Few investors are good at swing trading — meaning, they're not good at predicting short-term swings in the market.
Recently, BusinessInsider observed that more often than not, investors find themselves buying high and selling low. And when the market starts selling off sharply, investors will panic, sell their own shares, and sit on the sidelines.
For instance, if an investor stayed fully invested in the S&P 500 from 1993 to 2013, they would've had a 9.2% annualized return.
However, if trading resulted in them missing just the ten best days during that same period, then those annualized returns would collapse to 5.4%.
In this trading methodology, missing 'big win' days does so much damage because those missed gains aren't able to compound during the rest of the investment holding period.
The Economist's Big Mac index seeks to make exchange-rate theory more digestible. They say, tongue-in-cheek, that it is arguably the world's most accurate financial indicator to be based on a fast-food item.
The Big Mac index is based on the theory of purchasing-power parity (PPP), according to which exchange rates should adjust to equalize the price of a basket of goods and services around the world. For them, the basket is a burger … a McDonald’s Big Mac.
According to this measure, the most undervalued currency is India's Rupee at about 67% below its PPP rate. In India, a McDonald’s Big Mac costs just 95 Rupees on average, the equivalent of $1.54 at market exchange rates. In America, the same burger averages $4.62.
The interactive graphic, below, shows by how much, in Big Mac PPP terms, selected currencies were over- or undervalued.
The index is supposed to give a guide to the direction in which currencies should, in theory, head in the long run. It is only a rough guide, because its price reflects non-tradable elements such as rent and labor. For that reason, it is probably least rough when comparing countries at roughly the same stage of development. The Economist has added an adjustment option to account for this in the interactive version of the data.
Why should you care? Well, his fund posted a record profit, last year, of $19.5 billion. It owns meaningful parts of American Express, Goldman Sachs, Wells Fargo, IBM, Exxon, Phillips 66, Walmart, Coca Cola … and the list goes on.
Buffett's annual letter is always an interesting read … even if you don’t agree with everything he says. There is a reason he is called “the Oracle of Omaha.”
Here are a few of the ideas that I noted.
Own Low-Cost S&P 500 Index Funds:
Mr. Buffett advocates going long "the economic future of the United States."
That sentiment was nothing new for him: "We’ve been making similar wagers ever since Buffett Partnership Ltd. acquired control of Berkshire in 1965. For good reason, too. Charlie and I have always considered a 'bet' on ever-rising U.S. prosperity to be very close to a sure thing."
Historically, Mr. Buffett has cautioned against trying to pick winning stocks. Instead “own a cross section of businesses that, in aggregate, are bound to do well.” A low-cost S&P 500 index fund helps any investor do this well.
Mr. Buffett has emphasized this point throughout his investing career.
“In the 20th century, the Dow Jones industrial average advanced from 66 to 11,497, paying a rising stream of dividends to boot. The 21st century will witness further gains, almost certain to be substantial.”
Mr. Buffett writes that when he passes away, he has left instructions for his trustee to invest the cash designated for his wife in two ways — 10% in short-term government bonds and 90% in a very low-cost S&P index fund. He suggests Vanguard’s index fund.
“I believe the trust’s long-term results from this policy will be superior to those attained by most investors who employ high-fee managers.”
Swing Both Ways When It Comes To Investing:
Buffett said Berkshire likes to buy businesses outright, but also will invest large sums in stock or partial ownership of a company, to increase its profit opportunities.
"Woody Allen stated the general idea when he said: 'The advantage of being bisexual is that it doubles your chances for a date on Saturday night.' Similarly, our appetite for either operating businesses or passive investments doubles our chances of finding sensible uses for our endless gusher of cash."
A Hint Towards the Future:
Three things struck me here.
First, in describing the large purchase and financing of ketchup maker (H.J. Heinz), Mr. Buffett called it a 'template' that Berkshire Hathaway could use in future acquisitions.
Second, near the end of this year's letter, Mr. Buffett notes that most Americans don’t understand the math behind pensions … and cautions about the 'accelerating' dangers of local and state financial problems. Pensions, he says, have become a "gigantic financial tapeworm" because "public entities promised pensions they couldn’t afford." Mr. Buffett predicts: "During the next decade, you will read a lot of news — bad news– about public pension plans."
Third, he said: "Next year’s letter will review our 50 years at Berkshire and speculate a bit about the next 50." Interesting …
Mr. Buffett has often said: "At Berkshire, our time horizon is forever." That perspective makes it a lot easier for the game not to end until you've won.
It reminds me of a lesson from an earlier Annual Letter:
Nothing stopped so many innovators and entrepreneurs more than the fear of failure. If you allow yourself to be constantly scared into thinking that the world is doomed you will never take that risk which might result in great reward. And perhaps worse, if you never fail you will never learn to get up, brush yourself off, move on and succeed in the future. This does not mean you should wander through this world with great complacency and blind optimism, but if you deny yourself the ability to maximize your full potential, you will always come up short.
Two Other Things:
Quicken Loans announced on Tuesday a $1 billion prize paid out over 40 years—insured by Warren Buffett's Berkshire Hathaway—to anyone who pulls off the ultimate forecasting feat in sports: predicting every tournament game's winner.The winner also gets investment advice from Mr. Buffett. (WSJ)
Buffett bulleted five fundamentals of investing (BusinessInsider)
Are the Olympics over yet? No? Here are some worthwile momements, in case you missed them.
For example, here, a woman tried to snap a picture of the hockey game between Russia and Slovenia — but instead she got an eyeful. Call it a new form of 'Selfie'.
When Facebook bought Instagram for $1B, I remember thinking that seemed like a lot of money. Well, this deal is like Facebook buying 19 Instagrams … That's lots of lots of money!
So, why does Facebook think WhatsApp is worth $19 Billion dollars?
The answer is surprisingly easy to understand.
When Facebook announced its acquisition of WhatsApp last week, it revealed some interesting statistics about WhatsApp's user base and overall usage. They are eye-popping.
According to Facebook's presentation slides, WhatsApp's 450 million monthly active users send 19 billion messages per day … and receive 34 billion (the seeming discrepancy is caused by WhatsApp's group chat feature, where one message can be sent to several receivers).
This chart shows how much an average user uses WhatsApp per month.
WhatsApp's growth and usage numbers are absolutely mind-boggling. As noted, it has 450 million monthly users … but 70 percent of them (310 million) use the service daily.
More impressively, Facebook claimed that the number of messages being sent through the company’s service is “approaching the entire global telecom SMS volume” (according to telecom market researcher Informa, this was about 19.5 billion last year).
And for a 'cherry-on-top', Whatsapp continues to bring in over a million new users each day. That’s the kind of growth that Facebook can’t ignore if it wants to remain a leader in social networking and communication, and the company knows it.
In other words, WhatsApp has both offensive and defensive value to Facebook.
One last thought on the subject … word on the street is that Whatsapp only had 55 employees. It is a testament to what cloud-scale is making possible.
These side-by-side pictures of me were taken almost exactly one year apart (the skinnier one was taken last week).
While I'm proud of the progress, there's still more work to do.
The result didn't come from Photoshop or fasting; it came from a consistent application of focus and activity.
On a day-to-day basis, my weight went up or down (seemingly randomly). Nonetheless, over time, burning more calories than I ate, measuring results, and adjusting the plan — led to meaningful progress on many levels.
Change can happen in an instant … Yet, it's often easier to see over time.
The goal, itself, can act as a compass heading – pointing in the right direction. The best next step is often simply being willing to take the best next step.
Entropy and inertia are always there if you stop along the way.
It's easy to get distracted by the practical realities and minor urgencies of life. This can pull you off track.
Likewise, while it seems like human nature to focus on how far you still have to go in order to reach your goal … this can be de-motivating. A better strategy is to recognize the progress you've made towards the ultimate goal, and use it as fuel towards more progress (or something better).
Samuel Johnson said, "If your determination is fixed, I do not counsel you to despair. Few things are impossible to diligence and skill. Great works are performed not by strength, but perseverance."
Given enough resources, you can do anything you commit to do. Some of those resources include money and time; but I believe that focus and energy are important as well.
As long as you continue to make progress, and don't give-up, possibility turns into probability … and probability turns into realized successes.
Here is a comilation of views from global experts. They consider things like whether the U.S. will still be the one of the top global economies in 25 years … and who else will share that stage?
As the Olympics unfold in Sochi, countries continue to compete in the global economy. This chart, by the Economist, shows how ‘thin’ the Emerging markets really are. For example, the market cap of Google equals the market cap of all 379 Brazilian stocks.
Here are some of the posts that caught my eye. Hope you find something interesting.
