The Exceptional Wealth Accumulation Ideas and Thinking Thread

[Trembling Hand]

In these periods growth flows from a sector out to the general economy as a whole whether it be techno change, demographic change or just good old fashion money printing

So in a deflation/risk averse phase, growth flows from a sector out to the general economy?

What does that actually mean?

No no. I haven't set out very well what I was getting at there.

Two things,

1. It anit that hard to see when we are in asset inflation/risk taking phase to asset deflation/risk averse phase. The cause of each is in part irrelevant more important to recognise each phase and the possible change.

2. You don't have to pick the winner. When we are in the asset inflation/risk taking phase you don't have to be directly linked to what is causing the asset inflation/risk taking phase. You don't have to be in the specific game/sector. You don't have to sit back trying to be always right. Money flows from that boom into the economy generally. I made money out of the late 90s tech/housing boom by being in a bakery business of all things . You could just pick $100 notes off the ground that had fallen out of the pockets of those that were involved directly. I didn't pick the winners I just got myself positioned to let their successes flow to me.

Very uncomplicated.

 

[tech/a]

I am in the financial markets 100% and have been ever since you first encountered me on Reef early 2001.

This means?

If so what,why and for how long?

You must be an expert exponent of Gann as your evasive argument displays a mastery not often seen.

 

[ducati916]

No no. I haven't set out very well what I was getting at there.

Two things,

1. It anit that hard to see when we are in asset inflation/risk taking phase to asset deflation/risk averse phase. The cause of each is in part irrelevant more important to recognise each phase and the possible change.

2. You don't have to pick the winner. When we are in the asset inflation/risk taking phase you don't have to be directly linked to what is causing the asset inflation/risk taking phase. You don't have to be in the specific game/sector. You don't have to sit back trying to be always right. Money flows from that boom into the economy generally. I made money out of the late 90s tech/housing boom by being in a bakery business of all things . You could just pick $100 notes off the ground that had fallen out of the pockets of those that were involved directly. I didn't pick the winners I just got myself positioned to let their successes flow to me.

Very uncomplicated.

TH

Well I would argue that recognition of inflationary/deflationary phases is not clear cut at all. If it were, we would have concensus through a variety of market analysts, pundits etc.

That is far from the case currently. The case is split down the middle, half arguing deflation, half arguing inflation. Case in point, you are advocating deflation while I advocate inflation

As to being in the right sector etc. Some benefit to a far greater extent than others. Technology in the last bubble was pretty flat, commodities exploded, and so on.

Not as simple as you allude.

jog on
duc

 

[ducati916]

This means?



You must be an expert exponent of Gann as your evasive argument displays a mastery not often seen.

tech/a

This means that I trade capital in the financial markets, and have done since 2001. I have in the past discussed specific securities, I no longer do so for a variety of reasons. One being that I really have no requirement to discuss my individual positions, nor any great interest in knowing anyone elses specifics.

I am interested in macro themes, and will discuss specifics and analysis ad infinitum. Answer your query in a non-Gann manner?

jog on
duc

 

[tech/a]

Yeh.

Pretty well as I expected.

 

[Trembling Hand]

TH

Well I would argue that recognition of inflationary/deflationary phases is not clear cut at all. If it were, we would have concensus through a variety of market analysts, pundits etc.

I do not give a toss about "consensus ". All I care about is my positioning. Its been good so far.

Case in point, you are advocating deflation while I advocate inflation

Rubbish. Where have I stated that.

As to being in the right sector etc. Some benefit to a far greater extent than others. Technology in the last bubble was pretty flat, commodities exploded, and so on.

Not as simple as you allude.

WTF!! You have completely F up what I was saying!! I made no mention of liking Tech let me make it clear.

I don't care what the sector is. To try and discount my point by misconstruding it is just desperate.

 

[tech/a]

I made no mention of liking Tech let me make it clear.

I'm cut deeply by this comment!

 

[ducati916]

I do not give a toss about "consensus ". All I care about is my positioning. Its been good so far.

Rubbish. Where have I stated that.

WTF!! You have completely F up what I was saying!! I made no mention of liking Tech let me make it clear.

I don't care what the sector is. To try and discount my point by misconstruding it is just desperate.

Th

Quite correct: Its not hard to see when we are moving from an asset inflation/risk taking phase to asset deflation/risk averse phase. And getting on board in some measure.

You're not actually advocating anything. You're sitting on the fence I guess. Therefore I retract that you are advocating deflation, although the hint of implication is there.

No, I never stated that you liked technology. I simply observed that your generic advice was of no practical use, as even in a cyclical bull market driven by a credit expansion, not all sectors benfitted [or benfit] evenly. There are BIG winners and small winners. Identifying the BIG winners early enough is the purpose of this thread [or was once upon a time]

As to your positioning if you say so. As you have no stated position, you'll never be held accountable.

jog on
duc

 

[ducati916]

I'm cut deeply by this comment!

tech/a

As well you should be, just consider yourself lucky that he didn't allude to you as a muppet.

jog on
duc

 

[motorway]

tech/a

First of all, technical signs are 50/50 outcomes. So you may well be correct in that SHORT is the place to be. Only in hindsight will the answer be known.
jog on
duc

why ? First define ALL how large a set is ALL Technical Signs

Are there Trends ?

If So are there Turning Points ?

Can these be identified ? Before the next Turning point ?

The magnitude of a trend
Will be proportional to Two things

The ultimate size of the niche that the trend is filling ( + overshoot )
and the rate that energy ( work done ) can be utilized to fill it..

Even if we know where we are going
We still have to travel there

Information (as a reduction of entropy) is costly, and cost increases with value. ( Value = Scarcity eg Information known by Everyone is less Valuable )

The amount of information one can (intelligently) receive depends on: (1) how much information is available; and, (2) the ability to process it.

( Which relates to how much information one already has and understands )

Evolution has hard-coded in human brains information processing capabilities repetitively important to survival. Other processing abilities are learned.

( How many learn ? )

These principles explain investing-critical aspects of human psychology such as conservatism, framing, herding, overconfidence and loss aversion.

Price and volume patterns observed in financial markets derive from: (1) the distribution of costs different investors are willing and able to bear to obtain information; and, (2) differences in processing ability among investors.


( Hence opportunity ,the BOOM BUST sequence
Hence Trends and Turning Points ) ( Price Momentum and Volume Patterns are the Signatures of the PHASE TRANSITIONS )


Many of the market inefficiencies identified in behavioral finance flow naturally from this view of human information processing.

High Volume
Low Volume
Losers
Winners

Acceleration
Deceleration

Are the factors that make up the Price Volume Momentum Clock

Go long at 6.00 PM
Go Short at 12.00 AM

Technical Signs can be

Shapes we think we see in clouds eg H&S patterns
Or the Shapes of the clouds ie demand and supply

motorway

 

[Trembling Hand]

As to your positioning if you say so. As you have no stated position, you'll never be held accountable.

jog on
duc

LOL is there anyone less accountable for taking a stated position than an arbitrageur. So fearful of being wrong they must make an each way bet. Just LOL!!

 

[MRC & Co]

Case in point, you are advocating deflation while I advocate inflation

So are we in a risk averse/inflationary environment? Is the first, over-riding the later as far as what is being priced in by sentiment.........? I.e. gold and UST yields falling?

What do you arbitrage?

 

[motorway]

Only what becomes scarce can become of exceptional value..


Value.

A very slippery construct.

jog on
duc

What Is the Problem?
Prices in equity markets are much noisier
than many people expected
Black (1986):

“All estimates of value are noisy, so we can never
know how far away price is from value. However,
we might define an efficient market as one in which
price is within a factor of 2 of value, i.e., the price is
more than half of value and less than twice value…By this definition, I think almost all markets are
efficient almost all the time. ‘Almost all’ means at
least 90%.

”

This is NOT the problem
naive "value" investing is the problem

This is not the problem because
This is really OPPORTUNITY

All investing is Arbitrage
between Price and Value

The KEY

Is what drives price between the value boundaries
And How to measure

motorway

 

[wayneL]

All investing is Arbitrage
between Price and Value

I think that's stretching the meaning of arbitrage a bit too far.

"Value" in your context is not a hard value, it's somebody's opinion, it nebulous.

True arbitrage is when two hard values that should be equal, such as the price of a stock on one exchange versus another, as discovered by locked option positions, etc (there are various forms), must become unequal. The arbitrage trade therefore has zero risk.

Value of the nebulous variety may never be attained, the price may trend counter to the perceived value, hence there is risk, ipso facto, not arbitrage.

 

[motorway]

I think that's stretching the meaning of arbitrage a bit too far.

"Value" in your context is not a hard value, it's somebody's opinion, it nebulous.

True arbitrage is when two hard values that should be equal, such as the price of a stock on one exchange versus another, as discovered by locked option positions, etc (there are various forms), must become unequal. The arbitrage trade therefore has zero risk.

Value of the nebulous variety may never be attained, the price may trend counter to the perceived value, hence there is risk, ipso facto, not arbitrage.

Possibly

But why does the value investor invest ?

He postulates a value that is distinct ( That is some distance ) from current price..

He does face the very real risks you point to

In Short, Value Investing
Has Its Limits:
• Value plays require patience (Frankel and Lee,
1998)
Abnormal returns are realized over 2 to 4 years
• Value plays can be risky (Piotroski, 2001)
The median “value” stock underperforms the market

• Value stocks tend to be negative momentum
stocks

Buying them can be like catching a falling knife

• Often improvements in the valuation technique
contribute only marginally to returns prediction:
When a stock is really over- or under-valued, almost any
valuation model will spot it; when a stock is only marginally
over-valued or under-valued, it’s typically not in a hurry to
correct

Particularly struck by the bold type

Buy one ( even the best ) value play
and the probability is that it underperforms the market---> For EVER..

Yet we should be in a "Value" investors paradise

( we all want to buy value to create "exceptional wealth" )

So ---> On to what you call

"Value" in your context is not a hard value, it's somebody's opinion, it nebulous

But not just "Somebody's"

motorway

 

[ducati916]

LOL is there anyone less accountable for taking a stated position than an arbitrageur. So fearful of being wrong they must make an each way bet. Just LOL!!

TH

Well that's certainly one way of looking at the outcome.

However, if you consider the context of the arguments I have put forward: viz. random outcomes, leverage, subjectivity of values, based on a skill set, etc, you'll see that the reasoning is logical and consistent, and that an arbitrage is a rational solution to the question.

jog on
duc

 

[ducati916]

So are we in a risk averse/inflationary environment? Is the first, over-riding the later as far as what is being priced in by sentiment.........? I.e. gold and UST yields falling?

What do you arbitrage?

MRC

Actually I simply advocated inflation As to risk averse, there are thousands of traders seeking risk and engaging risk under a variety of forms of analysis, strategies, methodologies.

The big question currently is inflation or deflation positions are being taken accordingly.

jog on
duc

 

[ducati916]

why ? First define ALL how large a set is ALL Technical Signs

Are there Trends ?

If So are there Turning Points ?

Can these be identified ? Before the next Turning point ?

The magnitude of a trend
Will be proportional to Two things

The ultimate size of the niche that the trend is filling ( + overshoot )
and the rate that energy ( work done ) can be utilized to fill it..

Even if we know where we are going
We still have to travel there




High Volume
Low Volume
Losers
Winners

Acceleration
Deceleration

Are the factors that make up the Price Volume Momentum Clock

Go long at 6.00 PM
Go Short at 12.00 AM

Technical Signs can be

Shapes we think we see in clouds eg H&S patterns
Or the Shapes of the clouds ie demand and supply

motorway

motorway

All, means all that I am aware of. That most likely includes all the traditional well documented technical computations.

Are there trends? Yes, quite obviously there are, as stock prices do not exhibit independence.

There are turning points.

Can they be identified prior to the turning point? No, not consistently. Some will do so, and attribute it to skill, method, analysis, etc. I call it luck or random.

The magnitude of a trend
Will be proportional to Two things

The ultimate size of the niche that the trend is filling ( + overshoot )
and the rate that energy ( work done ) can be utilized to fill it..

I have to say I think this is nonsense. The reasons are that who can know beforehand the size of a niche, and you immediately invalidate any argument to the contrary by including + overshoot. As to the rate [energy] this concept is so nebulous as to be superfluous to any analysis.

jog on
duc

 

[MRC & Co]

MRC

Actually I simply advocated inflation

Oh ok, so how do you explain the fall of gold recently and the falling of yields, as far as fundamental factors?

What do you arbitrage? I am no expert on this, but I gather it is not stat arb, but 'proper' arb, i.e. no risk? If so, I would wonder how, considering this market is pretty much zipped up by high speed algo bots as far as I am aware.......

No attack, just valid questions.

 

[ducati916]

This is NOT the problem
naive "value" investing is the problem

This is not the problem because
This is really OPPORTUNITY

All investing is Arbitrage
between Price and Value

The KEY

Is what drives price between the value boundaries
And How to measure

motorway

motorway

Value is a subjective concept. Take an example. 1 apple. You may value the apple very highly and be willing to exchange [in money terms] $1 for it. I may value it less and only offer $0.30 for the apple. Add in a couple thousand other people all with their own values and you have a market.

No value is either right nor wrong, they simply are. When we move into the valuation of financial assets, economics came up with the fallacious rational man and stated that under rational conditions, XYZ should be valued on cashflows, and/or utility, and/or historical cost, and/or production costs, etc.

As Wayne has already identified, arbitrage has nothing to do with values. Arbitrage deals with money prices.

jog on
duc