Crowdfunding Heroic Entrepreneurs

Ask Not 

The crowdfunding provisions in the JOBS Act have provided a rich source of material for commentators both for and against the concept. Providing bright eyed innovators with seed capital seems like a good idea, but pushing small investors into dubious schemes with little chance of success is less obviously smart.

In fact the crowdfunding regulations are still being created, so we don’t really know how much investors will be protected from themselves but we know one affected group who do need some help. Step forward the heroically biased entrepreneurs of America. Your country needs you, although you probably need your country more.

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Your Self-Inflicted 6% Trading Tax

How Not To Make Money

Making a turn from the markets is hard, we all know that.  Unfortunately we tend to make it a lot harder for ourselves than we need to, and if we don’t then the investment industry is always there to lend a helping hand.  For an extortionate fee, of course.

We’ve already looked at the gross amount of money we conspire to lose each year – something in the region of $160 billion a year in the US alone (see: The 160 Billion Dollar Bezzle).  Now a UK writer has looked at what this means for us as individuals.  The answer is, very roughly, a cost of 6% a year.  Which, when the average return from the stockmarket is probably no more than 5%, makes for a not very good way of making money.

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Self-Organizing the Investment Blogosphere

"Investing is hard.  It is hard for everyone, including the most successful investors in the world.  Nevertheless, investing is one of those adult responsibilities we all need to come to terms with.”

Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere by Tadas Viskanta

Trying to understand the amorphous creature that is the financial blogosphere is an exercise as hopeless – and as pointless – as the quest for the Holy Grail.  We don’t know what it is, we don’t know what it does and if we ever found it, we wouldn’t recognise it.

Yet, by some mysterious self-organising mechanism, the blogosphere is a system which manages to attain some form of order and structure.  In the midst of this mayhem is Tadas Viskanta’s Abnormal Returns, a “forecast free” daily compendium of the best and most lucid writings from around the web, interleaved with posts giving a sideways insight into the ideas that drive the site.  Combined, those ideas have now been integrated into a book which is probably the best definition of the challenges facing the modern investor now extant.

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To Boldly Go: Risk and the Prime Directive

Danger of Exposure

If you prime people by exposing them to information that advocates taking risks it causes them to boldly go out and start taking more risks with their investments. This is no real surprise.  Of course, if they’re a professional their behavior is different.

They’re more likely to take risks.  

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Dividends Keep You Anchored

Warp Drive Valuations

OK, we know that bubbles sometimes form in markets and we also know that sometimes the price of a stock doesn’t so much drift away from a realistic valuation as engage the Warp drive and disappear off into the Outer Limits. There’s also modelling research which also suggests that the way markets behave depends on the balance between short-term chartists and long-term fundamentalists.

Which is nice and all that, but doesn’t really explain how we should actually go about investing. After all, why is one method better than another and what should we actually invest in? To which the answer, it seems, is all tied up with dividends.

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Facebook Friends Can Make You Poor

Talk, Talk, Talk

Economists have had an extraordinary new idea. They’ve noticed that people communicate with one another and this has opened up a new line of analysis. Maybe these social interactions are somehow important in investment decisions?

Alright, enough sarcasm. The likely involvement of social interaction in causing the diffusion of investing ideas has been around for a while, but is only now catching up with the social networking phenomena. Behind this lies an insight that’s obvious when you’ve had it, but not before: the better your returns the more likely you are to broadcast your results.

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Be Kind To An Old Person – Start With Yourself

No One Will Care When You’re Old

Around the globe governments  struggling with budget deficits have been making sure that they target the true villains of the financial crisis. Admittedly, it's slightly surprising that treasury ministers seem to have decided that their money problems weren’t caused by errant and badly incentivised bankers but by old age pensioners rushing about terrorising people with their zimmer frames and incontinence bags.

The evidence is clear – low interest rates and high underlying rates of inflation disadvantage people who aren’t in paid employment, while the increasing focus on raising state pension ages and restricting government health spending clearly impacts old people more than young. This is all a bit odd, you might think, but is perfectly rational from the perspective of politicians. Something for the young to remember – no one will care when you get old, so you'd better start thinking of your future self, whoever they are.

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March 2012 Roundup: Of Muppets, Keynes and Female Risk Aversion

Muppets and God

This was the month that saw Goldman Sachs' Muppetgate, and a $1.5 million book deal for Greg Smith, the man who precipitated it. Perhaps the most interesting revelation was that Smith’s role of “executive director” apparently equates to “teaboy”, if inside reports are to be believed. This grade inflation presumably reaches all the way to the top, or to “God” as CEO Lloyd Blankfein is now known. At least that would mean his much derided comment that bankers were doing God’s work finally makes sense...

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Shareholders Are Revolting

Command and Control

Ever since the joint stock company, the predecessor of the modern corporation, was invented shareholders have engaged in a love-hate relationship with the managers of their firms. At the heart of the battle is a matter of great importance for all investors – who owns and controls the companies they place their capital in?

The balance between shareholders and managers has see-sawed back and forth, but in recent years has swung down firmly in favour of the latter. Now, though, shareholders are fighting back. Shareholders are revolting, and not before time. Unfortunately, they need to be very careful what they wish for.

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The Tyranny of Numeracy

Count the Errors

It seems that numeracy is the next big idea because important people, whoever they are, have suddenly woken up to the fact that having a workforce that needs to understand linear regression, but which actually can’t count the number of shoes it needs to find in the morning, is probably going to be a drawback in a world where math is increasingly going to differentiate the haves from the have-nots. Although the have-nots won’t be able to figure this out, other than they’ll notice that other people aren’t stacking shelves and flipping burgers for a living.

The solution to this, obviously, is to improve numeracy skills to make sure people can do enough maths to get through the average day. Unfortunately while this may help them not get ripped off by their next waiter and ensure that they can check they’ve got all their children with them at home-time, it’s quite likely that it won’t be anywhere enough to help them make the important financial decisions being required of them. 

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