It is important to remember that all investments are subject to a certain amount of risk. ‘Risk” can simply be defined as the probability of losing whole or part of the sum invested. This probability must be considered before investing. Various tools may be employed to identify investment-worthy stocks such as fundamental analysis, price-to-earnings ratio, technical and quantitative analysis. Fund managers may combine two or more systems to determine the strength of investment.
By and large, traditional investment strategies are based on a fixed percentage mix of stocks, bonds, and cash for varying risk tolerances. It is often the money manager’s job to select the best investment options based on various theories that can be based on the long-term average performance of investment assets. For example, a moderate risk investor is likely to keep fully invested in 60 percent stock and 40 percent bond allocation without taking into consideration the risk. Institutions and fund managers may follow a relative investment approach, which in our opinion, has fundamental flaws as it focuses on short-term horizons and fails to incorporate emerging trends.
When Warren Buffett stated “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price,” he was talking about companies with wide economic moats. The term Economic moat, famously coined by Warren Buffett, refers to the sustainable competitive advantages that immunize a business from competitors – similar to a moat protecting a castle. Mr. Buffett’s investing strategy is to invest in companies with strong economic moats as they are likely to remain successful over a long period of time.
Different types of Economic Moats offer different competitive advantages. Of all the competitive advantages a company can have, network effect is the rarest that is produced but once it occurs, it is likely to last for a long time.
Why do people equate volatility with risk? Volatility is NOT the same as risk. Risk is defined as the chance of losing some or all of your investment. The path that the price of the stock takes between when you buy it and when you sell it shouldn’t matter, at least from a financial point of view. In fact, in many cases higher volatility equals LESS risk
The psychological impact of the price changes can convince you to make non-optimal choices with your money. Read this article to find out how volatility and risk are related in an investment scenario and learn how you can minimize investment risk.
Since mid-2015, 3 month USD LIBOR has soared from a low of approximately 22.5 basis points to its current level of 115 basis points.
It is now more than 5 times higher than two years ago. Banks have vacated their previous role of market makers. The demand for corporate debt and in particular junk debt has been enormous, and corporations have obviously sated it by producing more debt than ever before. Such a scenario implies a latent risk, one that keeps growing and is ready to bust.
Rising interest rates and a slowdown in credit growth imply that this precondition is very likely to prevail when the next batch of problems shows up.
Learn the impacts of rising LIBOR in this in-depth analysis of LIBOR.
The National Association of Realtors estimates that Chinese investors bought 29,000 American homes for a total of $27bn in the year to March 2016. Foreign buyers focus on a handful of cities: San Francisco, Seattle, New York and Miami. Foreign money has helped propel skyrocketing prices in other places, too. London’s mayor has ordered a study on foreign ownership in the capital after property prices rose by 54% in four years. Central bankers fret about the dangers fickle capital flows pose to financial stability.
Are houses fairly valued across the globe? Learn more about how these changes have impacted House Prices around the world in this interactive chart.
This article talks about the edge that an investor can have by focusing on the long term when the entire market is obsessed with short term data/events. The underlying value of a business is determined by stream of cash flows that it is going to earn over long time. We at Multi-Act believe that any event that does not structurally impair long term earnings power of a business would provide an opportunity if the market is worried about its short term impact. Read how many have found success through this investment activity.
Everyone knows that the law of supply and demand is designed to bring equilibrium in the economy. If it is true for commodities, the same rule should apply to interest rates as well. But like Soviet Russia where the price of sugar has very little to do with supply and demand because it runs on a command-and-control economy, central bankers have been setting the price for the most important commodity in the world: money. How will all this end? Does anyone know?
Are you wondering why you should invest in emerging markets? Here’s something to consider. For long-term investors, a unique opportunity presents itself in emerging market equities because of the rare combination of cheap equity valuations, depressed currencies, and positive momentum in equity prices and economic fundamentals.
Discover how a building-block approach to valuation creates forward-looking returns rather than the idea that it’s too late to invest, and how depressed currencies show a projected real return of 3.9% a year over the next decade. In addition to this, EM stocks are trading cheaply and showing robust 12-month price momentum.
The classical British economist David Ricardo’s advice to investors to “cut short losses” and “let your profits run on” couldn’t be more relevant. While the Trump election was forecast to leave a trail of destruction, this article delves deeper into why it is better to invest in attractively valued emerging market assets even in the midst of fear and uncertainty, which are making a slow exit.
This issue of the journal from Edelweiss Holdings has two brief essays on relevant issues that hold value for any investor today.
Reflections on Trump’s America unveils historic perspective on the patriotic and business-wise President-elect Donald Trump. Within the context of financial markets, his election has received jubilation worthy of the second coming of an industrial revolution. Yet, even as Mr. Trump’s businesslike ideas should be welcomed in a nation that has veered further and further into an economic unknown, this essay shows how there is little reason for the boundless euphoria of anticipated greatness.
The Challenge of Preserving Capital within the Financial System by James Watson is an essay that makes for compelling read. While touching on myths attached to liquidity and the troubling imposition of control on individual financial affairs, this essay makes a point that has been echoed by Multi-Act; when credit implodes – as it must – only HQ stocks will have any sort of bid, as market participants realize that the inherent strength of HQ stocks were obscured with the hype attached to liquidity and credit mis-pricing.
Replete with examples, Tren Griffin, a senior director at Microsoft, explores two powerful mental models: Network Effects and Critical Mass. Drawing on years of experience as a businessman for one of the world’s most renowned tech companies, Griffin offers practical expertise with adept and clarity. In this article, Griffin explains how companies can use these two mental models as a protective moat.
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