CFA Institute Enterprising Investor

This is great and I lean on it heavily when explaining technical stuff to a non-technical audience or low level stuff to an executive audience. This looks like a decent dive into this tactic sometimes called “headline style”: https://blogs.cfainstitute.org/investor/2017/05/03/conscious-communica…

With all these ruthless profit-maximizing firms on Wall Street, it's nice that Silicon Valley VCs have given up on maximizing profits since the early 2000s [0]. Gives them more opportunities to focus on making the world a better place. [0] https://blogs.cfainstitute.org/investor/2020/02/17/venture-capital-wor…

There is a great bit of anecdotal advice for situations like this: "When your hairdresser starts discussing it, it is time to get out..." https://blogs.cfainstitute.org/investor/2014/02/10/top-anecdotal-signs…

I fully agree Buffett is a one of a kind investor who's outperformed. I would love to have owned BRK shares, and still think you can't really go wrong owning them. That said, his performance v. S&P 500, a simple index, hasn't persisted. Basically, Buffett lost his advantages and even started making public bets that index funds would outperform actively managed funds. > I did the math and starting from 1965 to 2002, a period of 38 years, the compounded annual return of the S&P 500 was 10.02% while that of Berkshire was 25.66%. But—and here's the kicker—from 2003 to 2022, a period of 20 years, the S&P 500 delivered a 9.80% compounded annual return while Berkshire came in lower at 9.75%. [0] He's gotten fined for insider dealing by the SEC. And I figure that a lot of his "alpha" came in the earlier days of the markets when there was less regulation. FWIW, here's an interesting article on Buffett's alpha. [1] > Previous researchers analyzing Buffett’s returns using conventional size, value, and momentum factors haven’t been able to adequately explain his outperformance, the authors say, leaving admirers to conclude that Buffett’s magic is pure alpha. So they extend the analysis by testing Buffett’s impressive returns — as measured by Berkshire’s stock — against two factors that better reflect his folksy investing wisdom: One called “Betting Against Beta,” which represents safe, low-beta stocks, and another called “Quality Minus Junk,” which represents the stocks of…

> I think there were a lot of problems, but most of them boil down to "heavy-handed government intervention in the markets". The Fed was very hands off in the early 1930s: > […] At the onset of the Great Depression in 1929–1930, the Fed maintained a “hands-off” approach, believing the economy simply needed to “wring out its excesses.” This is somewhat ironic in that Fed policy itself greatly contributed to the financial excesses of the 1920s. Nevertheless, the Fed failed to recognize the nature of the economy. > When the Great Depression hit in 1929, the Fed’s instinct was to do little and let the economy and markets correct. But the Fed seemed to have no sense of how big the credit bubble from the 1920s was. Consequently, from 1929–1933, the Fed remained committed to a tight monetary policy. Under the gold standard then in force, when the gold balances held by the government contracted, the money supply did so as well. Faced with the increasing economic turmoil, US businesses and the public at large trusted gold more than paper currency. Overseas investors, fearing a potential devaluation of the dollar, preferred gold too. This created a gold drain. As the Fed’s gold stocks declined, the United States unwittingly reduced credit in the economy. Over the 1929–1933 period, the US money supply contracted sharply, declining by roughly one third between 1929 and 1933, and the country experienced its worst ever downturn, with unemployment soaring to roughly 25%. *…

Funnily enough I've been involved in this argument a number of times on this forum. Front Running is not illegal, order flow can be purchased, and even institutional investors are unable to buy portions of millions of stock in one go. You can theoretically front-run part of that order if your algorithms analysing orders think that a big order is following current ones. People will argue front running is illegal because the first few results on google have misconstrued the idea with insider trading but if you dive into some financial books you'll find as a concept it's legal, but there are illegal ways of doing it. edit: found the article quoted last time I discussed this. https://blogs.cfainstitute.org/investor/2013/04/24/what-to-do-about-hi… Larry Harris, Professor of Finance as USC;LA says "A few high-frequency traders front-run buy-side traders who are working orders, thereby making the latter’s trades more expensive. Such activities are legal if the high-frequency traders do not improperly obtain information about the orders they front-run."

This article is an amazing amount of rubbish and choses to cherry pick what the author wants it to be while neglecting everything to the contrary. Example from the wikipage mentiioned: "In 2007 Spitznagel founded the firm Universa Investments L.P. with Taleb as an adviser using black swan portfolio hedging strategies similar to Empirica's." So, Taleb (Tooleb?) is still in business and why would Spitznagel work with him if Taleb was useless. After all, Spitznagel made very good money in 2008 as well as in 2015 and early 2016. In terms of Taleb's academic credentials: since Daniel Kahneman as well as Benoit Mandelbrot were not only happy to meet Taleb but Mandelbrot jointly published an FT article with Taleb http://www.ft.com/cms/s/2/5372968a-ba82-11da-980d-0000779e2340.html while Kahneman joined him for this discussion https://blogs.cfainstitute.org/investor/2013/02/06/nassim-taleb-and-da… It can be assumed neither of the two qualify in your view either and you woould dismiss this as proof that Taleb is well established in academia. These examples are only scratching the surface and can easily be googled by anyone who want to write a proper article. Don't quite know why I waste my time to reply to this one but I though BS sometimes has to be called out when it is so obvious.

Do you enjoy gambling? As in, do you enjoy games of pure chance where you could lose your money? If not, don't invest in stocks. No one beats the market. Put your extra money into index funds with low fees if you want something safe. If you want something riskier with better upside (where skill is actually involved), try something like urban real estate. Obviously you still have to know what you're doing, but there are opportunities for people with enough to buy places in cash. In short: do not do this. Further reading: http://cashcowcouple.com/investing/stock-picking-always-losing-game/ Key passage: > Professionals Can’t Pick Winners > The New York Times article, “The Prescient are Few” (1) offers a great look at the study (2) by Professors Laurent Barras, Olivier Scaillet and Russell Wermers about the performance of 2,076 professional mutual fund managers over a 32-year time period. > The result are what I’d expect. They found that from 1975 to 2006, 99.4% of these managers displayed no evidence of genuine stock picking skill, and the 0.6% of managers who did outperform the index were “statistically indistinguishable from zero.” > Professor Wermers goes on, “This doesn’t mean that no mutual funds have beaten the market in recent years. Some have done so repeatedly over periods as short as a year or two. But the number of funds that have beaten the market over their entire histories is so small that the False Discovery Rate test can’t eliminate the possibility that…

Fees should be calculated relative to returns, not assets. From the great Charles D. Ellis, CFA: "When stated as a percentage of assets, average fees do look low — a little over 1% of assets for individuals and a little less than one-half of 1% for institutional investors. But the investors already own those assets, so investment management fees should really be based on what investors are getting in the returns that managers produce. Calculated correctly, as a percentage of returns, fees no longer look low. Do the math. If returns average, say, 8% a year, then those same fees are not 1% or one-half of 1%. They are much higher — typically over 12% for individuals and 6% for institutions... Thus (correctly) stated, management fees for active management are remarkably high. Incremental fees are somewhere between 50% of incremental returns and, because a majority of active managers fall short of their chosen benchmarks, infinity." https://blogs.cfainstitute.org/investor/2012/06/28/investment-manageme…

Whistleblowing is an amazingly foolish activity for the whistleblower. It might help society, but the consequences tend to destroy the whistleblower. I saw what it did to a close family member who blew the whistle on activities that caused the death of at least one patient. Retaliation against Whistle-Blowers: No Good Deed Goes Unpunished http://blogs.cfainstitute.org/investor/2012/10/24/whistle-blowing-no-g… " the results of a 2011 National Business Ethics Survey titled “Retaliation: When Whistleblowers Become Victims.” The report contains some shocking statistics: 45% of US workers observed wrongdoing; 65% of those who witnessed wrongdoing reported it; 22% of those who reported wrongdoing said they experienced retaliation (an increase of 46% from 2009); and 46% of those who observed wrongdoing but chose not to report it, cited fear of retaliation as the reason." The professional consequences of whistleblowing by nurses http://www.ncbi.nlm.nih.gov/pubmed/11125963 "Abstract When nurses encounter misconduct in the workplace, their ethical codes of conduct bind them to the role of patient advocacy and compel them to safeguard the patient from harm. However, reporting misconduct can be personally and professionally risky. The aim of the research was to examine the professional consequences of whistleblowing and nonwhistleblowing in nursing. A descriptive survey design was used to examine the professional effect of reporting misconduct (whistleblowing)…

I thought the same initially but this may just be a case of recency bias. Small caps have underperformed large cap stocks for the last ~12 years but these things tend to go in cycles: https://blogs.cfainstitute.org/investor/2025/04/24/small-caps-vs-large… It will be interesting to see how the next cycle plays out with the recent concentration of returns in large cap tech stocks (Magnificent 7).

The too big to fail financial market is already in a pathological state, it's too small, not enough competition, etc. Yes, just brushing things under the carpet is bad, but whatever restructuring would have happened in that chaos would not have been an improvement. It's unfortunately very much politics. For example see how the FASB tried to eliminate HTM accounting, but had to back down (and that chair resigned). Yet! If the market already doesn't give enough shit to check the stuff in parentheses in a report for a 200B bank, then I suspect it's more of a theater than we like to admit. https://blogs.cfainstitute.org/marketintegrity/2023/03/13/the-svb-coll…

> Bankers keep the upside, but shareholders have to carry the can. While I'm not against throwing corrupt bank execs in jail, shareholders could also take their job seriously and only send people to the board of directors that actually hold the company officials accountable. Unfortunately, an increasingly large amount of stocks is held by "neutral" investors (=passive ETFs) or neutral-ish investors (pension funds, insurances and the uber wealthy's private wealth management), which creates a lot of leverage for "activist investors" that push for short-term beneficial actions even if these end up damaging to the company long term, such as going for questionably legal operations. [1] https://blogs.cfainstitute.org/investor/2022/01/21/myth-busting-etfs-a…

Look up the "Canadian Model". Canadian Pensions like OTPP are run more like private equity funds and they compensate their employees the same way in order to compete in terms of talent in order to generate deal-flow and deal identification. Traditionally, this has meant above market returns and is one of the reasons that Canadian pensions are generally well funded. This highlights the difference: https://blogs.cfainstitute.org/investor/2016/05/17/lessons-from-the-ca…

Good point. Related- stocks are traditionally considered a good inflation hedge. Even this article partially debunking that idea shows positive real returns in all inflation regimes, and suggests that inflation up to 5% doesn't hurt stock real returns. Long term inflation over 5% has happened and could happen again, but it would be very surprising to most economists. https://blogs.cfainstitute.org/investor/2021/07/19/myth-busting-equiti…

> For a given level of money velocity, what other factors cause inflation - other than money printing? Many economists consider that view a myth by the way: https://blogs.cfainstitute.org/investor/2021/04/19/myth-busting-money-…

It’s not that simple: https://blogs.cfainstitute.org/investor/2021/04/19/myth-busting-money-…

False. Housing is not an elastic "free" market. Houses are not fungible goods like bolts or eggs. https://blogs.cfainstitute.org/investor/2017/03/27/where-markets-fail-…

Its not just VC backed companies with this problem, but with publicly traded "investment grade" ones as well[0]… [0] https://blogs.cfainstitute.org/investor/2019/10/23/anne-walsh-cfa-warn…

Not all front-running is illegal, see this article which discusses a few examples, including quote matching and order anticipation: https://blogs.cfainstitute.org/investor/2013/04/24/what-to-do-about-hi… Front-running is very common in bond trading.

Probably not wrong: I've started seeing crypto investment posts from friends who are musicians, teachers, and baristas. https://blogs.cfainstitute.org/investor/2014/02/10/top-anecdotal-signs…

I can't vouch for this source, but here's a claim that alpha is real: https://blogs.cfainstitute.org/investor/2016/07/26/is-active-managemen…

Aha, I had skimmed past the fund of fund parts. In CFA Institute's estimate, the difference in fees only made up about half of the underperformance at the end of 2014, especially considering that 2008 was an easy win for hedge funds: https://blogs.cfainstitute.org/investor/2015/02/12/betting-with-buffet… Note that at the end of 2015, eight years had elapsed, not ten.

Active management is an overpriced, tough to beat affair, but if enough people invest passively, active management will regain the upper hand. Indexers herd, they reduce liquidity, they push up prices of stocks in the index, they increase volatility, initially smaller/less liquid stocks have prices pushed around irrationally, then bigger stocks. It starts to pay to do private equity, buy out cheap stocks, IPO them, get them back into the index universe, and sell them back to the indexers. Indexing is not a silver bullet, it's one strategy in a Nash-like equilibrium. Too much active investing, passive can match them at a lower cost and win...too much passive investing, mispricing arises and active investors can exploit passive investors. https://blogs.cfainstitute.org/investor/2016/02/02/active-investing-re…

There is currently a dark pool using a similar method: "The London Stock Exchange’s Turquoise Midpoint Dark Pool has a service known as Uncross, which matches orders at the midpoint of the bid and offer with auctions held randomly every 5 to 10 seconds." https://blogs.cfainstitute.org/marketintegrity/2014/11/10/are-frequent…

You may be interested to read the other guy's take on that bet. One of the more interesting reads on the business of running a hedge fund I've seen. http://blogs.cfainstitute.org/investor/2015/02/12/betting-with-buffett… (Disclosure: I work at CFAI)

> We play Monopoly. Suddenly the bank gives everyone 40% more money. What happens to the prices for owned properties and houses? Nothing if it just sits around, which is what is generally happening in the real world: * https://fred.stlouisfed.org/series/M2V Please stop with the Monetarism: there is no empirical evidence for it, no matter how 'intuitive' you think it is. > But also – why do so many people insist that inflation is an increase in the money supply? This makes zero sense. Here’s why – our economy is mostly a credit based economy. So, if I take out a loan for $100,000 then the money supply has technically increased by $100,000. But what if I don’t actually tap that loan? What if I borrow the money because, for instance, house prices just went up 25% and I want to have some cash around for emergencies? This doesn’t tell us anything about prices, living standards or really anything. But this is what so much of the money supply represents – money that has been issued and is just sitting around unused. Why is this useful? It’s like calculating your weight changes by counting how much food you have in your refrigerator. No. That’s potential calories consumed and potential weight gain. The amount of food in your fridge tells you little about your future weight changes just like the amount of money in the economy tells us little about the actual price changes in the economy. > Sometimes I feel like people read some econ 101 and the admittedly intuitive idea that…

== The Intangible Valuation Renaissance: Five Methods [0] == 3 methods for valuing intangible assets [1]: 1. Under the excess earnings method, valuators forecast the after-tax cash flow that the asset is expected to generate. This method can be the most complex (and costly), but is also usually the most accurate. 2. Under the relief from royalty method, valuators forecast the revenue that the asset is expected to generate, then apply a comparable industry royalty rate and subtract taxes. 3. Under the cost method, valuators determine the cost to develop the asset (i.e. labour and materials), plus a reasonable return on that investment. This method is often used for early-stage companies where forecasts are difficult to prepare or in instances where information doesn’t exist to use the first two methods. == Financial Valuation: Applications and Models [2] "Coverage includes state-of-the-art methods for the valuation of closely-held businesses, nonpublic entities, intangible, and other assets, with comprehensive discussion on valuation theory, a consensus view on application, and the tools to make it happen." [0] https://blogs.cfainstitute.org/investor/2019/01/11/a-renaissance-in-in… [1] https://www.bdc.ca/en/articles-tools/change-ownership/sell-business/ho… [2] https://www.wiley.com/en-us/Financial+Valuation%3A+Applications+and+Mo…

> Doesn’t seem really like a liability in the normal sense Banks borrow from depositors and lend to borrowers. Deposits are a liability in that if the bank can't pay them back, the bank's assets are seized the firm put under conservatorship (or even liquidated, e.g. Lehman Brothers). Note that eliminating fractional-reserve banking, i.e. switching to a full-money system [1] per the Chicago Plan [2] is not a free lunch. It shifts a lot of power from de-centralised actors to the state. That, in turn, makes central-bank independence even more important [3]. (Note that implementing the Chicago Plan would maintain double-entry bookkeeping, and so the persistent Internet meme about us being in a debt-denominated economy.) [1] https://blogs.cfainstitute.org/investor/2016/01/27/is-this-the-end-of-… [2] http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf [3] https://people.ucsc.edu/~walshc/MyPapers/cbi_newpalgrave.pdf

Many people would disagree with you. Groupon has been shifty with their earnings and filings each time till now (e.g. http://blogs.cfainstitute.org/investor/2011/11/22/history-repeating-it… and currently being investigated for it (http://ansonalex.com/infographics/groupon-sec-fililing-and-investigati… There have been various statements by former/current employees about inflating prices (http://articles.businessinsider.com/2011-10-17/tech/30288824_1_sales-r… and others that find negative Yelp effect from Groupon (http://mybiasedcoin.blogspot.com/2012/03/groupon-effect-on-yelp-rating… and businesses almost shut down as a result (http://www.globalpost.com/dispatches/globalpost-blogs/weird-wide-web/g…