The Book of Investing Wisdom
A month ago I was not checking the VIX daily. The Volatility Index hit a new high of 59.06 during Wednesdays sixth straight fall for US markets.
For the Dow and the S&P 500, Wednesday capped their biggest six-day point loss ever. It was a session of wild swings, with no clear direction determined until the final minutes…
In the last hour of trading, U.S. Treasury Secretary Henry Paulson warned that the turmoil “will not end quickly.”
In possibly unrelated news. Last night I decided to re-read The Book of Investing Wisdom, Part IV, Market Cycles.
At first there is Charles Dow “the panic of 1873 was essentially a money panic”. Dow describes the cycles and to mind highlights behavioural finance, contrary positions, market and economic cycles and long term big picture thinking.
Then William Peter Hamilton discusses Dow Theory. I mention those two first so I do not seem to be segueing from Paulson into the brilliant Three Different Stock Market Movements by Roger W. Babson. Babson like those before him describes the business and stock cycles and then goes further to discuss the conscious and unconscious manipulation of the markets by the six wise men and a larger Wall St group. “The operations of these bigger men are based wholly on fundamental conditions and long swings.” They accumulate around the lows while fundamental conditions improve to later distribute while continuing to talk the markets prospects up.
During which time the leaders are talking optimistically, the banks are loaning money at low rates and the corporations are raising their dividends. Nevertheless, fundamental conditions are no longer improving,…
When the public has bought as much as they can, word is passed around to “pull the plug”.
You get the idea. I think the difference between Buffett and many value pretenders is that he utilises a lattice work of multiple models. On top of his fundamental detailed analysis he surely layers, among many things, a detailed understanding of cycles. Cycles are why I fell into my 50:150 style of investing. Market timing combined with fundamental analysis is where the best investors get their alpha. It’s all about Fusion.
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