Very nice
material: good section on quants, Buffet’s alpha analyzed, book reviews. I will post yet another Weekender-post, with Finnish article links and my views later today.
Earlier on
MoreLiver’s:
25.8. Weekender: Weekly Support (still updating)
PORTFOLIO
Goldman Explains "Where To Invest
Now" – ZH
72 slides.
We apply this valuation metric across over
thirty foreign markets and find it both practical and useful, and indeed
witness even greater examples of bubbles and busts abroad than in the United
States. We then create a trading system
to build global stock portfolios based on valuation, and find significant
outperformance by selecting markets based on relative and absolute valuation.
The Trend is Our Friend: Risk Parity, Momentum
and Trend Following in Global Asset Allocation - SSRN
Momentum and trend following have often been
used interchangeably although the former is a relative concept and the latter
absolute. By combining the two we find that one can achieve the higher return
levels associated with momentum portfolios but with much reduced volatility and
drawdowns due to trend following.
Strategic Briefing: Analyzing Asset Classes – The
Capital Spectator
How to Identify High Quality Stocks (Part 3a of
4) – Turnkey
Analyst
TRADING
Speculating in Life and Markets – Mortality
Sucks
Troubled trading means a troubled life; a
troubled life means troubled trading. They are both a reflection of you.
Working on Exit Skills – Adam
Grimes
How can you be attached to a trade you
generated through a flip of a coin or a roll of a die? Exactly, you cannot, so
now you can focus all of your attention on trade management and learning to
respond to the message of the market as patterns unfold.
Birds, Bees and Decoy Effects – The
Psy-Fi Blog
If there's one message I hope to get across
here it's that we're our own worst enemy when it comes to making decisions if
we're anywhere in the vicinity of money.
If there's a second one it's that if we don't damage ourselves with our
behavioral biases then someone else will try and do it for us. Nowhere is this more evident than with the
fiendishly devilish decoy effect.
HEDGE FUNDS
A cruel end to summer for hedge funds as
they’re forced to “open their kimonos” – qfinance
Tracking Top Funds Activity: Q2 2012 – Pension
Pulse
A Look at 9 Quotes from George Soros – Ivanhoff
Capital
GS: Only 11% Of Hedge Funds Are Outperforming
The S&P In 2012
– ZH
Buffett’s Alpha – Yale
(pdf)
Berkshire Hathaway has a higher Sharpe ratio than any stock or mutual fund with a
history of more than 30 years and Berkshire has a significant alpha to traditional risk factors. However, we find
that the alpha become statistically insignificant when controlling for
exposures to Betting-Against-Beta and quality factors. We estimate that Berkshire’s average leverage is about
1.6-to-1 and that it relies on unusually low-cost and stable sources of
financing. Berkshire’s returns can thus largely be explained by the use of
leverage combined with a focus on cheap, safe, quality stocks. We find that Berkshire’s portfolio of publicly-traded
stocks outperform private companies, suggesting that Buffett’s returns are more due to stock
selection than to a direct effect on management.
(For more
on this, see also mebanefaber)
REGULATION & CRIME
Secret Libor Committee Clings to Anonymity
After Rigging Scandal
– BB
Examining the Ponzi Scheme Through the Mind of
the Con Artist – DealBook
/ NYT
S&P Has A Perfectly Good Explanation For
Rating Deals “Structured By Cows,” Which A Lucky Federal Jury Will Get To Hear – Dealbreaker
Knight Capital's Rogue Algorithm a Wake-Up Call
to the Buy Side – Advanced Trading
A head trader at a firm with more than $200
billion under management tells Advanced Trading that the buy side generally
puts a lot of blind faith in the tools provided by their brokers, almost to the
point of complacency.
Banking secrecy: Billion-euro whistleblower – El
País / presseurop
Hervé Falciani is the 40-year-old computer
technician who provided several European governments access to files listing
the names of the thousands of their citizens evading taxes via bank accounts at
HSBC's Swiss affiliate. Arrested in Barcelona in late July, he is
awaiting extradition to Switzerland.
OMG, Tax Evasion In Switzerland! By The Swiss! But At Least It’s “Officially Silenced To Death” – Testosterone
Pit
Five Myths about Glass-Steagall – The
American
ECONOMICS
What Caused the Crisis? – The Aleph Blog
I have wanted to write this article for some
time, but decided to sit on it in order to consider the matter more closely.
What caused the financial crisis of 2008?
The Year of Jubilee – The
View from the Blue Ridge
Over the years, Dalio has provided us with a
working template of “How the Economic Machine Works” – a description far
different than what most of us have been taught and unlike the descriptions
offered by conventional economists.
Why do we need to pay billions of pounds for
big projects? – John
Kay
Perhaps technological advance has reduced
rather than increased productivity, by offering enhancements that do not
represent value for money.
Public recapitalisations and bank risk:
evidence from loan spreads and leverage – BIS
(pdf)
Capital Controls or Exchange Rate Policy? A
Pecuniary Externality Perspective – FED
(pdf)
Unconventional Fiscal Policy at the Zero Bound – FED (pdf)
The Zero Lower Bound and the Dual Mandate – FED (pdf)
Market Declines: What Is Accomplished by
Banning Short-Selling? – FED
(pdf)
House price responsiveness of housing
investments across major European economies – ECB (pdf)
How to detect and respond to property bubbles -
challenges for policy-makers – BIS (pdf)
Bubble thy neighbor: portfolio effects and
externalities from capital controls – ECB (pdf)
The Effectiveness of Unconventional Monetary
Policy at the Zero Lower Bound – BIS
QUANTS
Quant: A Dangerous Word Frequently Misused
and Misunderstood –
Minyanville
Aaron Brown’s
long and highly enjoyable piece.
Wizard of ETFs – Barron’s
Ron Vinder of UBS shuns individual stocks in favor of
exchange-traded funds. Armed with decades of data, he diversifies broadly—and
sticks to his guns and got solid returns in a flat stock-market decade.
Quant Gold Book 2012:
Heavy Focus on Algorithms, Less Cloud
Technology Exploration – Advanced
Trading
Despite the challenges buy-side traders face,
this year's group of Quant Gold Book honorees have the drive and intelligence
to reach their targets.
As the head of U.S. equity trading for RBC Global Asset Management, Ryan
Larson often focuses on liquidity analysis to avoid being gamed by high-frequency
traders. But he emphasizes the human element as much as quantitative analysis.
AJO Partners' Douglas Dixon Takes on the World – Advanced Trading
Douglas D. Dixon, principal and trader at AJO
Partners, explains why AJO is eyeing emerging markets over the next year and
why the firm isn't ready to store its tick data in the cloud just yet.
Quantavium Capital's Youngju Nielsen Is a Fixed
Income Rock Star – Advanced Trading
Youngju Nielsen, co-founder of Quantavium
Capital, believes there will be many changes on the horizon for fixed income
trading to allow it to become a more transparent process that should attract
for investors and traders. As Quantavium prepares to launch in the third
quarter of 2012, Nielsen talks with Advanced Trading about the firm’s use of
algorithms, the cloud, broker benchmarks and more.
EDAC Trading’s David Allen says he considers the new fund management firm is
ultra-practical and sensible in strategy design, heavily algorithmic in
execution and data-dependent in R&D. He talks to Advanced Trading about EDAC’s use technology to support
decision making.
BOOKS
Michael Mauboussin’s Behavioral Economics
Reading List – Farnam
Street
Michael Mauboussin is the Chief Investment
Strategist at Legg Mason Capital Management. If you’re looking to learn about
behavioral economics he recommends you start with the following books and
articles.
Simon
Johnson: But be warned: while fascinating, much of what is in this book will
turn your stomach. Mr. Connaughton is now out of politics, and I very much
doubt that he will ever return. Hence the complete honesty missing in most
political memoirs; no bridge is left unburned.
FiveBooks Interviews: Robert Barro on The
Lessons of the Great Depression – The
Browser
The Harvard Professor takes issue with some
common assumptions about the Great Depression, and how America got out of it. And he doesn't mince his words about the recent past,
calling President Obama's stimulus "stupid" and "awful"
Book Review: Bailout – The Aleph Blog
Book Bits – The
Capital Spectator
OTHER
Four Questions for the Retail Brokerage
Compliance Officer
– The
Reformed Broker
ConvergEx: So You Say You Want A Revolution – ZH
Science –
or paradigms – change, but they also evolve.
Women in finance: the past 50 years – The
Guardian
Over the past couple of weeks there have been
lots of compelling articles for financial advisers. Here are some of my
favorite reads in case you missed them.