1) Simple valuation metrics like P/Es in stocks, the current roll in futures, or yield spreads between currencies, help predict returns. They are easy to measure so try to have them on your side.
2) Momentum, chasing past returns, is not a bad strategy. That is, invest more in asset classes and strategies that have been working over the past year.
His mind works like mine, in "proprietary" images. I mean, he uses associations, parables and metaphors extracted from the most unrelated and surprising realms. Example: "the stupidest financial decision since Esau traded his inheritance for a bowl of soup" and links a child picture book. I used to say similar things but stopped because made people uneasy - like children, people demands the sterotype over again and feel that unknown associations are bizarre.
Post Script: I just returned from the bank and ocurred to me that Israeli investment advisers invariably advise exactly the opposite of what Franken says. Astonishing! They advise to sell the shares that gained recently, and buy those that went down and are "cheap". My own instinct is to re-inforce what is winning, like in a war, but they say that a stock that has reached their imaginary targets must be sold. About momentum investment - they advise the opposite strategy. They think like bad gamers and lotto-players, they think that a number that has not appeared for a long time "HAS TO" show up. And people goes by their advise. Since I like to think of myself as a secret statistician, I know that Israeli investment gurus are pushing bad advice. Why should they do it? My advisers are always pushing me to sell and buy, to be active, and always find reasons to do so. Their only interest, I conclude, is to maxim the number of operations, to increase their fees. They dont really care about what I buy or sell, they want movement, activity. Their success is measured in activity, and not about actual results for the client, which no one - not even the client - can calculate.
3 comments:
Momentum investing, i.e. buying what has gone up, is a great strategy, and there's an extensive literature on it. See, e.g., Jegadeesh and Titman, "Returns to buying winners and selling losers: Implications for stock market efficiency", which was the first academic paper on momentum. There have been lots more since.
The bank advisors spend much time on seminars and updating, and the bank's research department produces abundant literature. The investment houses are always organizing conferences pushing their products. The confusion is fantastic. At least Franken is clear and consistent.
Regarding Esau, he didnt seem to have suffered financially from his decision. Later in the Bible we learn that he has grown to be a very rich and powerful leader, owner of numerous herds and a big household. He seems to be a generous fellow and gives valuable presents to his twin brother Isaac, a rather unlikeable character.
This problem of hypertrading is not confined to your country.
Anon.
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