Trading and Investing
I'm fascinated by the global financial markets. This fascination began during my finance studies in college and it's the main reason why I ended up working in the finance industry for nearly 10 years. Lately my fascination has grown into a mixture of astonishment and horror. I find it amazing that the global financial system still holds together and that it hasn't already crumbled apart.
It's always good to come out clean right away: I have a strong bearish bias and I think the financial markets are broken in the sense that little else matters except central bank policies. Buy-and-hold as an investment strategy is more or less dead, except in the very long-term. Today it's almost impossible to be a successful macro investor. High frequency trading (a.k.a. HFT, algorithmic, or robotic trading) is in its current form more disruptive than beneficial to the markets. Volatility in the various asset classes is here to stay.
Having confessed all of that I guess I should come up with some clarifications and explanations. Well, that's what my trading and investing blog is all about. In the blog posts if I ever make a claim or prediction, I'll be sure to back it up with reasoning and references.
Sadly, to my knowledge there are only a few ways to earn a decent return on invested capital, if you don't want to wait over 20 years. This is, of course, according to my risk tolerance. Others with a different approach to risk may have a completely different list.
The first one is to buy and rent apartments ("buy-to-let"), which I do to some extent in Helsinki Finland.
The second one is to buy and take over a good existing business (which already has decent cash flow) and then develop it further. Hotel Villa Maija is an example of this. I wish I'd have the capital, know-how, and time to do more of this.
The third is trading, which I actually don't consider to be a form of investing, but nevertheless it involves obtaining the necessary capital, putting it at risk, and hopefully earning a decent return. More specifically, I refer to trading either in the short term ("swing trading") or trading in the very short term ("day trading"). I do both and almost never in single stocks or commodities, but instead in broader equity indexes.
SUMMARY OF BLOG POSTS ON TRADING AND INVESTING
If a rational investor believes that a passive strategy like indexing will usually outperform an active strategy like stock-picking, then why is it so difficult to stick to that passive strategy?
Warren Buffet reminded us of this story when he delivered an epic rant against Wall Street last weekend during the annual meeting of Berkshire Hathaway. Buffett unloaded what he called a “sermon" about hedge funds and investment consultants. Shortly put, Buffet thinks these players are usually a "huge minus" for anyone who follows their advice.
The Panama Papers have caused quite an uproar and many questions have been raised about Nordea Bank’s role as an intermediary between wealthy clients and Mossack Fonseca.
London Whale. LIBOR Rigging. FX Scandal. Gold Manipulation. It looks like we'll never get rid of rogue trading completely in big banks. That’s a huge problem.
Our Central Bank (ECB) has officially entered the Twilight Zone. The actions announced on Thursday (March 10th, 2016) were unprecedented. Not even Japan has gone this far before. The confusion and disbelief among journalists in the press conference was palpable.
In Italy cash is king and I mean real physical paper money and metal coins. This is not just my observation – European statistics show that cash is more important only in Romania and Greece.
Pavia Italy, November 2015
Gold has been a seriously bad investment for the past four years. That hasn’t discouraged the Gold Bugs who remain bullish on gold no matter what. They see gold as the only safe harbour and believe that its value must go up given all the madness in the world. Perhaps the recent price activity in gold marks a new dawn for the Gold Bugs?
ZIRP and NIRP. Not so long ago they were just economic theories treated with curiosity and disbelief. Now they are reality. The words are acronyms for Zero and Negative Interest Rate Policies. NIRP is the ultimate manifestation of stupidity in the global financial system.
A few days ago the total U.S. debt surpassed $19 trillion. It’s such a huge amount that for the sake of clarity let’s write it down in numbers: 19,012,827,698,418 (exact amount as of Jan 31st, 2016). Since 2009 the debt has risen by a staggering $8.4 trillion and during the same period inflation has basically been zero. How concerned should you be of this development?
2016 has started roughly for stocks all around the world. The chaos in China spread quickly to other continents and demonstrated brutally how interconnected the global markets are today. Oil is crashing to new lows and is currently trading close to $30. The S&P500 index had its worst-ever first week and went down roughly 10% from autumn highs. The noise is getting louder and louder and stock market investors are faced with a dilemma: should I sell everything or just sit on my hands and keep it cool.