{"id":292,"date":"2010-01-15T09:04:58","date_gmt":"2010-01-15T14:04:58","guid":{"rendered":"http:\/\/www.technologyinvestor.com\/?p=292"},"modified":"2010-01-15T19:46:52","modified_gmt":"2010-01-16T00:46:52","slug":"check-check-check","status":"publish","type":"post","link":"https:\/\/www.technologyinvestor.com\/?p=292","title":{"rendered":"Check. Check. Check."},"content":{"rendered":"

Check that the cloning software works. It didn’t. Check that a BlackBerry can read this blog. It can’t. Check that brokerage statement doesn’t have an extra zero in the commission column. It did. Check. Check. Check. Never assume. Check.<\/p>\n

Can you beat the market by choosing individual stocks?<\/span><\/strong> Perhaps. Another approach is to buy a bundle of assorted index ETFs. If you allocate correctly, you should do a little better than the general market. Here are some favorites — not in the order of favor:<\/p>\n

\"\"<\/a><\/p>\n

From the Wall Street Journal<\/em> comes a popular piece:<\/p>\n

Inefficient Markets Are Still Hard to Beat
\n<\/strong> By JASON ZWEIG<\/p>\n

Can’t anyone here play this game?<\/p>\n

With the market so erratic at pricing stocks, it is tempting to think you can do better.<\/p>\n

Between the Dow Jones Industrial Average’s record in October 2007 and the bear-market low in March 2009, Bank of America’s stock fell 94%. Then, by year-end 2009, it went up 380%. It wasn’t just financial stocks that acted like yo-yos: Over the same period, Alcoa’s stock fell 87%, then more than tripled.<\/p>\n

How can such crazy swings in price be “efficient”? As millions of smart buyers and sellers compete to maximize their wealth, they update stock prices with all the relevant information that’s available. That’s what an “efficient market” means. It presumes that the market price is the best estimate of a stock’s intrinsic value, or what all its current and future cash flows are worth.<\/p>\n

But the fact that the market price is the best available estimate doesn’t mean that the market price is right.<\/p>\n

In 1974, the great financial analyst Benjamin Graham wryly described the efficient-market hypothesis as a theory that “could have great practical importance if it coincided with reality.” Mr. Graham marveled at how Avon Products, which traded at $140 a share in 1973, had sunk below $20 in 1974: “I deny emphatically that because the market has all the information it needs to establish a correct price the prices it actually registers are in fact correct.”<\/p>\n

Mr. Graham proposed that the price of every stock consists of two elements. One, “investment value,” measures the worth of all the cash a company will generate now and in the future. The other, the “speculative element,” is driven by sentiment and emotion: hope and greed and thrill-seeking in bull markets, fear and regret and revulsion in bear markets.<\/p>\n

The market is quite efficient at processing the information that determines investment value. But predicting the shifting emotions of tens of millions of people is no easy task. So the speculative element in pricing is prone to huge and rapid swings that can swamp investment value.<\/p>\n

Thus, it’s important not to draw the wrong conclusions from the market’s inefficiency. “The evidence does suggest that the market is not rational,” says Meir Statman, a finance professor at Santa Clara University in California. “But watch out for the voice of the devil inside of you saying that therefore it must be easy to beat the market.”<\/p>\n

For one thing, hindsight blinds you to the truth. Last March, in the bowels of global financial panic, it was far from clear that Bank of America would survive and that the stock was dirt cheap.<\/p>\n

The market had priced such companies as if they might go out of business because plenty of information suggested that was a possibility, and because fear was then so pervasive that optimism felt almost like a form of irrationality.<\/p>\n

So, while it may seem obvious today that Bank of America is a survivor, most investors didn’t think the market price for the stock was too cheap last March. As Prof. Statman puts it: “The market may be crazy, but that doesn’t make you a psychiatrist.”<\/p>\n

Looking back at how cheap stocks got last spring, you may conclude that any idiot should have known to be buying them hand over fist. But mutual-fund investors sold out of stocks all year long; in March alone, at the very moment when stocks were cheapest, fund investors dumped $25 billion worth.<\/p>\n

Furthermore, money managers chase whatever’s hot and shun whatever’s not. Those who are the best at this game attract more money in rising markets and lose fewer clients in falling markets, pushing prices further away from Mr. Graham’s “investment value.” These are the last people who will go against the grain to buy cheap stocks at the bottom.<\/p>\n

In the short run, at least, the herd behavior of the pros makes it even harder for you to take a winning bet against the “speculative element” in a stock’s price. It takes superhuman courage to buy into a hurricane of selling.<\/p>\n

Finally, even money managers who can beat the market may leave clients lagging behind the market. Consider a fund manager who outperforms the averages by 2.5 percentage points annually, before expenses; that’s a spectacular return. But his trading costs and management fees are likely to eat up at least 2.5 percentage points, leaving his clients no better off than if they had bought an index fund that simply mimics the returns of the overall market.<\/p>\n

That’s why, even after the crazy swings of the past decade, index funds still make the most sense for most investors. The market may be inefficient, but it remains close to invincible.<\/p>\n

Google bounced back. <\/strong>I held onto Google. It didn’t drop 15% — my inviolate rule. But the dollar numbers were big. \u00a0Fortunately, it bounced back. I figure Google will pull out of China. And that will diminish its growth. But it’s still growing fast. <\/span><\/span><\/p>\n

My favorite story. <\/strong>There are billions of dollars of fake gold bars in Fort Knox and the Bank of England.<\/span> <\/strong>They’re bars of tungsten covered with a thin veneer of real gold. Why tungsten? From my ultra-reliable source, “<\/span><\/span>Tungsten is vastly cheaper than gold (maybe $30 dollars a pound compared to $12,000 a pound for gold right now). \u00a0It has exactly the same density as gold, to three decimal places. The main differences are that it\u2019s the wrong color, and that it\u2019s much, much harder than gold. Very pure gold is quite soft, you can dent it with a fingernail.”<\/p>\n

To pursue this delicious story, visit The Pakistan Daily.<\/strong><\/a><\/p>\n

WordPress screws BlackBerrys<\/strong><\/span>.\u00a0You used to be able to read this site on a BlackBerry. Now you can’t.<\/p>\n

My son, the genius, says he has a “magic plug-in” that will fix the problem and cure world hunger. Cross your fingers.<\/p>\n

Sick of bad grammar. Nothing un-impresses more than bad grammar. Among my favorite irks:<\/span><\/span><\/span><\/strong><\/p>\n

Mixing up its and it’s. \u00a0They’re and their.<\/span><\/span><\/span><\/strong><\/p>\n

I hate the \u00a0words “but, however, that, although” and “though.” \u00a0They don’t contribute anything. You don’t need them. <\/span><\/span><\/span><\/strong><\/p>\n

And I hate starting sentences with “and.”<\/span><\/span><\/span><\/strong><\/p>\n

When I played editor, I’d sit with cub reporters. I’d go through their copy. I’d remove all the superfluous words — e.g. “interesting.” I’d remove “that” and all the “buts, howevers, althoughs” and “thoughs.” I’d remove commas and brackets. I’d cut all the long sentences into many short ones. One sentence. One thought. <\/span><\/span><\/span><\/strong><\/p>\n

Ten charts to see before you buy a home. Foreclosures can double or triple the inventory of houses for sale. \u00a0A massive increase in units for sale will send prices down to hell. What is the the Ten-Ton Gorilla? It is homeowners who would make money by walking from their mortgage and their home. Whether the number is 11 million or 25 million — the low and high estimates in this graph, the risk factor is wildly high for prospective purchasers. <\/span><\/span><\/span><\/strong><\/p>\n

\"\"<\/a><\/p>\n

If your real estate broker says “buy now” because rates are low, they are either dumb, delusional or deceptive. ” <\/span><\/span>For the charts and more delicious words — \u00a0New Observations.net<\/a><\/strong><\/span><\/span><\/strong><\/p>\n

My heart goes out to Haiti. People are still buried in the rubble. Sadly, Haiti has always been on the wrong side of history. <\/span><\/span><\/span><\/strong> <\/span>This fascinating piece from Stratfor, the intelligence service, explains.<\/p>\n

\"\"<\/p>\n

Haiti: A History of Misfortune<\/strong>
\nJanuary 13, 2010<\/p>\n

Haiti\u2019s prime minister announced Jan. 13 that hundreds of thousands of Haitians are feared dead in the wake of a devastating earthquake that hit the country on Jan. 12. With a history of severe underdevelopment and strife, Haiti is unprepared to deal with this disaster, and even with international aid it will take years for the country to recover.<\/p>\n

A\u00a07.0 magnitude earthquake struck Haiti just miles from the country\u2019s capital, Port-au-Prince, at 5:30 p.m. local time Jan. 12. The initial quake was followed by aftershocks that have continued unabated \u2014 at least 35 at the time of publishing \u2014 ranging from 4.2 to 5.9 in magnitude (for up to date information, go to the United States Geological Service Web site). The earthquakes have caused widespread damage, including the collapse of the presidential palace, the parliament, hospitals, schools, the United Nations headquarters and the World Bank office building. The death toll is unknown at this time, but according to Prime Minister Jean-Max Bellerive, hundreds of thousands of people are feared dead.<\/p>\n

The United States announced it will be deploying a multiagency response, to be headed by the United States Agency for International Development. According to an announcement by U.S. President Barack Obama, military flyovers have been used to assess the damage and U.S. search-and-rescue teams from Florida, Virginia and California will be deployed immediately to help recover trapped individuals. Venezuela, Chile, China and Canada also have promised to send aid, and Chile, the United States and Canada have promised to send aid relief ships. So far, announcements have been limited to offering disaster assistance.<\/p>\n

This earthquake is the latest in Haiti\u2019s long history of troubles. Haiti gained its independence from the French in 1804 after a 13-year rebellion, during which the country\u2019s mostly African slave population rose up against the wealthy landowners and political leaders in what was the world\u2019s first successful slave revolt. In the wake of the rebellion, the newly free Haitians expelled the former slave owners. In doing so, Haiti became the first and only state in the Western Hemisphere to be run by former slaves. Indeed, Haiti quickly found itself estranged in the Western Hemisphere as colonial powers feared a repetition of the rebellion on their own territories. Once liberated from foreign rule, former Spanish colonies refused to meet with Haiti, as they also maintained their own slave populations. Brazil did not do away with slavery until 1888, and the United States did not offer recognition until the 1860s, after the civil war that led to the abolishment of U.S. slavery.<\/p>\n

Isolation at that time was the worst thing that could have happened. Haiti was a small territory with a small population that lacked any links to a potential market (access to the French market was only granted after Haiti paid France an indemnity for seized land). There was no indigenous capital with which to construct the infrastructure necessary to trade with the wider world. Nor was it possible to fund the educational system necessary to provide the human capital required to improve the range of products produced domestically. Left with no international partners or European technology and capital, Haiti found itself isolated, lacking in technical expertise and desperately poor. The war had left the country\u2019s economy in ruins and with very few options. Sugar had been the country\u2019s main product, but without a slave population, farming sugar cane became difficult at best. Large landholdings were turned into small plots used for subsistence farming.<\/p>\n

In its independence, Haiti has been dominated by home-grown military dictatorships or U.S. intervention forces (1915-1934). The most notorious leaders were the father and son presidents Francois Duvalier and Jean-Claude Duvalier, known as \u201cPapa Doc\u201d and \u201cBaby Doc.\u201d Papa Doc ruled from 1957 until his death in 1971, when Baby Doc assumed power until 1986. Under the Duvaliers, Haiti became more corrupt and wealth became more concentrated. Over the past 20 years, Haiti wavered between military control and short-term presidents who were unable to govern. The last elected president (prior to current Haitian President Rene Preval), Jean-Bertrand Aristide, was twice voted in, and twice overthrown. The U.S. played a heavy role throughout the past two decades, with both military and political interventions.<\/p>\n

The war of independence, followed by economic stagnation and competition for control of the country among military and elites, left Haiti in a state of underdevelopment fueled by massive amounts of corruption and violence. Today, wealth is centered in urban Port-au-Prince in the hands of a small elite. Haiti has the lowest per capita gross domestic product in the Western Hemisphere, and about half of the country is illiterate. Efforts by the international community to impose control over Haitian cities dominated by violent gangs have yielded some results, with crime having dropped slightly in the capital, and Preval suffering no coups since his assumption of office in 2006. However, Haiti remains incredibly vulnerable to violence and instability.<\/p>\n

This tendency toward instability coupled with the country\u2019s position at the mouth of the Caribbean gives United States a strategic interest in Haiti. In addition to its critical strategic position astride naval routes running from the mouth of the Mississippi River to international markets, Haiti\u2019s positioning between the United States and Latin America makes it a perfect location for international smuggling operations. Coupled with the high levels of power wielded by domestic gangs and corrupt politicians, the country is a natural node for international drug trafficking.<\/p>\n

In addition to these massive structural problems, Haiti is radically geographically disadvantaged. Haiti\u2019s deforested terrain exacerbates the fact that Haiti also must deal with the effects of being situated in an area of heavy hurricane activity. Haiti also sits atop two major fault lines, one of which was responsible for this series of earthquakes.<\/p>\n

For the international community, which has put a great deal of energy into the country through the delivery of troops and aid directly to Haiti and through the United Nations, this is an opportunity to showcase disaster relief response capacity. The country will take years to recover from damage caused by this quake, and the disaster likely will result in an increase in the flow of refugees to neighboring countries and to the United States (one out of every eight Haitians already lives abroad). Even if international players were to commit to serious and comprehensive long-term development aid addressing some of the country\u2019s systemic failures, Haiti will always be at serious risk of having any gains wiped away in a natural disaster like the Jan. 12 earthquake.<\/p>\n

It will happen to us all. Story 1.<\/span><\/strong>
\nA senior citizen said to his eighty-year old buddy:
\n‘So I hear you’re getting married?’
\n‘Yep!’
\n‘Do I know her?’
\n‘Nope!’
\n‘This woman, is she good looking?’
\n! ‘Not really.’
\n‘Is she a good cook?’
\n‘Naw, she can’t cook too well.’
\n‘Does she have lots of money?’
\n‘Nope! Poor as a church mouse.’
\n‘Well, then, is she good in bed?’
\n‘I don’t know.’
\n‘Why in the world do you want to marry her then?’
\n‘Because she can still drive!’<\/p>\n

Story 2.<\/span><\/strong>
\nAn elderly couple had dinner at another couple’s house, and after eating, the wives left the table and went into the kitchen.
\nThe two gentlemen were talking, and one said, ‘Last night we went out to a new restaurant and i! t was really great.. I would recommend it very highly.’<\/p>\n

The other man said, ‘What is the name of the restaurant?’
\nThe first man thought and thought and finally said, ‘What is the name of that flower you give to someone you love?
\nYou know…. The one that’s red and has thorns.’
\n‘Do you mean a rose?’
\n‘Yes, that’s the one,’ replied the man. He then turned towards the kitchen and yelled, ‘Rose, what’s the name of that restaurant we went to last night?’<\/p>\n

Story 3.<\/strong><\/span>
\nA couple \u00a0in their nineties are both having problems remembering things. During a checkup, the doctor tells them that they’re physically okay, but they might want to start writing things down to help them remember.
\nLater that night, while watching TV, the old man gets up from his chair. ‘Want anything while I’m in the kitchen?’ he asks.
\n‘Will you get me a bowl of ice cream?’
\n‘Sure…’
\n‘Don’t you think you should write it down so you can remember it?’ she asks.
\n‘No, I can remember it.’
\n‘Well, I’d like some strawberries on top, too. Maybe you should write it down, so as not to forget it?’
\nHe says, ‘I can remember that. You want a bowl of ice cream with strawberries.’
\n‘I’d also like whipped cream. I’m certain you’ll forget that, write it down?’ she asks.
\nIrritated, he says, ‘I don’t need to write it down, I can remember it! Ice cream with strawberries and whipped cream – I got it, for goodness sake!’
\nThen he toddles into the kitchen. After about 20 minutes, the old man returns from the kitchen and hands his wife a plate of bacon and eggs.. She stares at the plate for a moment.
\n‘Where’s my toast ?’<\/p>\n

\"\"<\/p>\n

Harry Newton, who’s never getting old.<\/p>\n","protected":false},"excerpt":{"rendered":"

Check that the cloning software works. It didn’t. Check that a BlackBerry can read this blog. It can’t. Check that brokerage statement doesn’t have an extra zero in the commission column. It did. Check. Check. Check. Never assume. Check. Can you beat the market by choosing individual stocks? Perhaps. Another approach is to buy a […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-292","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/292","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=292"}],"version-history":[{"count":0,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/292\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=292"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=292"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=292"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}