Best of the Aleph Blog, Part 19

These articles appeared between August and October 2011:

Take Prudent Risk

One of the great secrets of investing is taking moderate risk.  High risk fails on average, because those swinging for homers make a lot of strikeouts.  Low risk fails because there is little reward.

De Minimus Laws, Redux

I catalog all of the de minimus laws for Registered Investment Advisers.  Only Texas and Arkansas require registration on the first client.  The rest require it on the sixth client.

How Would You Run a Rating Agency?

Points out the incompatible standards that rating agencies are encouraged to achieve.  It is a no-win situation.


There is no escape.  There will be a crisis.  Do you want a smaller crisis sooner, or a bigger crisis later?  The actions of our government say, “A bigger crisis later, much bigger and later if possible.”

The Rules, Part XXIV

Every excess eventually unwinds.  When an excess unwinds, the fall gets exacerbated by trend-followers blowing out of mutual and other pooled funds with lousy relative performance.

Leverage Isn’t Free

A critique of risk parity.  This is implicitly the same idea behind securitization, but it does not get the same criticism.

The Predictions of Michael Pettis

Few global macroeconomists are as perceptive as Michael Pettis.  I have learned a lot from him over the years.

The Folly of Large Acquisitions

I explain what most tends to improve the value of companies with respect to the use of free cash flow.

The Rules, Part XXVI (Efficiency vs Stability)

T+1 will raise volatility.  Often increases in the technical efficiency of information or trading systems increase volatility, because people can act precipitously on information, all at the same time.

Missed Opportunities

The Federal Reserve was the primary architect of the debt bubble that we are now wrestling with.  It is the main reason that we need to eliminate the incompetent, overstaffed Fed.  (Lay off anyone that has a Ph. D.  there.  Dangerous idealists who have little contact with reality.)

On High Correlations

I explain why high asset correlations have to be bearish indicators.

How Do I Find a Job in Finance?

How Do I Find a Job in Finance? (Part 2)

I have helped many people get jobs in finance.  Most of my useful advice is in these two articles.

On Multiparty Transactions

My simple rule to average people when involved in complex transactions is this: be cynical.  No one is interested in your well-being, and most of the transactional terms are skewed against you.  To the extent that you can borrow less, and eliminate some of the parties that would be a part of the transaction, it is to your good that you do so.  The best situation is that you buy for cash, if you have it.

Debt Relief

The main thing holding back our world from recovery, is no one wants to take losses from bad debt, and so central banks extend a lot of credit, as if those pointy-headed intellectuals have any idea about how the economy really works.

Build the Buffer

There are advantage to having surplus cash around.  You can get discounts and minimize risks.

Financial Complexity, Part 1

Alas, there is no part two to this piece.  But this piece explains why financial markets are often not efficient.

The Retirement Bubble

We know we should save for retirement, but we don’t.  That applies to governments, corporations, and individuals.

We Eat Dollar-Weighted Returns

Explains how the average person did poorly investing with Bill Miller, while the few buy-and-hold investors did pretty well.

On Social Media, and How I Built my Blog, Part 1

On Social Media, and How I Built my Blog, Part 2

I divulge almost all of my tricks for building a good blog.

Improving Publishing in the Social Sciences

I adapt the concept of double-blind studies to the social sciences.  It would definitely improve the quality of the research.

Occupy Your Time Productively

I got a lot of hate mail over this, but my main point was that protesters should organize, and form a political party or something like it (think of a leftist version of the Tea Party).  The Occupy movement was lazy, and the results of their actions were minimal.