Investment Second Derivative: Motivation - Weekly Blog # 849

 

         

 

Mike Lipper’s Monday Morning Musings

 

Investment Second Derivative: Motivation

 

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018

 

 

 

Useful Investment Process 

Far too many people entering the investment arena start with the choice of what security to buy. I suggest that is like baseball, swing at the first pitch and each next pitch, this gives the pitcher/catcher an advantage with each subsequent pitch. However, characterizing each pitch gives the batter some of the lost advantage. With no disrespect to the titans of the diamond, this approach is unlikely to be sufficiently successful in the investment game.  

 

The second derivative is critical for a long duration of successful investing. The key to understanding why it is critical is based on the realization that every factoid is derived from a competitive drive in the investment game, and it is not limited to only future investment performance. The media is competing for “eyeballs”, audience, future investment banking opportunities, the listing of events, relative industrial rankings, reputations, etc. The first level of understanding of any factoid directed at the investor is understanding the motivation of the sender. While the real motivation is almost never publicly revealed, a juxtaposition of past factoids or positions will often give a clue as to motivation. One useful screening approach is to gather inputs from different sources. In general, small bits of information are especially useful, particularly with some misinformation.   

 

Below is a current almost random list of factors that can lead or mislead in making critical judgements, at least until corrections appear and the exercise begins again: 

• The change in industrial prices year over year was -4.16%. (This suggests that manufactures selling to industrial users may be in contraction.) 
• A somewhat parallel view can be drawn from the table of weekly prices published in Saturday’s WSJ, where only 38% rose while 62% declined. (These two price views do not cover services, which represent about 70% of the US economy.) 
• Despite price pressures caused by low transaction volume, financial buyouts have not been easy. Hargreaves, Lansdown was finally sold after four attempts. 
• US sales of electrical vehicles have been slower than in China. More than half the cars sold in China were electric or hybrid vehicles. 
• Chinese bond yields 2.13% 
• Investors around the world are investing in Bond ETFs, which suggests to me there is liquidity risk in the future. 
• Since the time of Mao, Chinese Party leaders have visited together in the seaside resort of Beadle. They appear to view the main democracies of the world as weak, both politically and defensively. These democracies are underspending on their military by 300+%. They believe time is on their side. 
• A relatively high valuation for many equity pools suggests we do not have the resources to solve enough problems to fund our futures. 

What are your indicators that will produce investment returns similar to what we have enjoyed in the recent past?  

 

 

Did you miss my blog last week? Click here to read.

Mike Lipper's Blog: Fear of Instability Can Cause Trouble - Weekly Blog # 848

Mike Lipper's Blog: Detective Work of Analysts - Weekly Blog # 847

Mike Lipper's Blog: Our Self-Appointed Mission - Weekly Blog # 846

 

 

Did someone forward you this blog?

To receive Mike Lipper’s Blog each Monday morning, please subscribe by emailing me directly at AML@Lipperadvising.com

 

Copyright © 2008 – 2024

A. Michael Lipper, CFA

 

All rights reserved.

 

Contact author for limited redistribution permission.