31. August 2008 by stocktraderdude.

A great book filled with real insight about people that run money for a living, and marketplace dynamics, with a focus on international equity expansion. Regarding the Internet bubble, people were willing to believe that the Internet was the most important modern invention, above air travel, the phone, and computer processing power… even air-conditioning has a direct impact on the living and working lives of hundreds of millions of people. Hong Kong, New York, and other cities wouldn’t have the same kind of growth without the merits of air-conditioning. Tech failed because it was never authentically strong to begin with; it offered all the promises of “newness” and change without long-term substance. In my own analysis, what people missed was that the Internet is simply a delivery mechanism. A pipeline is not necessarily valuable; it’s what is transferred within the pipe that contains value. 

But getting back to the insight from the book: It took 15 years for stocks to regain their 1929 highs, and 21 years to outperform bonds. The Dow Jones Average was at the same level in 1982 as it had been in 1965 and had lost more than half its purchasing power. Returns depend a lot on when you invest. As for volatility, to suggest that stocks are no more volatile than bonds in the long run is simply not true. 

What I like about this is that it is a reminder that you cannot rely on a broad market index to produce great wealth for you. It comes down to finding a superior investment in a crowd of average offerings. Even stocks for the long run aren’t a great investment.

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31. August 2008 by stocktraderdude.

Have some money to gamble? Here’s how you can post huge gains in a bear market. I found this in the May 2008 issue of Men’s Health magazine. There were no huge gains discussed, and a photo takes up half the page because there isn’t much information:Angel investingLong-short fundsSocial lendingBear fundsYou cannot trust the editors to provide you with valuable insight; and in this case there isn’t any meaningful information – huge gains come from concentrating your focus, and your capital on one bet. You win big when there is a lot at stake on one bet, not sprinkling capital around among multiple bets with low impact. Squeezing cash from a down market implies that an investor should be looking for companies that are unprepared to compete well in the marketplace, earnings will be reduced, prospects for improvement dim, and the stock price will significantly fall. That’s where the money to be made is – finding companies that will sink. The other thing an investor could do is hedge downward bets by using net credit spreads.

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