Portfolio Management – Page 19

One Dozen Reasons Why the Average Person Underperforms In Investing, Part 1

Posted on 13 February 2015 by David Merkel

Brian Lund recently put up a post called 5 Reasons You Deserve to Lose Every Penny in the Stock Market. ?Though I don’t endorse everything in his article, I think it is worth a read. ?I’m going to tackle the same question from a broader perspective, and write a different article. ?As we often say, “It takes two to make a market,” so feel free to compare our views.

I have one?dozen reasons, many of which are related. ?I do them separately, because I think it reveals more than grouping them into fewer categories. ?Here we go:

1) Arrive at the wrong time

When does the average person show up to invest? ?Is it when assets are cheap or expensive?

The average person shows up when there has been a lot of news about how well an asset class has been doing. ?It could be stocks, housing, or any well-known asset. ?Typically the media trumpets the wisdom of those that previously invested, and suggests that there is more money to be made.

It can get as ridiculous as articles that suggest that everyone could be rich if they just bought the favored asset. ?Think for a moment. ?If holding the favored asset conferred wealth, why should anyone sell it to you? ?Homebuilders would hang onto their inventories. Companies would not go public — they would hang onto their own stock and not sell it to you.

I am reminded of some of my cousins who decided to plow money into dot-com stocks in late 1999. ?Did they get to the party early? ?No, late. ?Very late. ?And so it is with most people who think there is easy money to be made in markets — they get to the party after stock prices have been bid up. ?They put in the top.

2)?Leave at the wrong time

This is the flip side of point 1. ?If I had a dollar for every time someone said to me in 1987, 2002 or 2009 “I am never touching stocks ever again,” I could buy a very nice dinner for my wife and me. ?Average people sell in disappointment thinking that they are?protecting the value of their assets. ?In reality, they lock in a large loss.

There’s a saying that the right trade is the one that hurts the most. ?Giving into greed or fear is emotionally satisfying. ?Resisting trends and losing some?money in the short run is more difficult to do, even if the trade ultimately ends up being profitable. ?Maintaining exposure to stocks at all times means you ride a roller coaster, but it also means that you earn the long-term returns that accrue to stocks, which market timers rarely do.

You can read some of my older pieces on how investors earn less on average than buy-and-hold investors do. ?Here’s one on how investors in the S&P 500 ETF [SPY], trail buy-and-hold returns by 7%/year. ?Ouch! ?That comes from buying and selling at the wrong times. ?ETFs may lower expenses, but they also make it easy for people to trade at the wrong times.

3) Chase the hot sector/industry

The lure of easy money brings out the worst in people. ?Whether it is tech stocks in 1987, dot-coms in 1999, or housing-related assets in 2007, there will always be people who think that the current industry fad will be a one-way ticket to riches. ?There is psychological satisfaction to be had by buying what is popular. ?Everyone wants to be one of the “cool kids.” ?It’s a pity that that is not a good way to make money. ?That brings up point 4:

4)?Ignore Valuations

The returns you get are a product of the difference in the entry and exit valuations, and the change in the value of the factor used to measure valuation, whether that is earnings, cash flow from operations, EBITDA, free cash flow, sales, book, etc. ?Buying cheap aids overall returns if you have the?correct estimate of future value.

This is more than a stock market idea — it applies to private equity, and the?purchase of capital assets in a business. ?The cheaper you can source an asset, the better the ultimate return.

Ignoring valuations is most common with hot sectors or industries, and with growth stocks. ?The more you pay for the future, the harder it is to earn a strong return as the stock hopefully grows into the valuation.

5) Not think like a businessman, or treat it like a business

Investing should involve asking questions about whether the economic decisions are being made largely right by those that manage the company or debts in question. ?This is not knowledge?that everyone has immediately, but it develops with experience. ?Thus you start by analyzing business situations that you do understand, while expanding your knowledge of new areas near your existing knowledge.

There is always more to learn, and a good investor is typically a lifelong learner. ?You’d be surprised how concepts in one industry or market get mirrored in other industries, but with different names. ?One from my experience:?Asset managers, actuaries and bankers often do the same things, or close to the same things, but the terminology differs. ?Or, there are different ways of enhancing credit quality in different industries. ?Understanding different perspectives enriches your understanding of business. ?The end goal is to be able to think like an intelligent business manager who understands investing, so that you can say along with Buffett:

I am a better investor because I am a businessman, and a better businessman because I am an?investor.

(Note: this often gets misquoted because Forbes got mixed up at some point, where they think it is:?I am a better investor because I am a businessman, and a better businessman because I am no investor.) ?Good investment knowledge feeds on itself. ?Little of it is difficult, but learn and learn until you can ask competent questions about investing.

After all, you are investing money. ?Should that be easy and require no learning? ?If so, any fool could do it, but my experience is that those who don’t learn in advance of investing tend to get fleeced.

6)?Not diversify enough

The main objective here is that you need to only invest what you can afford to lose. ?The main reason for this is that you have to be calm and rational in all the decisions you make. ?If you need the money for another purpose aside from investing, you won’t be capable of making those decisions well if in a bear market you find yourself forced to sell in order to protect what you have.

But this applies to risky assets as well. ?Diversification is inverse to knowledge. ?The more you genuinely know about an investment, the larger your positions can be. ?That said I make mistakes, as other people do. ?How much of a loss can you take on an individual investment before you feel crippled, and lose confidence in your abilities.

In the 25+ years I have been investing, I have taken significant losses about ten times. ?I felt really stupid after each one. ?But if you take my ten best investments over that same period, they pay for all of the losses I have ever had, leaving the smaller gains as my total gains. ?As a result, my losses never inhibited me from continuing in investing; they were just a part of the price of getting the gains.

Temporary Conclusion

I have six more to go, and since this article is already too long, they will have to go in part 2. ?For now, remember the main points are to structure your investing affairs so that you can think rationally and analyze business opportunities without panic or greed interfering.

Learning from the Past, Part 3

Posted on 31 January 20151 February 2015 by David Merkel

Photo Credit: Thibaut Ch?ron Photographies

I wish I could tell you that it was easy for me to stop making macroeconomic forecasts, once I set out to become a value investor. ?It’s difficult to get rid of convictions, especially if they are simple ones, such as which way will interest rates go?

In the early-to-mid ’90s, many were convinced that interest rates had no way to go but up. ?A few mortgage REITs designed themselves around that idea. ?Fortunately, I arrived at the party late, after their investments that implicitly required interest rates to rise soon, fell dramatically in price. ?I bought a basket of them for less than book value, excluding the value of taxes that could be sheltered in a reverse merger.

For some time, the stocks continued to fall, though not rapidly. ?I became familiar with what it was like to go through coercive rights offerings from cash-hungry companies in trouble. ?Bankruptcy was not impossible… and I burned a lot of mental bandwidth on these. ?The rights offerings weren’t really good things in themselves, but they led me to buy in at a good time. ?Fortunately I had slack capital to deploy. ?That may have taught me the wrong lesson on averaging down, as we will see later. ?As it was, I ended up making money on these, though less than the market, and with a lot of Sturm und Drang.

That leads me to my main topic of the era: Caldor. ?Caldor was a discount retailer that was active in the Northeast, but nationally was a poor third to Walmart and KMart. ?It came up with the bright idea of?expanding the number of stores it had in the mid-90s without raising capital. ?It even turned down an opportunity to float junk bonds. ?I remember noting that the leverage seemed high.

What I didn’t recognize that the cost of avoiding issuing equity or longer-term debt was greater reliance on short-term debt from factors — short-term lenders that had a priority claim on inventory. ?It would eventually prove to be a fatal error, and one that an asset-liability manager should have known well — never finance a long term asset with short-term debt. ?It seems like a cost savings, but it raises the likelihood of insolvency significantly.

Still, it seemed very cheap, and one of my favorite value investors, Michael Price, owned a little less than 10% of the common stock. ?So I bought some, and averaged down three times before the bankruptcy, and one time afterwards, until I learned Michael Price was selling his stake, and when he did so, he did it without any thought of what it would do to the stock price.

Now for two counterfactuals: Caldor could have perhaps merged with Bradlee’s, closed their worst stores, refinanced their debt, issued equity, and tried to be a northeast regional retail player. ?It didn’t do that.

The investor relations guy could have given a more understanding answer when he was asked whether Caldor was having any difficulties with credit lines from their factors. ?Instead, he was rude and dismissive to the questioning analyst. ?What was the result? ?The factors blinked and pulled their lines, and Caldor went into bankruptcy.

What were my lessons from this episode?

Don’t average down more than once, and only do so limitedly, without a significant analysis. ?This is where my portfolio rule?seven came from.
Don’t engage in hero worship, and have initial distrust for single large investors until they prove to be fair to all outside passive minority investors.
Avoid overly indebted companies. ?Avoid asset liability mismatches. ?Portfolio rule three would have helped me here.
Analyze whether management has a decent strategy, particularly when they are up against stronger competition. ?The broader understanding of portfolio rule six would have steered me clear.
Impose a diversification limit. ?Even though I concentrate positions and industries in my investing, I still have limits. ?That’s another part of rule seven, which limits me from getting too certain.

The result was my largest loss, and I would not lose more on any single investment again until 2008 — I’ll get to that one later. ?It was my largest loss as a fraction of my net worth ever — after taxes, it was about 4%. ?As a fraction of my liquid net worth at the time, more like 10%. ?Ouch.

So, what did I do to memorialize this? ?Big losses should always be memorialized. ?I taught my (then small) kids to say “Caldor” to me when I talked too much about investing. ?They thought it was kind of fun, and I would thank them for it, while grimacing.

But that helped. ?Remember, value investing is first about safety, and second about cheapness. ?Cheapness rarely makes something safe enough on its own, so analyze balance sheets, strategy, use of cash flow, etc. ?This is not to say that I did not make any more errors, but this one reduced the size and frequency.

That said, there will be more “fun” chapters to share in this series, because we always learn more from errors than successes.

Talking About Value Investing and Fed Policy

Posted on 30 January 2015 by David Merkel

Here is the second part of my interview on RT Boom/Bust. It was recorded while the FOMC was releasing its statement, so I had no idea at that time as to what the announcement had been.

The interview covers my view of Apple (not one of my strong points), Fed Policy, and what should value investors do in this low interest rate environment. Note that not all of my opinions are strong ones, and that in my opinion is a good thing. Often the best opinions are not controversial.

If you are interested in these topics, or listening to me, then please enjoy the above video. My segment is about seven minutes long.

Talking Mostly About Earnings

Posted on 29 January 2015 by David Merkel

I was on RT Boom/Bust yesterday. ?The segment that I taped here was mostly on corporate earnings. ?There’s only seven minutes of me here — so enjoy it if you will.

Relying on the Kindness of Strangers

Posted on 16 January 201516 January 2015 by David Merkel

Photo Credit: Storm Crypt || Ah, to be in Zurich, and enjoy the additional purchasing power of the Franc — Photo Credit: Storm Crypt || Trusting the Swiss National Bank, Really?

Significant currency brokers relied on the Swiss National Bank to keep its currency peg in place. Now some of them are insolvent, and many of their clients also. Should they be surprised? Currency pegs put into place for political reasons rarely hold up, and this has happened in Switzerland in the past.

On thing I learned early in my career is that you never bet the firm. You never allow there to be a single point where a change brings failure.

You don’t rely on the kindness of strangers. In markets, always ask “What are the motives of the other players?” As an example, think of all of the people who lost money on auction rate preferred securities. There was no guarantee that auctions would always succeed, or that if one failed, the sponsor would take up the slack. No, when they failed, those that relied on the implicit idea that “auction rate preferreds are a safe reliable way to earn extra money in the short run” got hosed.

That’s why I say be wary, particularly where politically motivated entities like Central Banks are involved. ?Are you certain that the Fed will tighten this year, and that interest rates will rise? ?Do be so certain; people have been betting on that for some time, and the Fed is more than happy to let things slide until something forces their hand, or they think the risks of a move are minuscule. ?Though we are at record lows for the 30-year Treasury, rates could go lower still.

Who knows? ?Maybe rates go low enough that someone relying on them to remain above a certain level?gets forced to buy into a high market already, and put in the top for prices, and bottom for yields.

On the other hand, there are some that argue that the Fed can’t raise rates because then the US Government would have problems financing its deficit if interest rates rose.? Maybe, but I wouldn’t rely on that, either. ?I’ve been long long Treasuries for quite some time, but we are getting near the points where Hoisington and Schilling have suggested the trade might be over. Add onto that that banks may finally be starting to lend, and maybe indeed, we are near the bottom for interest rates. I just would not rely on it and make a one way bet.

In my next segment on “Learning from the Past,” I’ll go over my first really major loss where I traveled on the coattails of a famous value investor and lost royally. The point is: don’t rely on the kindness of strangers. Analyze where things can go wrong, and where other parties may have a different view than you do. Why are you smarter than they are? If they are in a position of power, what makes you think they will use it in your favor, rather than act in their own interests? As an example, just because the banks were bailed out last time does not mean that it will happen next time. The players and politics could be vastly different, with policymakers finally realizing that they only have to protect depositors, and nothing more.

So be wary. ?More next time, and I should be returning to a more regular blogging schedule once again. ?My extracurricular project nears completion. ?More on that later also.

Living in the Land of Worries, Part 1

Posted on 3 January 20154 January 2015 by David Merkel

There is always a reason to worry, and always enough time to panic.

Look over there, behind that bush: interest rates are rising. In Europe and China, deflation is threatening. The geopolitical situation is in many ways tense over Russia and Middle East issues. Japan is a mess. Emerging markets will get hit when the Fed starts to tighten.

I could go on, and talk about the longer term demographic problems that we face, and other aspects of lousy government policy, but it would get too long. The point is, there are things that you can worry about. But what should you do?

For many people, worry paralyzes. If there are significant potential problems, they won’t invest, or they will keep their investments very simple and safe. They may fall prey to those who scam by offering “safety” though gold, guns, food storage, life insurance products, etc. Is there a better way to avoid worry?

The first way to avoid worry is to realize that more things can go wrong than do go wrong. Many of the things you might worry about will not happen. Second, even when things do go wrong, the market prices often reflect those possibilities, so the markets may not react badly. Third, the markets have endured many crises in the past and have come back from those crises. Fourth, in the worst crises you can imagine, it will not matter what you do if those take place — you will lose a lot, but so will everyone else. If no strategy can work in the worst problems, you should spend your time praying rather than worrying.

Some might say to me, “But I don’t want to lose a lot of money! I’m relying on it for my retirement (or whatever).” If that is your problem, the answer is simple — invest less in risk assets. Give up some potential return so that you can sleep at night. That has been my advice to a bunch of pastors who generally don’t understand the markets at all. We offer them blended portfolios of risky and safe assets ranging from low volatility to the volatility level of the stock market. I tell them to look at what the blended portfolios have lost in 2008, and size the risk of their holdings to what they can live with in terms of risk if they had to liquidate at a bad time. If they are still squeamish, I tell them to take the risk level down another notch.

There is a risk to not taking enough risk, and that will be the point of part 2, but it is better for the squeamish to implement a sub-optimal plan than no plan. It is also better for the squeamish to implement a sub-optimal plan than a plan that they can’t maintain, because they get too scared.

Solutions have to be real-world to meet people where they are. After that, maybe we can try to teach people not to worry, but human nature is difficult to change.

PS — for any that might say that they are worried that they aren’t going to earn enough to be able to retire or stay comfortably retired, part 2 will have something to say there as well.

Learning from the Past, Part 2

Posted on 2 January 201516 February 2015 by David Merkel

Happy New Year to all of my readers. May 2015 be an enriching year for you in all ways, not just money.

This is a series on learning about investing, using my past mistakes as grist for the mill. ?I have had my share of mistakes, as you will see. ?The real question is whether you learn from your mistakes, and I can say that I mostly learn from them, but never perfectly.

In the early 90s, I fell in with some newsletter writers that were fairly pessimistic. ?As such, I did not do the one thing that from my past experience that I found I was good at: picking stocks. ?Long before I had money to invest, I thought it was a lot of fun to curl up with Value Line and look for promising companies. ?Usually, I did it well.

But I didn’t do that in that era. ?Instead, I populated my portfolio with international stock and bond funds, commodity trading funds, etc., and almost nothing that was based in?the USA. ?I played around with closed-end funds trying to see if I could eke alpha out of the discounts to NAV. ?(Answer: No.) ?I also tried shorting badly run companies to make a profit. ?(I succeeded minimally, but that was the era, not skill.)

I’ve been using my tax returns from that era to prompt?my memory of what I did, and the kindest thing I can say is that I?didn’t have a consistent strategy, and so my results were poor-to-moderate. ?I made money, just not much money. ?I even manged to buy the Japanese equity market on the day that it peaked, and after many months got out with a less-than-deserved 3% loss in dollar terms because of offsetting currency movements.

One thing I did benefit from was learning about a wide number of investing techniques and instruments, which benefited me professionally, because it taught me about the broader context of investing. ?That said, it cost time, and some of what I learned was marginal.

But not having a good overall strategy largely means you are wasting your time in investing. ?You may succeed for a while with what some call luck, but luck by its nature is not consistent.

Thus, I would encourage all of my readers to adopt an approach that fits their:

Knowledge
Personality
Available time

You have to do something that you truly understand, even if it is hiring an advisor, wealth manager, etc. ?You must be able to understand the outer edges of what they do, or how will you evaluate whether they are serving you well or not? ?Honesty, integrity, and reputation can go a long way here, but it really helps to know the basics.

Picking fund managers is challenging enough. ?How much of their good performance was due to:

their style being in favor
new cash flows in pushing up the prices of the assets that they like to buy
a few good ideas that won’t be repeated
a clever aide that is about to leave to set up his/her own shop
temporary alignment with the macroeconomic environment
or skill?

Personality is another matter — some people don’t learn patience, which cuts off a number of strategies that require time to work out. ?Few things also work right off the bat, so even a good strategy might get discarded by someone expecting immediate results.

Time is another factor which I will take up at a later point in this series. ?The best investment methods out there are no good for you unless you can make them fit into the rest of your life which often contains the far more important things of family, recreation, faith, learning, etc. ?It’s no good to be a wealthy old miser who never learned to appreciate life or the goodness of God’s providence in life.

And so to that end, I say choose wisely. ?My eventual choice was value investing, which isn’t that hard to learn, but requires patience, but can scale to the time that you have. ?For those that work in a business, it has the side-benefit that it is the most businesslike of all investment methods, and can make you more valuable to the firm that you work for, because you can learn to marry business sense with your technical expertise, potentially leading to greater profit.

For me, I can say that it broadened my abilities to think qualitatively, complementing my skills as a mathematician. ?The firms I worked for definitely benefited. ?Maybe it can do the same for you.

Till next time, where I tell you how value investing is *not* supposed to be done. 😉

PS — one more note: it is *very* difficult to make money off of macro insights in equities. ?Maybe there are some guys that can do that well, but I am not one of them. ?Limiting the effect of my insights there has been an aid to doing better in investing, because it forces me to be modest in an area where I know my likely success is less probable.

Learning from the Past, Part 1

Posted on 23 December 2014 by David Merkel

This is another Aleph Blog series of indeterminate length. ?I won’t bleed as much as my friend James Altucher, but I will reveal the?worst investments of my life. ?There have been a lot of them. ?Good investments have more than paid for the losses, but the losses were significant in two ways:

The losses were large enough to hurt.
Each loss taught me something; usually I did not make the same mistake twice.

After I finish this series, I hope that it can serve as a guide on what to avoid in investing for younger folks, so they don’t repeat my errors. ?Okay, older folks can benefit as well… and maybe along the way, I’ll throw in a few colorful stories of investments that weren’t losses, but still taught me something.

Here we go!

=-=-=–=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-==-

In the late 1980s, I fell prey to a boiler room scam. ?I was relatively new to investing for myself, though I had paper-traded stocks for years, and was seemingly able to pick good stocks. ?So why did I give in to the slick sales pitch? ?Inexperience, for one, and slack capital for two — in my late 20s?I really did not have a plan for what I wanted to do with my slack capital. ?I had done some investing in the stock market, but made money too quickly, and I feared that the market was once again too high (isn’t it always?).

Regardless, it was pretty dopey, and ended up being a 98% loss. ?A class action suit was created, which after 8 years ended up with nothing for any of the plaintiffs, and as far as I can tell, the lawyers lost money as well, since they were seeking a share of the recovery. ?Somewhat bitter at the end, the law firm closed its last letter saying something to the effect of, “At least we have the satisfaction that all of those that we have sued have lost all of the money that we can find.” ?Cold satisfaction, that.

I can tell you that the experience made me unwilling to transact any personal business over the phone that I did not initiate. ?For long-time readers, this helped lead to my saying,

Don’t buy what someone wants to sell you. ?Instead, research what you need, and buy that.

That’s a good lesson to begin with. ?Till next time.

Out and About with The Aleph Blog

Posted on 20 December 201421 December 2014 by David Merkel

1. Recently I appeared on RT Boom/Bust again. ?The interview lasts 6+ minutes. ?Erin Ade and I discussed:

Who benefits from lower energy prices.
The No-Lose Line for owning bonds,
Whether you are compensated for inflation risks in long bonds
How much an average person should invest in stocks with any assets that they have after buying their own house.
The value of economics, or lack thereof, to investors today.

2. Also, I did an “expert interview” for Mint.com. ?I answered the following questions:

What is your most basic advice on investing?
What can you tell young people to help them stay financially secure in their futures?
How can a potential investor go about finding the best investment professional to work with for his or her individual needs?
Please explain how being a good investor and a good businessman go hand in hand.
What is your favorite part of your job?
You clearly do a lot of reading, as seen from your book reviews. What other genres of books do you enjoy?

3. Finally, Aleph Blog was featured in a list of the Top 100 Insurance Blogs at number 29. ?I find it interesting because my blog has maybe 18% of?posts on insurance topics. ?That said, I have a distinctive voice on insurance, because I will talk about consumer issues, and what are companies that might be worth owning.

Enjoy the overly long infographic.

An infographic by the team at Rebates zone

On Financial Risk Statements, Part 1

Posted on 13 December 2014 by David Merkel

Most formal statements on financial risk are useless to their users. Why?

They are written in a language that average people and many regulators don’t speak.
They often don’t define what they are trying to avoid in any significant way.
They don’t give the time horizon(s) associated with their assessments.
They don’t consider the second-order behavior of parties that are managing assets in areas related to their areas.
They don’t consider whether history might be a poor guide for their estimates.
They don’t consider the conflicting interests and incentives of the parties that?direct the asset managers, and how their own institutional risks affect their willingness to manage the risks that other parties deem important.
They are sometimes based off of a regulatory view of what can/must be stated, rather than an economic view of what should be stated.
Occasionally, approximations are used where better calculations could be used. ?It’s amazing how long some calculations designed for the pencil and paper age hang on when we have computers.
Also, material contract provisions that are hard to model/explain often get ignored, or get some brief mention in a footnote (or its equivalent).
Where complex math is used, there is no simple language to explain the economic sense of it.
They are unwilling to consider how volatile financial processes are, believing that the Great Depression, the German Hyperinflation, or something as severe, could never happen again.

(An aside to readers; this was supposed to be a “little piece” when I started, but the more I wrote, the more I realized it would have to be more comprehensive.)

Let me start with a brief story. ?I used to work as an officer of the Pension Division of Provident Mutual, which was the only place I ever worked where analysis of risks came first, and was core to everything else that we did. ?The mathematical modeling that I did in there was some of the best in the industry for that era, and my models helped keep us out of trouble that many other firms fell into. ?It shaped my view of how to manage a financial business to minimize risks first, and then make money.

But what made us proudest of our efforts was a 40-page document written in plain English that ran through the risks that we faced as a division of our company, and how we dealt with them. ?The initial target audience was regulators analyzing the solvency of Provident Mutual, but we used it to demonstrate the quality of what we were doing to clients, wholesalers, internal auditors, rating agencies, credit analysts, and related parties inside Provident Mutual. ?You can’t believe how many people came to us saying, “I get it.” ?Regulators came to us, saying: “We’ve read hundreds of these; this is the first one that was easy to understand.”

The 40-pager was the brainchild of my boss, who was the most intuitive actuary that I have ever known. ?Me? I was maybe the third lead investment risk modeler he had employed, and I learned more than I probably improved matters.

What we did was required by law, but the way we did it, and how we used it was not. ?It combined the best of both rules and principles, going well beyond the minimum of what was required. ?Rather than considering risk control to be something we did at the end to finagle credit analysts, regulators, etc., we took the economic core of the idea and made it the way we did business.

What I am saying in this piece is that the same ideas should be more actively and fully applied to:

Investment prospectuses and reports, and all investment and insurance marketing literature
Solvency documents provided to regulators, credit raters, and the general public by banks, insurers, derivative counterparties, etc.
Risk disclosures by financial companies, and perhaps non-financials as well, to the degree that financial markets affect their real results.
The reports that sell-side analysts write
The analyses that those that provide asset allocation advice put out
Consumer lending documents, in order to warn people what can happen to them if they aren’t careful
Private pension and employee benefit plans, and their evil twins that governments create.

Looks like this will be a mini-series at Aleph Blog, so stay tuned?for part two, where I will begin going through what needs to be corrected, and then how it needs to be applied.