Soothsayers Disguised as Sages

I’m sorry to inform investors out there – the stock market doesn’t happily bounce back to historical averages on a regular basis.

I hear a lot of “academic” sounding arguments that predict the direction of the market based on its “valuation metrics” – also called its “multiple.” It sounds so learned and so well founded. After all, aren’t we talking about the “fundamentals” – earnings vs. price, the non-emotional way to invest.

Too bad none of this ...

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Irrational Investor Thoughts Hit Me….and I Recover

My mammalian brain is not immune to the foibles of bad financial thinking.

But thankfully I have the experience to catch myself making thinking errors, which happened today over a restaurant stock.

My kids love Buffalo Wild Wings. My wife despises it. I love to take the kids there when she isn’t around.

It always seems to be packed. I am sure they have fat operating margins. You see new branches popping up all over the place.

I was ...

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The Government Guaranteed Asset Counter

Walking down 6th Avenue yesterday in New York, I ran into that “National Debt Counter” we have seen so many times in the news.

As I walked by I noticed that it breaks down the national debt into a per-person amount, which was $148,763.

The per-person statistic particularly caught my attention. Why? One person’s debt is another person’s asset. What if you were told that, on average, there are $148,763 per US citizen of government guaranteed assets ...

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Will The Dollar Remain the World’s Reserve Currency?

No it won’t. And I lose exactly zero sleep over this.

I want to make something clear. It is absolutely, unarguably inevitable that the dollar will lose its status as the world’s reserve currency….someday.

This is not a condemnation of US policy or a prognostication of doom. It is just inevitable. Nothing lasts forever. Not even our planet.

When the US dollar will lose its dominant status is much more debatable. Is it going to happen six months from ...

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The Dow, IBM, and Benchmarking

The Dow Jones Industrial Average (DJIA) is a bizarrely calculated index . If most people understood how it was calculated, they wouldn’t follow it anymore.

Yesterday happened to be one of those days when the Dow was down (-0.01%) but the S&P 500 was up (+0.67%). This was primarily due to two stocks in the Dow, IBM and Goldman Sachs, which were down a lot, -6.37% for IBM and -2.42% for Goldman Sachs.

Why would the drop ...

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Krugman & Fama – Sometimes Krugman is the Troll

Paul Krugman recently wrote a short post “Don’t Feed the Trolls,” in which he explains why he doesn’t continually respond to Niall Ferguson’s attacks. Basically Krugman says that continually responding to the attacks is a waste of time and serves to feed the other side.

Good point. Actually it is a great point. With all the mud slinging that goes on in the blogosphere, you really have to pick and ...

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Grandfathers of the Efficient Market Hypothesis

“Eugene Fama is widely considered the father of the efficient market hypothesis.” 

….If I had a nickle for every time I’ve had to read this line in the last 24 hours….I might have $1.20 by now.

Yesterday it was announced that Fama would be awarded the Nobel Prize in economics. Virtually every media outlet has described him as “The father of the efficient market hypothesis.”

I want ...

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