The Rise of Math and Machines
Top 5 of the Week of May 29
Heading up our Top 5 this week, The Reformed Broker Joshua Brown reveals how Neil Gaiman’s plot for American Gods is playing out in the stock market. Charles Lieberman, writing for Bloomberg View, explains why we should trust hard data more. And Chas Boinske of Independence Advisors reveals the ‘perfect’ conditions for fishing and investing.
The Macro Tourist Kevin Muir recounts a trading lesson fable from Norway. And Intelligent Investor Jason Zweig reflects on author Dr. Richard Bookstaber’s findings on digitized streams of market information from his book, The End of Theory…
Pay Tribute on the Altar of the New Gods
- As faith in the Old Gods—carried to America by its inhabitants—wanes, so too are the pillars of the stock market—built on American Exceptionalism—flagging against the rise of New Gods
- The stocks sitting at record 52-week highs in today’s market are all fueled by our transferred faith and ‘belief’ in technology, data, systems, and innovation
- And our “objects of worship”? The phones we check 2,600 times a day, the television which holds our attention, and the Internet which answers all our questions
Are you still invested in the Old Gods of the stock market or is your portfolio only made up of the New Gods? Share your comments in the section below
Focus on the Right Data
- The contradictions in hard U.S. economic data and survey-based soft data are leaving investors confused as to why we’ve seen three Fed hikes this year
- Soft data—though it looks stronger on the surface—is only a qualitative measure of how people feel, whereas hard data provides a quantitative measure of how people truly behave
- Hard data indicates that hiring in the labor market is firm, labor costs are escalating slowly, and labor is scarce, hence the Fed normalizing interest rates
When to Fish and When Not To…
- Fishing and investing are similar in that many people are on the lookout for the ideal weather situation before casting out a line
- As fishermen and investors, we’ll pay a higher price for shares and accept modest returns in good weather conditions but prefer to wait out storm clouds and low priced shares on the river bank
- Waiting it out though is counterproductive to less volatile long-term returns, instead rebalance your portfolio and get dressed to fish/invest in all weather conditions
The Moral of the Story…Think about the Next Trade
- In the mid-1960s—so the story goes—Norway’s economy survived on agriculture, timber, and fishing until Ocean Viking struck oil in the North Sea
- When the market saw Norway was a major oil producer, traders chased headline news for companies at the next oil find to become wealthy
- One wise investor was a step ahead and realized all this new money would end up in luxury goods, so he bought up the best pieces on the art market and all those nouveau riche had to come to him for a look in—smart move
The Rise of Math and Machines
- The increasing use of mathematics and machines to digitize stock market information are diminishing investors’ use of their own powers of reasoning
- According to Bookstaber, when you measure markets, you change them, and, importantly, they are also made up of human beings not just digitized streams of information
- Quantitative models alone are not a reliable reflection of human behavior and unpredictability in markets—match computer analysis and modeling with your own judgment for best results
Top 5 of the Week is a summarized collection of financial investment articles that we like and think you might like too. Having written thousands of pages of equity strategy and company research between us, we understand the allure of the ever-changing world of finance. Investing is an art form—and like everything, something you can work on and improve at. There are some excellent writers out there on the finance web, some offer a running commentary on today’s market, some are doing research, some have tips on how to Become a Better Investor, and some just lift the cloud of fog behind a lot of financial jargon. Each week we will keep you up to date with the top 5 articles worthy of your attention.
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