Friday Reading

Poker, prices and people-power

I’ve been debating over the last week about how best to keep up everything I want to do with the blog while admitting aiming for 3 full-on company analyses a week was perhaps a little too ambitious.  It was, after all, a bit like going back to school – researching and writing three  1500 word essays a week. Blessedly I’m not forced to keep properly referenced footnotes or write lines if I hand them in late, but I am a fan of schedules. Seeing as I won’t be able to stick to it, I’ll do what anyone self-respecting finance guy would do – move the goalposts a bit! Going forwards, I’ll be looking at doing 2 full-on posts a week, be it a company analysis, reflection on my portfolio or something similar. Those should keep me happily thinking and learning about investment (my main goal after all!) while leaving me with some more time for taking long walks in the fresh air, or sunbathing. Or something to that effect.

But there’s something lovely and symmetrical about posting on Monday, Wednesday and Friday, and so I’ve nabbed my fellow bloggers’ rather nifty idea of periodically posting a list of things that interested me from around the internet. It’s a way of pointing out stuff that’s fairly relevant to the posts on my blog – so hopefully interesting for my readers – and a good place to jot down all the thought-provoking stuff I read over the weeks.

Interactive Investor had a piece this week that took me back a bit, discussing the parallels between investing and poker in relation to the film Rounders. I can’t say I’ve seen the film, but as someone who’s played a reasonable amount of poker in the past, I can’t think of many better aligned interests. Both are essentially games of information; whereby if you have more information than your opponent, you are able to act more optimally and therefore ‘win’ – represented by making money. Both games have a huge amount of information available; it’s the analysis, understanding and application of that information that makes a winning player. The only real difference, I reckon, is the timeframe – in poker you typically have a minute, maximum, to make your decision. I often mull investments over for weeks!

In a way, it was probably those parallels that got me interested in investing in the first place. My weaknesses in poker were fairly evident – I was prone to playing emotionally after having taken a bit of a beating and sometimes overplayed – the equivalent, I suppose, of a long-term investor jumping into day-trading after he lost a bit of dough. I made a reasonable amount in poker (though the ‘transaction cost’ – rake – was astronomical!), but I reckon I’m more suited to investing. I have no doubt I’ll go back to poker at some point, but a little bit of me remains proud to say I can recognise my weaknesses. I burnt out on the small cap tables, and playing when your heart and mind aren’t in it is like throwing money down a well. Just like investing, there are a lot of sharks out there – so if you jump in the pool, you better be prepared!

Philip O’Sullivan posted on his blog a link to an article on fund manager Crispin Odey, which I rather liked. While I try not to let my macro view affect my investment decision making – I consider it more or an entertaining diversion than an investment strategy for a rookie like me – he neatly summed up my opinion on the market and the current crisis.

“My reason is that the worries have been there for so long, the causes are so obvious and the valuations are so cheap that this is a case of buying early. For me the crisis will bring resolution and with it higher prices.”

I can’t help but agree, but maybe that’s wishful value thinking. I just can’t buy the belief that European companies are essentially this ‘worthless’ – that the crisis will hammer them hard enough to justify such low valuations. The debt issue may well give banks a bad year or two – but there are plenty of companies whose long-term prospects are entirely bright after the near term turbulence. It’s a phrase that’s easy to say, but I reckon all the bad news is more than priced in. Two comments on the same piece also made me chuckle:

“The only way to make any real money in stocks is to buy at these points when things seem to be really beyond hope.”

“The point of no hope hasn’t hit yet, obviously. Look at today’s market action in Europe.”

I wonder how many time that argument’s been discussed! Looking at share price graphs, it all looks so easy. “Buy after the crashes, it’s obvious it’ll go up” – that’s what we’re always told. Of course, it doesn’t really feel that simple now!

Finally, a piece from Stockopedia – empoweringly titled ‘End the ISA AIM share ban’. For those of you abroad or who don’t use an ISA, it’s a tax-shielded investment vehicle particularly useful (for me, anyway!) as you can now self-select your shares and effectively manage your portfolio while keeping it all from the taxman. One of the biggest downsides, especially for a small-cap blogger, is the regulatory framework surrounding an ISA – in particular, that ISAs are forbidden from carrying shares listed solely on the AIM. Shares which have a dual-listing on a ‘recognised’ foreign exchange are allowed, opening up the wonderful world of Brazilian and Italian equities.

Unsurprisingly, I’m not a great fan of the ban. I think there are better ways to shield private investors from excessive risk (I suspect the intention of the AIM ban) – and besides, I’m not sure it does much to discourage excessive risk taking. Tournesol‘s comment on the page does a good job of summing up the argument, with significantly more zeal than I can muster. There’s also a link on the page to the epetition, with a sorry number of votes. It’s hardly fire-in-the-belly stuff for most people, so its odds of reaching the required 100,000 are probably rather slim, but it’s a noble cause nonetheless.

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