Additive, hierarchical and disqualifying decision processes

Technical books about investment tend to focus on quantitative techniques: ratio analysis, DCF and so on.  Few say much about decision techniques: how do you combine all the quantitative and other inputs to decide whether or not to add the share to your portfolio?  (I am disregarding the “textbook” answer of mean-variance optimisation , which is useless to me … Read more

Not taking advice

From the concluding chapter of Free Capital:  “A consensus of expert opinion is often not useful in finance, because of its self-negating property: if something is widely anticipated, it is already in the price. But the investors’ antipathy towards the concept of taking advice sometimes seemed to go beyond recognition of this point. John expressed the … Read more

How important is analytical intelligence in investing?

Above a certain level, not very important.  IQ is a hygiene factor, not a discriminating factor: it helps to be reasonably smart, but above a certain threshold, further increments help less than in some other fields. The two PhD’s in the book specifically commented on this…  Sushil, Chapter 5: “…for anyone in the top few … Read more

Max, min and average payoffs

From Vernon, Chapter 7: “He drew a distinction between activities with ‘positive scoring’, where success is defined by gaining wins, and activities with ’negative scoring’, where success is defined by avoiding faults. Positively scored activities include selling, leadership, and most sports. In these activities bravery, ‘having a go’ and risk-taking give a better chance of … Read more

Optimal leverage and compound growth

Chapter 5, Sushil, talks about optimal leverage and compound growth.  The main takeaway is that investors are better off maximising expected logarithmic return (not expected return), and this often means lower leverage than you think. In my view expected return (the mean) is often a poor objective, because the distribution of terminal wealth from any long period … Read more

Why author royalties go to the UN Stop TB Partnership

Any author of investment books is susceptible to a critique along the lines of George Bernard Shaw’s famous aphorism: those who can, do; those who can’t, teach.  Or something like: those who can, make millions in the market; those who can’t, make a few pennies writing books about it. My motives for writing Free Capital were confused (that’s … Read more