Why I am not a value investor

The header is a playful provocation: in truth I am probably closer to a value investor than any other type. But I place little credence on the historical superiority of value investing (which has faltered in recent years anyway), and I have little sense of affiliation or identity as a value investor.  It’s not quite that I don’t want to … Read more

On the limits of behavioural finance

Behavioural finance is a fashionable genre of academic research, and a productive strategy for writing academic papers.  But it was not mentioned as a resource by any of the interviewees in Free Capital, and I have never found it much help in my own investing.  There are several reasons for this.   Many explanations, few predictions The comprehensive menu of alleged behavioural … Read more

Information asymmetry and the surveillance state

(And now a short break from our normal programming…. In a comment linked from the Wikileaks Twitter feed on the recent PRISM disclosures, Bernard Keane characterises the surveillance state with the term information asymmetry: “Information asymmetry is how your government wants to know everything possible about you — where you are, whom you called, what you … Read more

Choosing better company names

ADVFN, Interactive Investor, MoneyAM, Motley Fool, t1ps.com.  Financial website entrepreneurs don’t seem to be very good at choosing names.   This post tries to do better. It is not really an investment post, except insofar as a start-up with a good name may have a slightly better chance of success than one with a poor name. … Read more

Optimal allocation of attention

 “The scarcest resource for successful investors is not money but attention: how to manage the trade-off between time and rationality to best effect. There is not time in life to find out everything about every potential investment. Investment skill consists not in knowing everything, but in judicious neglect: making wise choices about what to overlook.” …that’s the … Read more

Are moonshots too rare to look for?

My last post drew a distinction between two classes of shares: potential “moonshots” (those with fat-tailed and/or right-skew returns), and “mundanes” (those with symmetrical returns).  I argued that when selecting potential moonshots for a portfolio, one should be more tolerant of false positives than when selecting mundanes. However, I can also see a good case that it may … Read more

Investment and optimal error rates: moonshots and mundanes

The main point of this note is to suggest that an investor should have a higher tolerance for false positive classifications when selecting shares with right-skew and/or fat-tailed returns (potential “moonshots”).  Terminological preamble Statistical discussions of hypothesis testing commonly refer to “false positive” (Type I) and “false negative” (Type II) errors. The term “error” is value-neutral in statistical testing, … Read more

Analytics versus heuristics

One criticism of the investors in Free Capital  which I have heard from more than one expert reader goes something like this: “The interviewees say they are making investment decisions, but none ever actually works out what a company is worth.”  These readers then elaborate on the concept of intrinsic value – the discounted future cashflows (DCF) of the … Read more

To whom should I give my charitable donations?

INTRODUCTION If you want immediate practical ideas, my short answer is to follow Givewell recommendations. If you want to know how I personally think about choosing charities, read on. Issues-agnostic My starting position is issues-agnostic. I don’t have any prior commitment to a cause related to my family background or life trajectory. I tend to be suspicious of causes … Read more

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