As seen in this month’s issue of Master Investor Magazine. “With the strength of my entire cabinet, I will implement bold monetary policy, flexible fiscal policy and a growth strategy that encourages private investment, and with these three policy pillars, achieve results” ― Shinzo Abe, 2012 16th December, 2012 It was the night of December…
For the last few decades, much has been debated regarding the importance of psychology in the equity markets, more precisely in the formation of prices. As I have claimed many times before, not even with a grain of salt can one accept the idea of investors being rational and markets efficient. Many academic studies show…
The Risk-Reward World Investment is all about risk and return. Risk-averse investors want to maximise return for incurring a given level of risk or, put another way, minimise risk incurred for a given level of return. Everything gravitates around the risk-return trade-off, and professional investors and academics have devised ways of measuring this trade-off to…
At a time when the S&P 500 is celebrating a six-year rally, which has seen it clock up gains of more than 180% since its 2009 low, it is understandable that investors should start to ask when this bull run will run out of steam. While economic improvement has been substantial since the financial crisis,…
The Chinese saga is only getting started, as the country surprises the markets with ever more desperate measures. After spending almost $150 billion trying to contain a stock market collapse and declaring short selling as “malicious”, China is now devaluing its currency by the most in 20 years, as exports dropped 8.3% in July. While…
It may be an exaggeration to claim that the current pension deficits of UK companies are entirely the result of the monetary policy action followed by the BoE, but it is not that far from the truth. In March 2011 the total deficit on the books of FTSE 350 companies was £20 billion. One year…
In its first triple release, dubbed “Super Thursday” – a triple bill of data comprising the MPC monetary policy decision, the minutes from the decision and the inflation report – the Bank of England kept its main interest rate unchanged at 0.5pc. While the decision was widely expected, there are a few points that are…
Unlike what Eugene Fama and other efficient markets supporters seem to believe, investors are human, endowed with limited rationality and scarce resources. The human brain just can’t process all financial information that is available in the market at all times, because its capacity is limited. Investors must make investment decisions with incomplete information and there…
While everyone is concentrating in Greece and the actions taken by the US Federal Reserve, Emerging Markets are collapsing silently. The cracks in the developing economies are deeper than most realise and the risk of a 1997-like currency crisis may catch many by surprise in a not-so-distant future. Instead of achieving a strong financial position,…
Eugene Fama has spent his life collecting evidence and theorising markets’ rationality. He believes that even if there are some naive investors in the market, who just trade for the sake of it, there is at least one group of informed investors that will drive prices to fundamental values and eliminate any price distortions. Under…
