Here are 8 fascinating things I read this week.
Wisdom
This is a great point about people taking the Chartered Financial Analyst exam:
Future financiers are condemned to repeat the mistakes of the past. Nearly 150,000 wannabe investment advisors, bankers, risk managers and analysts around the world will sit for the CFA exam this weekend. Success hinges on their understanding of the capital asset pricing model and return on equity. Knowledge of disasters like the South Sea Bubble and the Great Crash, though, are not required. Widespread ignorance of financial history is an overlooked systemic risk.
Probability
Charlie Munger has a great philosophy on volatility:
This great emphasis on volatility in corporate finance we regard as nonsense. Let me put it this way; as long as the odds are in our favor and we're not risking the whole company on one throw of the dice or anything close to it, we don't mind volatility in results. What we want are favorable odds.
Pessimism
Americans think the country is in decline, but they've believed this for at least a quarter century:
Recovery
Hiring is back at pre-recession levels and firing is at a six-year low:
Waste
Share buybacks are killing America, Josh Brown writes:
Lazonick concludes that an SEC rule rewrite in the early 1980′s meant to drive Value Creation has instead ushered in an era of Value Extraction – wherein an increasingly smaller group of corporate executives and hedge fund managers reap an increasingly larger share of the productivity benefits of the economy.
Accuracy
Partick O'Shaughnessy writes about how bad pundits are:
A similar study was conducted specifically for investing/market forecasts. The CXO Advisory group gathered 6,582 predictions from 68 different investing gurus made between 1998 and 2012, and tracked the results of those predictions. There were some very well-known names in the sample, but the average guru accuracy was just 47%--worse than a coin toss. Of the 68 gurus, 42 had accuracy scores below 50%.
Another study of analyst estimates conducted by David Dreman showed that across 400,000 different estimates, the average error was 43%! (It is interesting to note that Dreman was was of the "gurus" from the CXO study--but he was the 5th best overall with an accuracy of 64%).
Returns
Here's an updated chart from Jeremy Siegel's book Stocks for the Long Run:
Humility
Here's an old Peter Lynch speech about owning what you know:
Have a good weekend.
