Morgan is out with a fantastic investing piece titled ‘The Unsolvable Puzzle‘.
This part really captures what gets me so excited about do-it-yourself investing:
Think about the investment factors that have changed in just the last 20 years.
Private equity assets have gone from $600 billion to more than $5 trillion. The number of public companies has halved. Index funds have attracted effectively all public equity asset flows. Annual reports went from being sent in the mail to being scanned for keywords by supercomputers. The cost of storing industrial amounts of data went from millions of dollars on rack servers to thousands of dollars in the cloud. Social media connects what used to be walled off. Stocks went from being traded by humans to high-frequency traders, and now the HFTs have competed themselves down to zero profits. The Federal Funds rate averaged 6.5% from 1960 to 2000. Now it’s been below 1% for 105 of the last 188 months.
Looks what’s changed just this year: ICOs have raised more money for startups than venture capital funds. SoftBank launched a fund that is larger than all U.S. IPO proceeds raised from 2010-2012. I’ve heard rumors that things are unusual in Washington.
Buying stocks for less than hard book value worked, until it didn’t. A dividend yield below Treasury yields was a sign of an overvalued stock, until it wasn’t. Discounted cash flow models were an edge, until a spreadsheet could make one. Convertible bond arbitrage was profitable, until other investors realized just how profitable. This doesn’t happen in a field like physics. Gravity doesn’t get arbitraged away due to popularity.
This mobile, social and global era has shrunk boom, bust cycles.
The booms from technology (for active trend investors like me at least) have drowned out the noise from the bear markets in industries left behind.
The bubble/crash that was supposed to take place in technology industries like the consumer internet just eased us into a new phase of the boom in crypto/digital assets.
The telecom boom was followed by the bust.
The financial leverage boom was followed by a bust.
Where is the bust the textbooks and talking heads promised us?
This ‘inconceivable rally’ (I have written about it since 2010) has spread to global markets.
The stock market remains one of America’s greatest freedoms and now the ICO markets – hatched from the advent of crypto assets – have expanded this freedom.
The investing puzzle just took on a new dimension so do not drive yourself mad looking for ‘the’ perfect strategy.
Once again from Morgan’s post:
The investing industry is filled with brilliant people and terrible results. The reason is that the field has less to do with the kind of knowledge that makes a good physicist, and more to do with the rare intellectual flexibility and nimbleness that makes a good flu vaccine researcher.
Leo Szilard once said: “If you want to succeed in the world, you don’t have to be much cleverer than other people. You just have to be one day earlier.”