policy.
The main idea in investing is finding investments that will compound your money at an above average rate, with a margin of safety.
The beginning of my eight-part series on mortgage bonds. I did it well for three years.
A tale of my younger investing days, when I would mail companies for data.
Why occasional earnings misses are desirable.
All good investment decision-making is forward looking. Whether you are buying or selling, it doesn’t matter where prices have been in the past.
This piece generated a lot of heat, but I still stand behind it. The concentrated interest of a profit motive is a good thing, and all of the government services do not affect what you have done at all. The entrepreneur is a hero, whether in business, government, or elsewhere.
By David Merkel, CFA of Aleph Blog