Nevstar Links 19 July 2024
Welcome back to the Nevstar Links, your guide to some of the best articles on markets and investing available on the internet.
Today is the 19th July and it was on this day in 1903 that Maurice Garin, a French chimney sweeper, won the inaugural Tour de France. The 111th edition of the world's most famous bike race comes to an end Sunday in Nice with Tadej Pogačar from Slovenia looking the likely winner. Interestingly, a chart of the winners of the Tour de France by country follows almost exactly a ubiquitous distribution known as "Zipf's Law". Fascinating stuff!
Hat tip Popey.
Onto the links for this week which has articles on change, compounding and computers.
The Stock Market Never Changes
Good piece from our friend Ben Carlson offering a great insight into the nature of markets generally. He lists a large number of developments with respect to the business of Wall Street but realises that the market personality has not really changed at all in the time for one very simple reason.
"In the past 50 years we've witnessed the development of index funds, ETFs, 401ks, IRAs, online trading, zero commission trading, automated investing, direct indexing, high-frequency traders, message boards and more. Plus, we have much more knowledge about the market than people did in the past. The stock market is very different in so many ways.
In other ways, the stock market never really changes."
The Debt Lies We Tell Ourselves
A rather sobering but enlightening article on the rapidly worsening U.S. Budget deficit where, in times of peace and prosperity, the world's largest economy is running an unsustainable budget deficit of 7.5% p.a. It is an issue of critical importance to investors given that US Treasury bonds are, for the time being, the global benchmark risk-free asset.
"...the economists at the University of Pennsylvania's Wharton School could not even project a functioning long-term economy on our current debt path. The economists write that their economic models effectively crash when trying to project future macroeconomic variables under current fiscal policy."
Why Rebalancing Your Portfolio Makes Sense
Excellent piece from Morningstar on the relatively mundane topic of rebalancing your portfolio - a process whereby you trim your winners and invest the proceeds into your laggards. It is tough to do psychologically as the temptation is always to 'tend to your flowers and cull your weeds'.
"The first point is that if two assets have identical long-term total returns, rebalancing always leads to higher profits. That is a mathematical certainty. Rebalancing means reallocating from a winner into a loser. If each investment finishes at the same level, then those relative standings must reverse."
The Quietest Way Of Generating Wealth
Gigantic gains generally happen not in bursts but over long time periods through the accumulation of tiny gains. It is likely that our brains are simply not wired to appreciate the beauty of compounding wealth over decades. Remember, 99% of Warren Buffet's wealth occurred AFTER he turned 65 years old. Great article from the indispensable Morgan Housel on taking the time to appreciate the benefits of compounding.
"Every few years you hear a story of a country bumpkin with no education and a low-wage job who managed to save and compound tens of millions of dollars. The story is always the same: They just quietly saved and invested for decades. They never bragged, never flaunted, never compared themselves to others or worried that they trailed their benchmark last quarter."
How Computers Made Poker A Game For Nerds
Finally a piece which is slightly off-topic - how the increasing use of algorithms and mathematics has taken a lot of the fun and vibe out of playing poker. Very similar theme to the increasing use of such devices in the world of investing as quant strategies replace human managers.
"We've come a long way from the image of a tuxedoed James Bond sipping his shaken-not-stirred martini in Casino Royale. Real-life players are instead reaching for Red Bull to power through 10 straight hours of play amid the constant clinking of poker chips."
Quote of the Week
"The commonest mistake in history is underestimating your opponent; happens at the poker table all the time."
General David Shoup
That's all for this week.
Note that there will be no Nevstar links next week as your humble scribe will be away on annual leave.
Have a great weekend.
The Nevstar
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Neville Giles
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