Happy Friday! There are more good articles on the Web every week than anyone could read in a month. Here are eight fascinating pieces I read this week.
Keep it simple
Abnormal Returns writes on the value of simplicity:
One thing experienced traders recognize is that the more steps you can strip away from your process the easier it is to replicate over time. Novice traders need to recognize that this knowledge is gained over time through experience and market tuition. Overly complicated systems are by definition more fragile and more prone to behavioral pitfalls.
That is why for most investors a simple approach that focuses on broadly diversified portfolios of index funds, periodically rebalanced is a simple approach that can be followed over time. For traders and investors in pursuit of alpha the idea of simplicity should also be something to strive for. Simplicity ain't easy. But what exactly is the alternative?
Efficiency
Brad Plumer shares this chart from the EPA showing how much vehicle efficiency has improved since 1975:
Coin-flippers
Michael Mousoussin talks about the role of luck in investing. From Business Insider:
A lot of investment results -- especially in the short-term -- are based on luck, but maybe not for the reason that people believe. There is a lot of skill in markets and investors themselves are all very similarly skillful -- this is reflected in prices. As a consequence, that leaves more to luck and is the reason why short-term outcomes can mostly be put down to luck.
New boom
The Financial Times points out how much U.S. oil production is booming:
US crude oil production will come close to its record highs in just three years time as the shale boom sends output soaring, according to the government's Energy Information Administration.
The forecast marks a spectacular reversal from the assumptions of five years ago, when US crude production appeared to be in inexorable long-term declin
The EIA said on Monday that it had revised sharply higher its estimates of future US crude output to about 9.5m barrels a day in 2016. That is very close to the previous peak in US production of 9.6m b/d in 1970 and almost double its low point of 5m b/d in 2008.
Myopia
Joe Fahmy writes a great post on people becoming short-sighted:
When $TWTR was $45, I tweeted that it could double in 12-24 months. When it got to $60, I outlined my thesis in a blog video. After getting close to $75, the stock dropped $9.56 on Friday 12/27/13. Over the weekend, I got 17 emails asking me if I was still sticking to my thesis and if my views have changed. I didn't answer any of the emails because what part of "by the year 2015″ did people not understand? If you are that concerned about the day-to-day fluctuations, then you should either decrease your position size or you should NOT be trading. Trading scared or nervous gets you nowhere.
Technology
Eddy Elfenbein writes about technological miracles. This is a great piece:
Ford Motor incorporated in 1903, but Ford's continuous assembly line did not emerge until 1913. Guglielmo Marconi sent the first transatlantic radio broadcast on December 12, 1901, but radio did not captivate the public until the 1920s.
In 1904, the diesel engine debuted in St. Louis. In 1905, Einstein developed the theory of relativity and several other insights, but they were not proven true until 1919 or later. For the most part, the major inventions of 1901 to 1905 did not reach the consciousness of the general public until the 1920s.
Likewise, many of the greatest breakthroughs of the 1950s and 1960s -- like Xeroxing, faxing or color TV transmission -- were developed in the late 1930s, but it took decades to reach commercial viability.
Job security
Picking a valuable college major is hard, writes The Wall Street Journal:
The trend toward specialized, vocational degrees is understandable, with an increasing number of companies grumbling that graduates aren't coming out of school qualified to work.
But guessing about what will be hot tomorrow based on what's hot today is often a fool's errand.
The problem is that the job market can change rapidly for unforeseeable reasons. Today, we frequently hear that computers and information technology are and will be the hot fields, but both have gone from boom to bust over time. Students poured into IT programs in the late 1990s, responding to the Silicon Valley boom, only to graduate after 2001 into the tech bust.
Changes in regulations, meanwhile, can rapidly create and kill fields. For instance, the Sarbanes-Oxley Act amped up the demand for accountants. Emerging technologies can be just as disruptive—applicant-tracking software eliminates jobs in recruiting, while cell phones create programming jobs in mobile technology. Developments like these are almost impossible to anticipate.
Rationality
Low costs are winning over investors. Vanguard is dominating like never before:
Vanguard continued to dominate the fund industry in 2013. Through the first 11 months, the firm raked in $117 billion of long-term mutual fund and ETF assets compared with $425 billion for the industry. Vanguard has finished first or second in terms of flows in all but two of the past 20 years. This has allowed the firm to increase its market share to 18% from just 8% two decades ago and places it well ahead of rivals Fidelity and American Funds, both of which have lost market share over the past five years.
Enjoy your weekend.
