Photo Credit: Philipp Messner || Every culture should learn their alphabet ūüėČ


In my view, these were my best posts written between May and July 2014:

Look to the Liabilities to Understand the Assets

Why do new asset classes work very well for a time and then fail?

I Have My Doubts

Learning to live with uncertainty and thrive amid it.

Asset Value Illusion

People don’t need assets as much as they need streams of income derived from the assets (dividends, capital gains) that allow them to purchase the goods and services that they want and need. ¬†(Low interest rates mean assets aren’t worth as much.)

Illusory Investment Income

Some naively say, ‚ÄúDividends don‚Äôt lie.‚ÄĚ ¬†Well yes, the money you receive is yours, but is the company as healthy after the dividend? ¬†Will they be able to keep it up? ¬†Often that is not the case.

A Bond Manager Thinks about the Equity Premium

This is a more logical way to think of the equity premium by decomposing it into three more understandable parts: yield curve slope, credit spread, and economic earnings.

A Survey on Trading/Investing

How I think about Buying and Selling Stocks

Investment Management: A Science to Teach or an Art to Learn?

It is better to have an accurate uncertainty, than an inaccurate certainty.  We are better of professing ignorance of what we don’t know, than being certain about things where we are wrong.

Self-Regulation in the Financial Markets: My Thoughts

Self-regulation is a better idea in theory than practice.  Either it needs to be regulated, or not.  Adversarial regulation is unavoidable if regulation is needed.

The guy from the National Futures Association emphasized the idea that mandatory membership in the association as a requirement to do business was paramount for an SRO and I can see that. ¬†The SRO then has the ‚Äúdeath penalty‚ÄĚ hanging over the heads of those they regulate. ¬†That said, consider this: the CFA Institute may dream of the day when all involved in investing *must* hold a¬†CFA Charter.

I have no doubt that this would be a good thing.  Ethics codes are good for the industry, and to kick out bad apples would be a good thing.

Enabling Others

Whether on a micro-level (a business) or on a macro-level (a government) the way to build value comes from a simple concept.  What can I/we do to enable the goals of others?  Growth and success come through service.

The Tails of the Distribution do not Validate the Mean

Asset classes that average in the results of astounding successes and total failures do not adequately represent what can happen to individuals in their specific investments.

Avoid Illiquidity

What are the significant costs and benefits of investing in illiquid assets?

The Value That Investment Advisers Deliver

Registered Investment Advisers [RIAs] offer value to their clients in 10 ways, most particularly helping them to not sell in a panic or buy out of greed.

On Fixed Payment Annuities

The value of having income that you can’t outlive

Pity the Multiemployer Pension Plans

Why many of these pension plans will fail

On Berkshire Hathaway and Asbestos

Why Berkshire Hathaway reinsures a huge amount of all of the asbestos claims outstanding

On Learning Compound Interest Math

Why it is important for everyone to learn it.

One More Note on Failure

What does it take for a big failure of any sort to occur, despite some planning?

The Reason for Failure Matters

How to see in advance how failures can indicate that a bigger problem is here, or not.

Understanding Insurance Float

Why most people who read Buffett don’t understand the value of insurance float properly. ¬†It is valuable, but not as valuable as naive acolytes of Buffett believe.

Full disclosure: long $BRK/B for clients and me


Photo Credit: Hanan Cohen || Anyone need a copy?


In my view, these were my best posts written between February and April 2014:

On the Structure of Berkshire Hathaway

On the Structure of Berkshire Hathaway, Part 2, the Harney Investment Trust

This set of posts is unique in going through how the insurance entities of Berkshire Hathaway allow Buffett to hold as much as he does of his stocks/businesses through his insurance companies.  It also explains as much as can be publicly known about the secretive Harney Investment Trust.

On the ‚Äú770‚ÄĚ Account

How to dress up Permanent Life Insurance as a sexy investment vehicle, and get guaranteed underperformance.

The Good ETF, Part 2 (sort of)

If you are investing in any levered, inverse, or non-equity fund exchange traded product, then read the fine print of the prospectus.  If you fail to do that, you have no right to complain if you lose money.

Why it is Hard to Win in Investing

Most profitable investing takes an uncomfortable view versus the consensus, and buys when the market offers good deals.  If there are no good deals, profitable investing sits on cash, and waits for a better day.

On Target Prices & Yields

It is better to measure investments against similar alternative investments in order to decide where to invest money, rather than using target prices or yields.

On Approximate Valuation Methods

I suggest different valuation metrics for four different types of stock.

An Expensive Kind of Insurance

Where I suggest that VIX-type products must be used tactically, if at all.  (Note: the logic of this article is fine, but the graphs have not aged well.

On Intrinsic Value

On how it is difficult to calculate, but why a CEO/CFO might experiment with calculating it to have a better idea of when to buy back or issue stock.

On Emergent Phenomena

When are negative surprises more likely to happen?  Leverage and other factors play roles.

Conservation of Liquidity, under most Conditions

Conservation of Liquidity, under most Conditions, Coda

Why the “money parked on the sidelines” (or lack thereof) argument is always bogus.

‚ÄúDifferent from the Consensus‚ÄĚ

What is the consensus anyway?  When is it smart to think differently than the herd?

The Stock Market Is Rigged! The Stock Market Is Not Rigged!

Never allege a conspiracy when mere stupidity will suffice to explain the problem.

Limit Repo Financing

I am a lonely voice on this, but when repo financing fails, it fails colossally.  It was a moderately large factor in the systemic risk of 2008.

Peterson’s Guide to Financial Blog Commenters

Is it any wonder the most blogs and financial websites have eliminated comment sections at the end of articles?

On a Letter From A Younger Friend

Basic advice on personal finance.

Productivity Inequality

The unpopular truth as to why many people in the US (and other developed nations) are falling behind, and losing net wealth.

The Idea of Contributory Defined Benefit Plans

Solves two pension problems — participants don’t have to make investment choices, and they get an income that they can’t outlive. ¬†Gives them greater choice over how big of a pension to have.

Why are Pensions so Messed Up

Lists in short order the ten main problems with pensions.

And finally, I finished up the “Rules” posts. ¬†Though later, I added two more…

The Rules, Part LVIII

Can contingent claims theory for bond defaults be done on a cash flow/liquidity basis?  KMV-type models seem to fail on severely distressed bonds that have time to breathe and repair.

The Rules, Part LIX

Productivity increases are only so when they result in an increase of desired consumer goods purchasable at prior prices.

The Rules, Part LX

Rapid upward moves in volatility almost always presage a bounce rally.

The Rules, Part LXI (The End… of the Past)

Rule: every rule has exceptions, including this one


Full Disclosure: long BRK/B for myself and clients


In my view, these were my best posts written between November 2013 and January 2014:

Advice For Would-be Bloggers

Be regular (I need that advice myself), write on what you care about, start small.  Not that much different than this recent interview of me regarding blogging.

What Life Insurance to Buy?

Depends on whether you need it for protection or as part of a tax shelter or estate plan.

Protect Your Older Family & Friends

Remember that older folks are very tempting targets for fraudsters, and very nice people delivering subpar service at a high price.

Where to Find Data

I give you my favorite sources.  Most are free.

An Internship at a Hedge Fund

Advice on what to do if you get such an opportunity.

On Position Sizing in Equity Long-Short Hedge Funds

It’s not an easy question, particularly when it comes to shorting or being levered long, but I do offer some ideas that are better than things I have read.

Risks, not Risk, Again

It is better to model the individual risks and manage them, than to rely on an academic-derived model with unstable parameters.

Unconstrained Will Get Overdone

As in any management style, typically the best managers get there first, followed by less talented wannabes.

What are Safe Assets?

It depends on your time horizon(s)

Two Good Questions

How to sort though multiple factors in investing, and is investment in the insurance industry overdone?

Two More Good Questions

On weighting position sizes by expected returns, and What are the tests I use to check if accounting is fair?

On Understanding and Valuing Financial Companies

A compendium piece to the way I reason through investing in financial companies.

Why Great CEOs Look at their Stock Price Every Now and Then

It aids in managing the capital of the company wisely, especially when doing M&A.

When to Worry ‚ÄĒ An Asset-Liability Management Perspective on Financial Macroeconomics

When those that hold risk assets predominantly have weak balance sheets, with short-dated funding/horizons, it is time to reduce risk.

Systemic Risk Stems from Asset-Liability Mismatches

More on the foolishness of the FSOC and attempts to look for systemic risk where there is none.

Lower the Cap Rate, Not

Rising stock prices does not mean that monetary policy or any other government policy is necessarily good.

A Preview of the Future in Local Government Financing

Not everything is going to fail, but the the worst 1-3% will.  Avoid municipalities under severe stress.

Equality, and its After-Effects

What do you do when the whole world becomes more competitive, and compensation in your industry comes under pressure?

Give Them a Small Bank

How could we make banking regulators more intelligent about the industry that they watch over?  Give them experience in managing a small bank.

In my view, these were my best posts written between August and October 2013:

I completed the last of my “Manager” series, on being an investment risk manager:

The Education of an Investment Risk Manager, Part VI

This is the bizarre story of how I pulled a win out of an impossible situation against my own management, and a major life insurer.

The Education of an Investment Risk Manager, Part VII

On the time that I correctly modeled a complex structured security, and the client wouldn’t listen to reason

The Education of an Investment Risk Manager, Part VIII

The time that I¬†did a competitive study of the most aggressive life insurers, and how it did not dissuade my client’s management team from trying to imitate them.

The Education of an Investment Risk Manager, Part IX (The End)

A bevy of little tales about odd investment tasks that I succeeded with, and how many of them did no good for my clients.

Ben Graham Did Not Give Up on Value Investing in Theory

With quotations and links to the source documents, I show what Ben Graham really said in the article commonly cited to say that he gave up on value investing.

On Avoiding Con Men

A summary article of many of my prior articles on how to avoid being defrauded.

On Alternative Investments

Alternative investments are like regular investments, but they are less liquid, more opaque, and have higher fees.

Should You Buy Shares of Stock or Not?

Where I answer Mark Cuban the one time he tweeted to me.  Really!

Quiet Companies Are Better

Why companies should let their filings with the SEC speak for them, and abandon the media.

Two is Company, Three is a Crowd

On game theory, and how it affects politics and civil wars.

It Works, But It Doesn’t Work All The Time

On how good investment theories fail for periods of time, and then come roaring back when most people know they will never work again.

Value Investing when Debt Levels are High

On seeking a margin of safety, when very little seems safe

A New Look at Endowment Investing

I interact with a groundbreaking paper on endowment investing — a very good paper, and I give some ways that it could be improved.

Less is More

Do you want to do better in investing?  Make fewer decisions, and make them count.

Taleb Versus Reality

In which I take on Nassim Taleb’s views on how to reduce risk in investing, and show which half of his valid, and which half are fantasy.

To Young Analysts

What I contributed to Tom Brakke’s project for young investment analysts — what do I think they should know?

The Rules, Part XLIX

In institutional portfolio management, the two hardest things to do are to buy higher than your last buy, and sell lower than your last sale.

The Rules, Part L

Countries are firms that produce claims on assets and goods

The Rules, Part LI

65% of the time, the rules work.  30% of the time, the rules don’t work. 5% of the time, the opposite of the rules works.

The Rules, Part LII

ge + E/P > ilongest bond

The Rules, Part LIII

The tech market washes out about every eight years or so.  The broad market, which is a more robust beast, washes out far less frequently.  My question: are these variants of the same phenomenon?

The Rules, Part LIV

When do employee and corporate incentives line up?  Ideally, incentive schemes should reward people with a fraction of the additional profitability that resulted from the additional work that they did.  Difficulties: measurement impossible in many cases, people could receive a bonus when the firm is not profitable, neglects synergies (both positive and negative).

The Rules, Part LV

Financial intermediation reduces volatility.  In bull markets, demand for financial intermediaries drops.

The Rules, Part LVI

Leverage and risk eventually transfer to the least regulated

The Rules, Part LVII

The more that markets are united through derivatives, the more systemic risk is created.

Photo Credit: richard winchell¬† || No, don’t study the Kabbalah…

To my readers, for a little while, I am going to be doing some “best of” posts along with some smaller articles. ¬†You should see eleven “best of” articles before this is done. ¬†If this bugs you, just turn me off for a little while. ¬†These articles are important, because there are some re-publishers that mine these pieces for content, and sometimes translate highlighted articles into languages other than English.

This era probably had the greatest density of “Rules” posts. ¬†In my view, these were my best posts written between May and July¬†2013:

Improve Your Skills

How do you protect those whom you love and yourself from economic obsolescence?

In Defense of Concentrated Portfolios

Why it is good to have asset managers that are not closet indexers, unlike most actively managed money in the market today.

Many Will Not Retire; What About You?

Thinking about the different streams of income in society, and which might be more likely to fail.  Also, thoughts on how low interest rates fit into this picture.

On Captive Insurers

On how life insurers compromise rules on reserving using reinsurers that they own as subsidiaries.  Also examines other ways that insurers weaken solvency.

On Insurance Investing, Part 6

On Insurance Investing, Part 7 [Final]

On how insurance has changed for investors over the past ten years, Price-to-Book vs Return on Equity Diagrams, and miscellaneous issues for those investing in insurance companies.

On Long-Term Care Insurance

Really, it is not an insurable risk, which is why most companies underwriting LTC have lost money on it, and coverage has become less and less generous.

“As for those with long-term care policies, if they are old, keep paying on them, you will likely do well on them when you finally need to draw on the policies.¬† You have benefits that benefits that can no longer be purchased.¬† Enjoy the exclusive club you are in.”

On News

“In summary, all news is not equal.¬† The reactions to news, and the lack thereof, can tell us a lot about the intentions of large market actors.¬† Do your homework well, and prosper off of the knowledge that it gives you regarding reactions, over-reactions, and under-reactions.”

On Risk-Based Liquidity, and Financial Regulation

On the Designation of Systemically Important Financial Institutions

The beginning of my arguments against the pointy-headed Financial Stability Oversight Commission [FSOC] and their inability to understand the solvency of non-bank financials.

On Stock Splits

“This brings me to my conclusion: stock splits are a momentum effect, but it is larger when companies are still have a cheap valuation.”

On the Value of Writing Well

Qualitative reasoning is important.  Read a lot, and learn to write well.

Risk Control Upfront

Risk Control Upfront, Redux

All good risk management prepares in advance to avoid risk, with strategies to mitigate risk as it happens taking a distant second place.

Temporary Prosperity at the Cost of Longer-term Prosperity

It’s easier for a generation to become prosperous if they push the bills onto their children and grandchildren. ¬†Eventually it catches up with a nation, and reduces opportunity for average people.

The Problem of Small Accounts

Is it better for small accounts to get no advice or advice that is conflicted?  It is very hard to provide quality advice to small accounts.

The Rules, Part XXXVII

The foolish do the best in a strong market

The Rules, Part XXXVIII

There is probably money to be made in analyzing the foibles of money managers, to create new strategies by taking on the opposite of what they are doing.

The Rules, Part XXXIX

The trouble with VAR and other mathematical models of risk is that if it becomes the dominant paradigm, and everyone begins to use it, it creates distortions in the market, because institutions gravitate to asset classes that the model makes to appear artificially cheap.  Then after a self-reinforcing cycle that boosts that now favored asset class to an unsupportable level, the cashflows underlying the asset can no longer support it, the market goes into reverse, and the VAR models encourage an undershoot.  The same factors that lead to buying to an unfair level also cause selling to an unfair level.

Benchmarking and risk control through VAR only work when few market participants use them.  When most people use them, it becomes like the portfolio insurance debacle of 1987.  VAR becomes pro-cyclical at that point.

The Rules, Part XL

Unions create inefficiency.¬† This creates an opportunity for new technologies that perform the same function, but aren‚Äôt as labor-intensive.¬† (E.g. integrated steel vs. mini-mills)”

The Rules, Part XLI

If businesses anticipate a flow of financing, they will depend on it.  Then a diminution or increase in the flow of investable funds will affect markets, even if the flow of investable funds remains positive or negative.

The Rules, Part XLII

During a panic, it is useful to reflect on the degree to which the real economy has been driven by the financial economy.  In the Great Depression, the degree was heavy; in the seventies, it was light.  Today, my guess is that it is in-between, which makes it difficult to figure out the right strategy.

The Rules, Part XLIII

Modify Purchasing Power Parity by adding in stocks and bonds

An optimal currency board price basket would contain both assets and goods.

The Rules, Part XLIV

Expectations are a part of the game.

The Rules, Part XLV

Market rents are typically fixed in size.  When a strategy to exploit a particular market inefficiency gets too big, returns to the rent disappear, or even go negative prospectively, even if they appear exceedingly productive retrospectively.

The Rules, Part XLVI

Speculative companies should be evaluated on cash, burn rate, probability of success, size of potential market and margins at maturity.

The Rules, Part XLVII

Crashes are the result of a shift from a positive self-reinforcing cycle to a negative self-reinforcing cycle.

The Rules, Part XLVIII

If an asset-backed security can produce a book return less than zero for reasons other than default, that asset-backed security should not be permitted as a reserve investment.

The Stock Price Matters, Regardless

Roughly one dozen ways that the stock price affects the marketing, operations and financing of publicly traded companies.

What NOT to do in Job Interviews

A somewhat humorous article of mistakes that I have made in job interviews.  Also a comment on making sure that you fit the culture of the firm at which you are interviewing.

What to Do When Things are Nuts?

So you think that the market is overvalued?  How do you adapt to that condition, while still leaving some room for opportunity if the market continues to rise.

In my view, these were my best posts written between February and April 2013:

Wall Street Hates You

I have a saying, ‚ÄúDon‚Äôt buy what someone wants to sell you. Buy what you have researched.‚ÄĚ

And so I would tell everyone: don’t give brokers discretion over you accounts, and don’t let them convince you to buy unusual bonds, or obscure securities of any sort.  By unusual bonds, I mean structured notes, and eminent men like Joshua Brown and Larry Swedroe encourage the same thing: Don’t buy them.

The Education of a Mortgage Bond Manager, Part III

Why being careful with credit ratings is smart.

The Education of a Mortgage Bond Manager, Part IV

Be wary of odd asset classes; they are odd for a reason.

The Education of a Mortgage Bond Manager, Part V

Where I do odd things in order to serve my client.

The Education of a Mortgage Bond Manager, Part VI

The Education of a Mortgage Bond Manager, Part VII

The Education of a Mortgage Bond Manager, Part IX

Odd stuff, but particularly insightful into some of the perverse dynamics inside investment departments.

The Education of a Mortgage Bond Manager, Part VIII

How I led the successful effort to modify the Maryland Life Insurance Investment Law, and acted for the good of the public.

The Education of a Mortgage Bond Manager, Part X (The End)

Where I explain the odd bits of being portfolio manager, while succeeding with structured bonds amid difficult markets.

Berkshire Hathaway & Variable Annuities

I explain the good, bad, and ugly off of Berkshire Hathaway’s reinsurance deal with CIGNA.

Advice to Two Readers

Where I opine on some Sears bonds, and also on flu pandemic risk at RGA.

What I Would & Would Not Teach College Students About Finance

Mostly, I would teach them to think broadly, and realize the most of the complex investment math is easy to get wrong.

My Theory of Asset Pricing

My replacement for MPT using contingent claims theory.

On Insurance Investing, Part 4

On finding companies with conservative insurance reserving

On Insurance Investing, Part 5

On the squishy stuff, where there are no hard guidelines.

On Time Horizons

People shorten and lengthen their time horizons at the wrong time.

The Education of an Investment Risk Manager, Part IV

On two odd situations inside a life insurance company.

The Education of an Investment Risk Manager, Part V

On how we replaced a manager of managers.

Value Investing Flavors

Explains how there are many ways to do value investing.

Classic: Using Investment Advice, Part 1

Classic: Using Investment Advice, Part 2

Classic: Using Investment Advice, Part 3

Classic: Using Investment Advice, Part 4 [Tread Warily on Media Stock Tips]

Understand yourself, understand the advisor, understand the counsel that is offered, and finally, we wary of what you here through the media, including me.

Classic: Avoid the Dangers of Data-Mining, Part 1

Classic: Avoid the Dangers of Data-Mining, Part 2

There are many ways to torture the data to make it confess what you want to hear.  Avoid that.

Classic: The Fundamentals of Market Tops

Where I explain what conditions are like when market tops are near.

At the Towson University Investment Group’s International Market Summit, Part 5

Where I answer the question: Where does academic theory fail in finance and in economics?

Classic: Separating Weak Holders From the Strong

Classic: Get to Know the Holders’ Hands, Part 1

Classic: Get to Know the Holders’ Hands, Part 2

Articles that explain the fundamental  basis that underlies technical analysis.

Classic: The Long and Short of Trend Investing

How to play trends without getting skinned.

Full Disclosure: long RGA and BRK/B

These articles appeared between November 2012 and January 2013:

On Time Horizons

Investment advice without a time horizon is not investment advice.

This Election Will Solve Nothing

So far that is true of the 2012 elections.


We need to add “None of the Above” as an electoral choice in all elections.

Eliminating the Rating Agencies, Part 2

Eliminating the Rating Agencies, Part 3

Where I propose a great idea, and then realize that I am wrong.

The Rules, Part XXXV

Stability only comes to markets in a self-reinforcing mode, from buy and hold (and sell and sit on cash) investors who act at the turning points.

The Rules, Part XXXVI

It almost never makes sense to play for the last 5% of something; it costs too much. Getting 90-95% is relatively easy; grasping for the last 5-10% usually results in losing some of the 90-95%.

Charlie Brown the Retail Investor

Where Lucy represents Wall Street, the football is returns, and Charlie Brown is the Retail Investor. Aaauuuggh!

On Hucksters

Why to be careful when promised results seem too good, and they get delayed, or worse.

Bombing Baby BDC Bonds

Avoid bonds with few protective covenants, unless the borrower is very strong.

On Math Education

Why current efforts to change Math Education will fail. ¬†Pedagogy peaked in the ’50s, and has been declining since then.

On Human Fertility, Part 2

On the continuing decline in human fertility across the globe.

If you Want to be Well-off in Life

Simple advice on how to be better off.  Warning: it requires discipline.

Young People Should Favor Low Discount Rates

If we had assumed lower discount rates in the past, we wouldn’t have the problems we do now. ¬†(And maybe DB pensions would have died sooner.)

Problems in Life Insurance

On why we should be concerned about life insurance accounting.

Investing In P&C Insurers

On why analyzing P&C insurers boils down to analyzing management teams.

Selling Options Cheaply (Did You Know?)

Naive bond investors often take on risks that they did not anticipate.

Book Review: The Snowball, Part One

Book Review: The Snowball, Part Two

Book Review: The Snowball, Part Three

Book Review: The Snowball, Part Four

Book Review: The Snowball, Epilogue

My review of the most comprehensive book on the life of Warren Buffett.

On Watchlists

How I met one of the Superinvestors of Graham-and -Doddsville, and how I generate investment ideas.

Why do Value Investors Like to Index?

How I admitted to not having  a correct perspective on value indexing.

Evaluating Regulated Financials

Why regulated financials are different from other stocks, and how to analyze them.

Locking in a Smaller Loss

Why people are willing to lock in a loss against inflation, because of bad monetary policy.

Why I Sold the Long End

Great timing.

The Evaluation of Common Stocks

Value investing is still powerful, but the competition is a lot tougher.

The Order of Battle in Financial Planning for Ordinary Folks

The basics of personal finance

Sorting Through the News

How to use my free news screener to cut through the news flow, and eliminate noise.

On Financial Blogging

So why do we spend the time at this?

Matching Assets and Liabilities Personally

How to manage investments to fit your own need for cash in the future.

Penny Wise, Pound Foolish

How short-sighted, incompetent managers destroy value.

Expensive High Yield ‚Äď II

No such thing as a bad trade , only an early trade… high yield prices moved higher from here.

2012 Financial Report of the US Government

Chronicling the financial promises made by the Federal Government

On Insurance Investing, Part 1

On Insurance Investing, Part 2

On Insurance Investing, Part 3

The first three parts of my 7-part series on how to understand this complex group of sub-industries.

How to Become Super-Rich?

Even Buffett didn’t get super-rich by only investing his own money. ¬†He had to invest the money of others as well. ¬†The super-rich form corporations and grow them; they build institutions bigger than themselves.

The Product that Never saw the Light of Day

On the Variable Annuity product that would simply be a tax scam. ¬†Later I would learn that product exists now, just not in the form I proposed 8 years earlier when it didn’t exist.

Before I start this evening, I would like to explain some of the reasons for these “Best of the Aleph Blog” articles. ¬†I write these no closer than one year after an article was written, so that I can have a more dispassionate assessment of how good they were. ¬†I write these for the following reasons:

  • Some people want a quick introduction to the way I think.
  • Some publishers on the web want additional copy, and I let them republish some of my best pieces.
  • One day I may bundle a bunch of them together, rewrite them to improve clarity, and integrate them to create a set of books on different topics.
  • One of my editors at RealMoney once shared with me that I was one of the few authors there whose articles got re-read, or read after a significant time had passed. ¬†This is meant to be mostly “timeless” stuff.
  • New readers might be interested in older stuff.
  • I enjoy re-reading my older pieces, and sometimes it stimulates updates, and new ideas.

Anyway, onto this issue of the “Best of the Aleph Blog.” ¬†These articles appeared between August 2012 and October 2012:

On Credit Scores

Why credit scores are important; make sure you guard yours.

Retail Investors and the Stock Market

On the pathologies of being an amateur investor when there are those who will take advantage of you, and you might sabotage yourself as well.

On the Poway School District

Goes through the details of how a school district outside San Diego mortgaged the future of the next generation who will live there, if any will live there.

Using Investment Advice, Part I

Using Investment Advice, Part II

Using Investment Advice, Part III

Using Investment Advice, Part IV

A series of articles inspired by what I wrote at RealMoney, encouraging people to be careful about listening to advice in the media on stocks, including those recommended by Cramer.

The Future Belongs to Those with Patience

On why patience and discipline are required for good investing.

What Caused the Crisis?

A retrospective, if somewhat controversial.

On the International Business Machines Industrial Average

Replace the DJIA with a new cap-weighted index of the 30 largest capitalization stocks.

How Warren Buffett is Different from Most Investors, Part 1

How Warren Buffett is Different from Most Investors, Part 2

You have to understand Buffett the businessman to understand Buffett the investor.

Volatility Analogy

How an interview I messed up led to an interesting way to explain volatility.

Spot the Gerrymander

Eventually we need to eliminate gerrymandering — hey, maybe we can do that at the future Constitutional Convention.

Reforming Public School Testing

Creating exams where you can’t study for the test; you can only study.

Carrying Capacity

Governments imagine that they can shape outcomes, and in the short-run, they can.  In the long-run, the real productivity of the economy matters, and only those that can make it without government help will make it.  Whatever government policy may try to achieve, eventually the economy reverts to what would happen naturally without incentives.  There is a natural carrying capacity for most activities, and efforts to change that usually fail.

Actuaries Versus Quants

On why Actuaries are much better than Quants

Neoclassical vs Austrian Economics

Applying math to economics has been a loser.  Who has a consistently good macroeconomic model?  No one that I know.  Estimates of future GDP growth and inflation are regularly wrong, and no one calls turning points well.

The Dilemma of Adding Yield

A quick summary of risk in bonds, and why additional yield is often not rewarded.

The Dilemma of Adding Yield, Redux

On working out the pricing between discount, premium, and par bonds.

Too Much Investment

Investment is a good thing, overinvestment is a bad thing.

Got Cash? (Part 2)

On Buffett and others carrying cash to give themselves flexibility.

Set it and Forget it

On what uneducated investors should do.

Forest Fires and Central Banking

Short piece pointing out that small crises are needed to prevent huge crises.

Match Assets and Liabilities

Total Return Versus Long Liabilities

Cash flow matching has often been sneered at as an investment policy.  I explain why such a view is naive, not sophisticated, and definitely wrong.

The Rules, Part XXXIV

‚ÄúOnce something is used for hedging purposes, it becomes useless for predictive purposes.‚ÄĚ

Why I LOVE Blogging

On the downsides of blogging, and why they aren’t so bad.

Higher Taxes, Inflation, Default (Choose One)

Coming to a country near you, and soon!

On the Virtue of Hard Questions for Young Analysts

How young analysts toughen up through hard competitions.

Dealing in Fractions of Sense

On how to reform High Frequency Trading

Yield is the Last Refuge of Scoundrels

Far from offering high price appreciation, it is far easier to cheat many people by offering a high yield, because average people look for ways to stretch their limited resources with a tight budget.

These articles appeared between May 2012 and July 2012:

On Distribution Formulas

Most formulas for distributing income from an endowment or a a savings/investment fund are too liberal.  If you want the purchasing power to last, distribute less.

Correlating Risky Assets

How do correlations come into existence with risky assets.  This piece explains.

Simple Stock Valuation

An exploration of Eddy Elfenbein’s simple stock valuation model.

Don’t Become the Market

When any firm becomes the dominant provider of a good or service, it should ask whether it has mispriced.¬† A veiled critique of JPM’s whale trade in the credit markets.

In Defense of Nothing

Manufacturing is overrated.¬† We’ve got enough things, now we need services to make our lives richer.

Little Things are Important

When leverage is high, little things failing can lead to large and bad results.

High Profits

Labor is not scarce, so profit margins are high.  Will that last forever?  No, but it might be a while.

23,401 Auctions

391 Auctions

A pair of pieces suggesting that the markets could be better off if we held auctions once a second, or once a minute.

The Rules, Part XXXII

Dynamic hedging only has the potential of working on deep markets.

Arbitrage pricing can reveal proper prices in smaller less liquid markets if there are larger, more liquid markets to compare against.  The process cannot work in reverse, except by accident

The Rules, Part XXXIII

When politicians don’t have answers, they blame speculators, financiers (Wall Street), or foreigners.  They do anything to take the spotlight off their culpability or ineptitude.

Aim for the Middle

Very basic advice that tells you that the best returns come from taking moderate risk.

Works if Small, Fails if Large

Another bogus theory of asset allocation that works today, because markets favor it, and not enough people are using it.

Strong Hands

On the value of long-term investors holding stocks that you hold.

Logical Links

If there are a lot of links in a chain of reasoning, it is likely to be wrong.

Modified Glass-Steagall

I suggest a number of reforms that would be more effective than reinstating Glass-Steagall.

Don’t Blame Money Market Funds

On the hypocrisy of the SEC and the banking regulators

Do Insurance Stocks Do Better than Average Over the Long-Run?

The answer is probably, but not certainly.  Really, it is a mess.

On Life Insurance and Life Reinsurance

Explains why I like the life reinsurance oligopoly

On Bond Ladders

The most robust strategy for interest rates; always second-best, and never the worst.

On Internal Indexes, like LIBOR

An Analysis of Three-Month LIBOR 2005-2008

On Floating Rates

In most scandals, not enough attention is paid to those who should have been questioning the situation and did not.¬† There were parties angling for higher LIBOR and lower LIBOR.¬† Anytime you borrow or lend using an index, you assent to the method of the index.¬† What, you didn’t analyze it?

The Failure of Government-Provided Prosperity

The government has almost no control over prosperity, and yet it tries to take credit for it, and ends up ruining prosperity through deficits and loose monetary policy.

Grow Embedded Value

The main idea in investing is finding investments that will compound your money at an above average rate, with a margin of safety.

The Education of a Mortgage Bond Manager, Part I

The Education of a Mortgage Bond Manager, Part II

The beginning of my eight-part series on mortgage bonds.  I did it well for three years.

Packages! Packages!

A tale of my younger investing days, when I would mail companies for data.

Missing Earnings Estimates

Why occasional earnings misses are desirable.

Forget Your Cost Basis

All good investment decision-making is forward looking.  Whether you are buying or selling, it doesn’t matter where prices have been in the past.

Concentrated Interest

This piece generated a lot of heat, but I still stand behind it.  The concentrated interest of a profit motive is a good thing, and all of the government services do not affect what you have done at all.  The entrepreneur is a hero, whether in business, government, or elsewhere.

These articles appeared between February 2012 and April 2012:

We Eat Dollar Weighted Returns ‚ÄĒ III

What did a buy-and-hold investor get owning SPY?  7%/year.  What did the average holder get? 0%.  A warning against over-trading.

Against Risk Parity

Against Risk Parity, Redux

Expressing skepticism over a strategy using leverage to extract returns out of lower-yielding asset classes.  Why not but subordinated asset-backed securities instead, and how did they do in the crisis?

Individual Investing Can Be Tough

Individual Investing Can Be Tough, Redux

The investment game is competitive, and I give a few tips on how to avoid the risks.

Musings on the ‚Äú400% Man‚ÄĚ

Understanding small asset managers, and why you might want to invest with them.

Thinking about the Insurance Industry

I take a tour through the insurance industry after the carnage of the credit crisis.

Notes on the 2011 Berkshire Hathaway Annual Report, Part 3 (On Acquisitions)

Lists all of the notable acquisitions of Berkshire Hathaway from 1977 to 2011.¬† Analyzes Buffett’s strategy, which has been remarkably consistent over 40 years.

Notes on the 2011 Berkshire Hathaway Annual Report, Part 4 (10K Issues)

Goes through the main risks of Berkshire Hathaway.

Replacing Defined Contributions

I propose a hybrid plan that would replace 401(k)s, and other participant-directed DC plans.

The Rules, Part XXXI

The offering of liquidity through limit orders is a real service to the market, and on average gets rewarded in lower overall execution costs.  In choppy markets, it can really add value.

Buy-and-Hold Can’t Die

Buy-and-Hold Can’t Die, Redux

Explains how every investor (even speculators) has the option of holding on  for a long time, and why that can be valuable.

The Anti-Consultancy Consultancy

Call me, and I will tell you to fire the consultant, and listen to your middle managers.

Easy in, Hard out

It is always easier to loosen monetary policy than to tighten it.  The next tightening cycle will be particularly rough, should the Fed ever choose to do it.

Gold does Nothing

This post got a lot of play over the internet.¬† I was really surprised at how much response it received.¬† Gold has few industrial uses, but is pretty; that’s why it is so interesting.

Misunderstanding the Tax Debate

Misunderstanding the Tax Debate (II)

The debate should be about what income is, and not about what the rates should be.¬† Wealthy people have clever advisers that minimize “income.”¬† Doesn’t matter what the tax rate is.¬† The debate should focus on income.

Simple Retirement Calculator

Gives a simple way of analyzing whether you have saved enough or not.¬† Quick answer: you haven’t saved enough, particularly for the wretched investment environment that we are in now.