Tag Archive: Invest

Starting with Nassim Taleb’s sardonic story about forecasting. As the tale goes, a trader listened to the firm’s chief CDSDEFAULT-1-1economist provide a forecast about the markets and then lost bundle acting on it, getting him fired. The trader angrily asked his boss why he was fired rather than the economist, as the economist’s poor forecast led to the poor trade. The boss replied, “You idiot, I’m not firing you for losing money. I’m firing you for listening to the economist.”

Here is a different sort of “top ten” list of interrelated investment insights and recommendations – mistakes that are both common and deadly – for us to try to correct for 2015 and beyond :-

  1. We don’t prioritize properly in financial planning: Your savings rate is far more important than your rate of return in determining how bright your future is likely to be. However, we are far more likely to obsess over squeaking out a bit more performance out of our investments rather than thinking about ways to save more. Continue reading

It’s time to dust off one of the oldest, most conservative methods of valuing stocks–the dividend discount model (DDM).images

It’s one of the basic applications of a financial theory that students in any introductory finance class must learn. Unfortunately, the theory is the easy part. The model requires loads of assumptions about companies’ dividend payments and growth patterns, as well as future interest rates. Difficulties spring up in the search for sensible numbers to fold into the equation.

The Dividend Discount Model
Here is the basic idea: any stock is ultimately worth no more than what it will provide investors in current and future dividends. Financial theory says that the value of a stock is worth all of the future cash flows expected to be generated by the firm, discounted by an appropriate risk-adjusted rate. According to the DDM, dividends are the cash flows that are returned to the shareholder. (We’re going to assume you understand the concepts of time value of money and discounting. You can learn more about these subjects here.)  Continue reading

Risk Arbitrageur

Takeover Target

Talking about Arbitrage – drama film directed by Nicholas Jarecki and starring Richard Gere. A troubled hedge fund magnate desperate to complete the sale of his trading empire makes an error that forces him to turn to an unlikely person for help.

It is well-known that risk arbitrageur play an important role in the market for corporate control. After a tender offer, the trading volume increases dramatically in large part because of risk arbitrageurs activity.They take long positions in the target stock, in the hope that the takeover will go through. They are also usually hedged by taking short positions in the acquirer’s stock. Continue reading

Warren buffet: A good business that can be purchased for less than the discounted value of its future earnings.

Bird - Learning to Swim of Fly?

George Soros: An investment that can be purchased (or sold) prior to a reflexive shift in market psychology/fundamentals that will change its perceived value substantially.

Benjamin GrahamA company that can be purchased for substantially less than its intrinsic value.

Some other examples are: Continue reading

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