In a complex and inter-related financial world, when so much information is flying across wires, fibre optic cables and satellite channels on a daily basis, the need to rely on heuristics – simple rules that govern your responses to the majority of everyday situations – is becoming ever greater. It is just as well then that research across a range of social sciences continues to provide regular confirmation of how powerful and effective such simple rules can be.
Author: Jonathan Davis
Author, columnist and investment professional.
The Brashness and Bravado in Big Deals
In 2006, BAE Systems, formerly and better known as British Aerospace, sold its stake in Airbus for a disappointing price. Airbus, a civil aviation consortium established by several European governments, is now Boeing’s only competitor in the market for large commercial jets. BAE told the world it had decided to leave this market, with a view to focusing on its core defence business.
The Many Illusionists of the Investment World
“Thinking, fast and slow” by the Nobel prize-winning psychologist Daniel Kahneman continues to ride high in the business book bestseller lists. I dare say therefore that copies have found their way into the hands of managers of investment firms. But how many of them, I wonder, have reflected on the implications for the businesses in which they are involved – and how many, alternatively, have quietly binned the book as too disturbing to risk leaving lying around the office?
Profit Amidst The Ruins
The place to look for investment bargains, said the fund manager Sir John Templeton, is not where the news is good, but where it is really bad. Today that means looking for advantage amid the volatility and extreme valuations which the crisis in the embattled eurozone has brought in its wake. The strikes and riots that are spreading across southern Europe are exactly the kind of scary scenario in which investors with ice-cold blood in their veins, as one admirer once described Templeton, have historically been able to profit.
Trend to Overcharge and Overtrade Persists
The damning money-weighted rates of return analysis carried out by Simon Lack in his book The Hedge Fund Mirage has prompted a useful debate about the true returns recorded by hedge funds. Industry lobbyists have not had much luck in undermining his critique, which is hardly surprising as the data, interpreted correctly, is essentially unanswerable (the conclusions you draw from the data is another matter).
Sorting Fact From Fiction On Bank’s QE
Like John Ralfe, the pensions consultant well known to these pages, I was sufficiently struck by the Bank of England’s claims about the impact of quantitative easing to take a deeper look at their calculations, and in particular at their estimates of how the first two rounds of QE have affected the performance of the stock market. Given the attention that is currently been given to the next moves by the Federal Reserve and the issue of whether the European Central Bank is going to join in the QE business more wholeheartedly than it has done in the past, the subject could hardly be more topical.
Jonathan Davis 