·
Buy the Book: Print
Capital Account is a selection of reports by Marathon Asset Management. The reports introduce their capital cycle approach to investing and explain the impact the cycle had on businesses, markets, and investors during the late 1990s bubble.
·
Expectations tend to seep into investment decisions. Not always in a good way.
Take the return expectations from a recent study by Schroders:
15.38% seems awfully specific. Maybe the U.S. stock market hits that mark over the next five years, but it’s eerily similar to returns over the last five years. From 2o16 to 2020, the S&P 500 earned an annual 15.22% total return. So recency bias may play a role. And with the S&P 500’s historical return closer to 10%, I think it’s safe to say those expectations are over-optimistic.
A safer assumption for future returns would be achieved with a formula John Bogle devised. Bogle’s simple formula looks like this: Continue Reading…
·
Where are we now? It’s a question often asked about the stock market cycle that leaves everyone wanting. That’s because the nature of markets makes precise answers impossible.
So instead, most responses come in the form of analogies. Baseball innings are a popular one. “What inning is the market in today?” “The seventh inning, hope that helps.”
A pendulum swinging back and forth is a better example. Howard Marks uses it in both of his books to describe the market cycle. Edwin Lefevre even used it back in 1901.
Robert Kirby, an investment adviser who conceived of the coffee can portfolio, gave one of the better descriptions of the market pendulum during a talk in April 1999: Continue Reading…
·
The cost of trading may be higher than its ever been even though trading is free. In a bygone era, the cost of trading was mostly apparent. A commission was charged on every transaction.
Commissions acted like a speed bump or a governor on a car’s engine. It was tangible. It was obvious. It forced investors to slow down, realize a cost was involved, that had to be overcome to make a profit. It also didn’t take a genius to know how the broker made money.
Today that speed bump is gone.
There’s a second cost of trading that’s less obvious and easily overlooked. It’s self-imposed. It’s driven by human nature. It comes in the form of errors and mistakes. And, put simply, that behavior can be manipulated and extremely costly.
Warren Buffett once warned about the role brokers played in the markets (in relation to derivative securities), which seems especially relevant today. Continue Reading…
·
Thomas Gibson warns of the repeated mistakes made when people speculate in the stock market. The classic, written in 1923, adds historical context to long-held investing advice.
·
An epic stock market battle took place in 1901. Two heavyweights fought for control of a railroad, cornered the market, and forced the biggest short squeeze of the last century.
The Union Pacific was a railroad nobody wanted to touch, not even J.P. Morgan, in 1898. It was mired in bankruptcy — receivership in the hands of the government. But Edward Henry Harriman saw an opportunity.
Through a syndicate of backers — the Vanderbilts, Rockefellers, Goulds, Ameses, and Kuhn, Loeb & Co. — Harriman took control of the road. In total, they paid $75 million for 1,800 miles of railroad and got every penny back in profits within three years.
Harriman recognized that expansion through acquisition was the most efficient way to lower costs and ensure profitability for Union Pacific. He quickly bought up competing railroads until Union Pacific dominated the U.S. west of Omaha.
Harriman needed to expand east. So he set his sights on a key acquisition. Chicago was the railroad hub of the country. Anyone moving people or products by rail from east to west, or vice versa, had to go through Chicago. The Chicago, Burlington & Quincy Railroad was a critical piece in controlling that movement. Buying the Burlington railroad would make the Union Pacific the strongest railroad in the country. Continue Reading…
Buy the Book: