Sunday, July 30, 2006

Long Tail - The Great Unraveling

For those of you that are generation X or older - the long tail may mean nothing - yet.

Chris Anderson has written a good book on the subject -

The Long Tail: Why the Future of Business Is Selling Less of More

Business has been changing furiously as technologically empowered individuals bypass standard distribution channels and order directly from a particular source.

New technology based businesses are springing up that offer specifically tailored merchandise to ever smaller niches. The industrial age efficiencies of mass marketing and economy of scale are collapsing. The new marketing power is in the thin long tail extremes of the bell curve.

The Internet provides a world wide market of billions of people - a small niche that would not support a local business is large enough to make a global Netcohort netrepreneur wealthy.

In speculations we have dealt with fat tails for years - the chances of a big move in the markets are far greater than usually anticipated by mathematical models. We now also have to concern ourselves with the implications of a long tail. Notice with both the emphasis has shifted from the comforting center of the bell curve.

That long tail will effect your speculations and your investments. If you want to see an entertaining presentation of the sort the Netcohort network is creating ever more frequently - watch this short video on UTube:

Friday, July 28, 2006

Ivan Illich - An Unusual Biography

I prefer to write my own posts - but sometimes others share wonderful stories that I may not be able to pass on easily.

Ivan Illich (1926-2002)

Illich a one-man melting pot, a Jewish-Catholic-Croatian-Mexican-American social philosopher and one-time priest, wrote a number of books, now all but defunct, that were classics of alternative thinking in the 1970s. Two of the most influential were "Medical Nemesis" (1971) and "De-schooling Society" (1975), which proposed that the experts who manned our schools and hospitals were actually getting in the way of education and health.

"Medical Nemesis" describes how medical institutions turn people into

consumers of health-care products, rather than healthier people. And

"De-schooling Society" shows us how educational institutions turn them into consumers of higher degrees, rather than smarter people.

Indeed, universities might actually make people stupider than they were before they entered, because they now know more of what isn't so. In economics, for example, much of what is taught at university is

wrong - and wrong-headed in the most profound way. The graduating economist is actually stupider than the man on the street. What he thinks he knows for sure...ain't necessarily so. And the institution in which he learned what isn't so, like the Soviet economy, has become a value-subtracting enterprise.

Illich might have been describing the financial industry. If ever there

were men whose expertise subtracted from the sum of human knowledge, it is the savants of finance, those whose keenest ambition seems to be to sell investors products, rather than make them money. Who really makes money, after all, in hedge- funds or mutual funds? We know the answer - the people who run them. For everyone else, funds - whether hedged or mutual - are generally a value-subtracting business; investors who make their acquaintance, even passingly, end up with less money.

What about stocks and bonds? There, too, the only people who make money are those who push the products or run the corporations.

But today we point the finger not merely at Wall Street. All institutions
are subject to corruption, not only those that grub for money. In time,
all institutions get hollowed out.

Some great stuff. There was more - get the newsletter and enjoy their insights.

I'm not qualified to comment on the medical issues - but they do sound worth considering.

For a bit on unschool and de-schooling you can check out a couple of articles at the BFU journal. The first compares Bastiat Free University with the Thunderbird, Garvin School Of International Management - a top MBA graduate school.

The second compares Bastiat Free University with the fictional South Harmon Institute Of Technology in the soon to be released movie Accepted.

On the financial stuff, you can read anything here or our main site and find a concurring opinion of mutual funds, hedge funds, and stock brokers.

That gives us something to think about.

I would be remiss if I did not tell you how to get the free Daily Reckoning newsletter.

Enjoy it.



More On Old Books

A consistent theme of our speculation rules is that knowledge is less expensive if acquired through investment books than through experience.

Our immediately prior post was on the virtues of reading old investment books. Old financial books have a different perspective than we have acquired in the modern age.

An old stock market book author's investment blind spots are different than our investment blind spots. If we read these insightful investment books with an open mind we may discover not only an ancient view point - but errors in our modern analysis.

There is a source for many older and downright old investment books that are being reprinted.

Fraser Publishing - Books for the Serious Investor.

There are discounts and distressed financial book deals at their Internet site - although if you are like me there is something to be said for having a book catalog in your hand. Many of these books eschew investment for the financial control offered by speculation - a definite plus in my book.

I ordered their "serious investor" book catalog.

today's Speculation Rule:

Buy and read some serious investor books before making the investment.


Tuesday, July 18, 2006

Important Stock Market Research

If you are planning on investing in the stock market, or any market, start with this important research.

Read old books.

By the time a book is written on "How I Made A Million Investing In Buffalo Chips," the market for buffalo chips is almost over. It works the same for housing, the stock market, and commodities.

Your average investment book author got lucky at the start of a market move - and the trend is mature by the time you read about it. While the "bandwagon crowd" may join a trend and profit from it for a while - they normally just start to enjoy the ride right before the wagon drops off a cliff.

A cure for this is to read old books.

Find a guru that did well during the end of the 1960s bull market, or right before and after the 1987 crash - and pick up their used books on Amazon. You will also find several investment books that have been reprinted several times - because they hold enduring value.

We as investors are moved by the same emotions that move the herd, a distant viewpoint may help you see the cliffs ahead so as to avoid the next stampede.

Old books can provide that distant viewpoint.



Thursday, July 13, 2006

The Fallacy Of Following Finance Gurus

Finance Gurus tend to cluster around inaccuracies.

It is so safe when you are wrong and can claim "so was everyone else." Economists, market analysts, and their ilk will still get their paychecks - you however may lose your nest egg if you listen to them.

Your future may depend on your seeing the world more clearly than mere economists can imagine from the distance of their ivy covered towers.

Two names that many of you will recognize, Taleb and Mandelbrot, put together an article last year that challenges many soothing scenarios spewed by pseudo- scientific soothsayers.

I found this on the entry page to the College Of Human Interaction at Bastiat Free University. BFU, Taleb, and Mandelbrot all like to pop the balloons of
soft sciences like economics that try to derive credibility from obtuse math.

The point for you of course is that it is safer to speculate and embrace risk than try to escape risk by following the investing alchemists of finance that pronounce long term investing as safe.


Tuesday, July 11, 2006

How Do You Define Financial Success?

For some financial success is just being able to afford enough to eat.

For others financial success may be having enough that you can't give it all away - it grows too quickly.

In fact financial success for most is a moving target. Just as in psychologist Abraham Maslow's Hierarchy of needs - once one need is satisfied we move up to a greater need. Psychological self actualization could be compared to achieving impregnable financial independence.

If you are concerned where your food or shelter will come from - neither education nor stock markets will be of any interest.

For yourself:

  • Look at where you are financially, and look at what stage you next want to reach.

  • Determine which tools will fully secure the current level - then move on.

  • There is no gain in staying in the same uncomfortable spot your whole life

  • There is also too much stress in trying to advance too soon.

Only you can make that choice for yourself.


Saturday, July 08, 2006

The Beauty Of The Sky Scrapers

Trees never grow to the sky.

There are periods when certain market analysts, specific stocks or asset classes, and general market moods follow a strong trend. There will be analysts in these areas that develop a huge reputation - sometimes even moving markets with a word.

Neither the analysts nor the markets they cover will grow to the sky. There are natural limits on growth - the few short term exceptions are unstable and they are prone to sudden collapse.

Go-go stocks in the sixties, the eighteen year American stocks blow off top from the early eighties until 2000, and the prior and similar roaring twenties.

This is not a revelation to anybody that studies history, it is instead a caution that the present enthusiasms may be just as dangerous as past excesses.

We can present and leave this subject easily. Be cautious.

Follow a market analyst while he seems to have a finger on the pulse of the market - but realize one day their wisdom will fail. Invest in market trends realizing that they can last much longer than you might expect, and end much faster than you can believe.

As you are admiring that tall thin structure - think of the damage an ill wind can cause.


Sunday, July 02, 2006

What Is Seen And What Is Not Seen

C. F. Bastiat, an economic philosopher, wrote articles we all can understand.

What follows is the introduction to one of Bastiat's most quoted pieces What Is Seen And What Is Not Seen.

"In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil."

This alone should be enough to entice a speculator in search of knowledge to dig deeper.