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jerryking : etfs   16

Passive investing is storing up trouble
August 2, 2018 | Financial Times | by Megan Greene.

I was recently informed by the owner of an artificial intelligence fund that markets do not listen to economists any more. .....A fundamental shift in market structure towards rules-based, passive investing over the past decade means a lot of trading is no longer based on fundamentals. But just because some markets do not pay attention to economists, it does not mean economists should not pay attention to these markets........AI quant funds are not waiting on tenterhooks for analysis of every non-farm payrolls report, Fed press conference, Donald Trump tweet, or earnings report. Instead, they look for trading strategies that are succeeding and adopt those strategies until a better one comes along, regardless of the underlying fundamentals. But what happens when the strategy suddenly becomes to sell everything? Will the computers find the buyers they need?.......ETFs, often set up to mimic an index, have to buy more of equities rising in price, sending those stock prices even higher. ETFs similarly ignore fundamentals.....This creates a piling-on effect as funds buy more of these increasingly expensive stocks and less of the cheaper ones in their indices...Risks of a bubble arise when there is no regard for underlying fundamentals or price. It is reasonable to assume a sustained market correction would lead to stocks that were disproportionately bought because of ETFs and index funds being disproportionately sold.

But again, in a crisis will the ETF managers find liquid markets? ....Passive investors and quant funds could also threaten the economy by making markets vastly more complex, noisy and opaque. They send mixed signals to active investors about what the fair value of a stock is. That could cause a significant misallocation of capital.

The danger is exacerbated by the speed at which trading is now done. The average holding period for a security on the New York Stock Exchange has fallen from two months in 2008 to just under 20 seconds today.......Systemic failures, misallocation of capital and dried up liquidity could cause a bear market, dragging on growth when the economic backdrop is already lacklustre......So even though passive investors ignore economists, economists should pay attention to risks posed by the shift in market structure they represent....This is not to say that index funds, ETFs and AI quant funds are necessarily bad. But the real test will come when there is a sudden crisis followed by a sustained bear market.
active_investing  artificial_intelligence  bear_markets  economists  ETFs  holding_periods  index_funds  investing  liquidity  misallocations  NYSE  passive_investing  piling_on  risks  systemic_failures  rules-based  bubbles  quantitative  market_fundamentals  crisis  dark_side  pay_attention 
august 2018 by jerryking
BlackRock Bets on Robots to Improve Its Stock Picking - WSJ
By SARAH KROUSE
Updated March 28, 2017

The firm is offering its Main Street customers lower-cost quantitative stock funds that rely on data and computer systems to make predictions, an investment option previously available only to large institutional investors. Some existing funds will merge, get new investment mandates or close. The changes are the most significant attempt yet to rejuvenate a unit that has long lagged behind rivals in performance......The author of the company’s new strategy is former Canada Pension Plan Investment Board Chief Executive Mark Wiseman, who was hired last year to turn around the stock-picking business. The effort is the first test for Mr. Wiseman, viewed by some company observers as a potential successor to Chief Executive Laurence Fink......Many other firms that specialize in handpicking stocks are also struggling with low returns and shifting investor tastes. Since the 2008 financial crisis, clients across the money-management industry have moved hundreds of billions of dollars to lower-cost funds that track indexes, known as passive investment funds, instead of aiming to beat the market.
BlackRock  stock_picking  automation  layoffs  asset_management  institutional_investors  ETFs  Mark_Wiseman  Laurence_Fink  CPPIB  robotics  quantitative  active_investing  passive_investing  shifting_tastes  money_management  beat_the_market 
march 2017 by jerryking
A Quiet Giant of Investing Weighs In on Trump
FEB. 6, 2017 | The New York Times | Andrew Ross Sorkin

In his letter, Mr. Klarman sets forth a countervailing view to the euphoria that has buoyed the stock market since Mr. Trump took office, describing “perilously high valuations.”

“Exuberant investors have focused on the potential benefits of stimulative tax cuts, while mostly ignoring the risks from America-first protectionism and the erection of new trade barriers,” he wrote.

“President Trump may be able to temporarily hold off the sweep of automation and globalization by cajoling companies to keep jobs at home, but bolstering inefficient and uncompetitive enterprises is likely to only temporarily stave off market forces,” he continued. “While they might be popular, the reason the U.S. long ago abandoned protectionist trade policies is because they not only don’t work, they actually leave society worse off.”

In particular, Mr. Klarman appears to believe that investors have become hypnotized by all the talk of pro-growth policies, without considering the full ramifications. He worries, for example, that Mr. Trump’s stimulus efforts “could prove quite inflationary, which would likely shock investors.”.....“The big picture for investors is this: Trump is high volatility, and investors generally abhor volatility and shun uncertainty,” he wrote. “Not only is Trump shockingly unpredictable, he’s apparently deliberately so; he says it’s part of his plan.”

While Mr. Klarman clearly is hoping for the best, he warned, “If things go wrong, we could find ourselves at the beginning of a lengthy decline in dollar hegemony, a rapid rise in interest rates and inflation, and global angst.”...In his recent letter, he explained for the first time his decision to say something publicly. “Despite my preference to stay out of the media,” he wrote, “I’ve taken the view that each of us can be bystanders, or we can be upstanders. I choose upstander.”....How Mr. Klarman wants investors to behave in the age of Trump remains an open question. But here’s a hint: At the top of his letter, he included three quotations. One was attributed to Thomas Jefferson: “In matters of style, swim with the current; in matters of principle, stand like a rock.”
Seth_Klarman  investors  hedge_funds  Donald_Trump  investing  ETFs  value_investing/investors  money_management  Andrew_Sorkin  countervailing  the_big_picture  nobystanders  Thomas_Jefferson  quotes  stylish  principles  uncompetitive 
february 2017 by jerryking
Some of the Wisest Words Ever Spoken About Investing - MoneyBeat - WSJ
By JASON ZWEIG
Nov 25, 2016

Investing is often portrayed as a battle between you and the markets. Instead, Graham wrote, “the investor’s chief problem — and even his worst enemy — is likely to be himself.”

Evaluating yourself honestly is at least as important as evaluating your investments accurately. If you don’t force yourself to learn your limits as an investor, then it doesn’t matter how much you learn about the markets: Your emotions will be your undoing....Nobel Laureate Daniel Kahneman with his book Thinking, Fast and Slow.
I’m especially grateful that he taught me this: “The most important question is, ‘What is the base rate?’”....Michael Mauboussin, a strategist at Credit Suisse, has taken that hint and compiled base rates for all sorts of corporate measures, so investors can readily check a company’s projections against reality.....From the economist and investing writer Peter Bernstein, who died in 2009, I learned about Pascal’s wager: You must weigh not only the alluring probabilities of being right, but the dire consequences of being wrong....Finally, Mr. Bernstein never tired of emphasizing that we can never know the future — least of all at the very moments when it seems most certain....Richard Dawkins pointed out in a lecture in 1996, many of us today know more about the world around us than Aristotle, the greatest mind of his age, did more than 2,300 years ago: “Science is cumulative, and we live later.”

Investing knowledge is also cumulative, and we all benefit from those who have already learned — and taught — how it works.
investing  investors  gratitude  Peter_Bernstein  wisdom  economists  Jason_Zweig  ETFs  books  Benjamin_Graham  pretense_of_knowledge  base_rates  Michael_Mauboussin  self-awareness  self-analysis  self-reflective  proclivities  probabilities  Pascal’s_wager  Daniel_Kahneman  delusions  self-delusions  emotions  Achilles’_heel  cumulative  Nobel_Prizes 
november 2016 by jerryking
Pimco’s Strategy for Life After Gross: Go Beyond ‘Bonds and Burgers’ - WSJ
By JUSTIN BAER
Updated Nov. 7, 2016

The 53-year-old Frenchman, who joined Pimco in the past week, intends to push it deeper into hedge funds, real-estate assets and other alternative investments, people familiar with the matter said. With interest rates in much of the developed world near zero, those kinds of investments are in demand from pensions, endowments and other clients. They are also among the types of funds that command higher fees.

Investing in bonds, loans and other forms of debt securities will remain Pimco’s focus, but Mr. Roman will aim to build out capabilities in areas ranging from private credit to quantitative investments based on computer models, the people said.....Pimco, a subsidiary of German insurer Allianz SE, believes the gradual shift into alternatives is its best bet to ride out what many industry executives expect will be a brutal shakeout for asset managers. Tepid returns and the surging popularity of cheaper investment options, including exchange-traded funds, have pressured managers to lower fees.
Pimco  CEOs  alternative_investments  asset_management  capabilities  money_management  ETFs  shakeouts  interest_rates  developed_countries  low-interest  developing_countries 
november 2016 by jerryking
At BlackRock, a Wall Street Rock Star’s $5 Trillion Comeback - The New York Times
SEPT. 15, 2016 | NYT | By LANDON THOMAS Jr.

(1) Laurence Fink: “If you think you know everything about our business, you are kidding yourself,” he said. “The biggest question we have to answer is: ‘Are we developing the right leaders?’” “Are you,” he asked, “prepared to be one of those leaders?”

(2) BlackRock was thriving because of its focus on low-risk, low-cost funds and the all-seeing wonders of Aladdin. BlackRock sees the future of finance as being rules-based, data-driven, systematic investment styles such as exchange-traded funds, which track a variety of stock and bond indexes or adhere to a set of financial rules. Fink believes that his algorithmic driven style will, over time, grow faster than the costlier “active investing” model in which individuals, not algorithms, make stock, bond and asset allocation decisions.

Most money management firms highlight their investment returns first, and risk controls second. BlackRock has taken a reverse approach: It believes that risk analysis, such as gauging how a security will trade if interest rates go up or down, improves investment results.

(3) BlackRock, along with central banks, sovereign wealth funds — have become the new arbiters of "flow.“ It is not about the flow of securities anymore, it is about the flow of information and indications of interest.”

(4) Asset Liability and Debt and Derivatives Investment Network (Aladdin), is BlackRock's big data-mining, risk-mitigation platform/framework. Aladdin is a network of code, trades, chat, algorithms and predictive models that on any given day can highlight vulnerabilities and opportunities connected to the trillions that BlackRock firm tracks — including the portion which belongs to outside firms that pay BlackRock a fee to have access to the platform. Aladdin stress-tests how securities will respond to certain situations (e.g. a sudden rise in interest rates or what happens in the event of a political surprise, like Donald J. Trump being elected president.)

In San Francisco, a team of equity analysts deploys data analysis to study the language that CEOs use during an earnings call. Unusually bearish this quarter, compared with last? If so, maybe the stock is a sell. “We have more information than anyone,” Mr. Fink said.
systematic_approaches  ETFs  Wall_Street  BlackRock  Laurence_Fink  asset_management  traders  complacency  future  finance  Aladdin  risk-management  financiers  financial_services  central_banks  money_management  information_flows  volatility  economic_downturn  liquidity  bonds  platforms  frameworks  stress-tests  monitoring  CEOs  succession  risk-analysis  leadership  order_management_system  sovereign_wealth_funds  market_intelligence  intentionality  data_mining  collective_intelligence  risk-mitigation  rules-based  risks  asset_values  scaling  scenario-planning  databases 
september 2016 by jerryking
ETF pioneer Som Seif isn’t afraid of the competition - The Globe and Mail
CLARE O'HARA
TORONTO The Globe and Mail Last updated: Friday, Jan. 08, 2016

Education: Bachelor of Industrial Engineering from the University of Toronto
Best investment decision: “Investing in myself. I’ve always felt more comfortable investing in my future and career and I tell everyone that investing in their own career will always be their best investment.”
Worst investment decision: “Have several ‘lessons’ I have learned, all leading to avoid letting my emotions make my investment decisions.”

Favourite books: “I have lots but two of them are Thinking, Fast and Slow by Daniel Kahneman and The Education of An American Dreamer by Peter G. Peterson.
financial_services  Som_Seif  Bay_Street  books  financiers  entrepreneur  profile  investing  ETFs  Daniel_Kahneman 
january 2016 by jerryking
Tired of being dumb money? Here’s how to get smart fast
Mar. 29 2013 | The Globe and Mail | DAVID BERMAN.
First, ignore the herd. Retail investors get into trouble because they like to follow the market. They love stocks when they’re expensive and bull markets are in full swing, and loathe stocks when they’re cheap and the bear is growling. Do the opposite: As the saying goes, buy when there is blood in the streets.

Second, accept that you are not Mr. Buffett. Over-confident investors get themselves into trouble because they take on too much risk in the hope of scoring spectacular gains. Instead, diversify and aim for the unspectacular, perhaps with low-cost exchange-traded funds that track a basket of stocks.

Third, think long-term. Retail investors are prone to expect their investments to pay off in a big way immediately – and when they don’t, these investors switch tactics, often with dismal results.
investment_advice  personal_finance  contrarians  long-term  patience  Warren_Buffett  overconfidence  individual_initiative  smart_people  independent_viewpoints  bull_markets  ETFs  low-cost 
march 2013 by jerryking
Som Seif: A thoroughly modern executive - The Globe and Mail
richard blackwell
From Monday's Globe and Mail
Published Sunday, Sep. 11, 2011
financial_services  Richard_Blackwell  Som_Seif  ETFs 
november 2011 by jerryking
reportonbusiness.com: What? Me worry?(2)
September 26, 2007 From Friday's Globe and Mail by Doug Steiner

....after opening the most recent monthly statements from my asset-dieting RSPs, I haven't been smiling. And I've had to give myself advice about market risk-again. "I turned the October, 1987, crevasse into a hill of savings years ago. My strategy? Solve the following complex equation: Cash In - Cash Out = Savings. If you include a time element in the equation for retirement, it looks like this: Future Savings - Future Spending = Not Living Only On CPP. "....Here is some good and rational advice: If you have equity investments and this worry thing is really getting to you, take a breather. Think about shifting all your savings into good old Government of Canada treasury bills for six months. Want a little more action? Add some ETFs that track stock market indexes to your portfolio-that will give you market volatility similar to what you had when you were sleeping well before the markets went berserk.

But the best rational advice I can give you is to learn the discipline of setting risk limits and sticking to them. That will allow you to live with any volatility in the markets. It really is that simple.
Doug_Steiner  markets  risk-perception  calm  risk-assessment  panics  self-discipline  volatility  risk-limits  ETFs  retirement  risks  GoC 
march 2009 by jerryking

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