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#3290299 - 02/22/14 08:16 AM Re: What i just put in the Clio [Re: TrevorS]
fdcg27 Offline


Registered: 09/25/09
Posts: 14339
Loc: OH
Capital aggregation is not the same thing as efficient capital allocation.
If you had any knowledge of efficient market theory, then you'd know that financial analysis is of limited value.
This is why index funds generally outperform managed funds.
It's pretty well understood that the value crated by the financial services sector and all of the clever analysts was negative only a few years ago.
As the old saying goes, it doesn't take a genius to make money in an up market and you can make even more money by borrowing funds to invest as long as you have a positive spread. The other side of that is that when these financial empires built on debt felt a little cold breeze, they colapsed like the houses of cards they were and we were all left with the tab.
It may not be fair to say that the financial services sector caused the 2008 recession, but it is fair to state that an excess of leverage and too little equity brought about a widespread colapse in this sector which resulted in a far deeper and more prolonged reduction in output than would otherwise have been the case as well as a very slow recovery in output growth.
Oh, you wanted the name of an economist who'd agree that financial analysis is a waste of time?
I guess you've never heard of Eugene Fama?
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#3290407 - 02/22/14 10:05 AM Re: What i just put in the Clio [Re: bigjl]
TrevorS Offline


Registered: 07/14/13
Posts: 1281
Loc: California
So all investment decisions in the economy are performed by retail customers investing in non index funds?

All financial analysis is performed by fund managers?

You're taking very selective and narrow information to make your points and misrepresenting or not understanding what actually goes on. And in fact index funds vs non index funds has nothing to do with your earlier assertion that the financial sector doesn't create wealth. In fact you're now claiming the financial sector reduces wealth, which is interesting because earlier you claimed it simply shifted money. So at least now we are making progress in that you've realized the financial sector has the ability to make decisions that affect wealth.

Of course not everyone in the market makes perfect decisions. Not every investor makes perfect investment decisions. But not making perfect investment decisions is a feature of any market. Why? Because we don't have perfect information. A financial market works like any other market except that it is faster. There are buyers and sellers, there are transactions and there is imperfect information. So some investors do better than others, just like some people buy airline tickets cheaper than others.

Theoretically, markets create what is known as "normal" profits and they drive out excess profit through arbitrage. Financial markets do this faster than other markets. When does this typically go wrong? When govt or regulations fail. Make money cheap by having low interest rates, you get an asset bubble. Guarantee mortgages, you remove moral hazard. The market looks to make profit in the conditions presented. The examples you have are actually examples of markets doing what they do. The reason they gave adverse outcomes is the interplay of govt policy with them.

Now onto financial analysis. Sure you can pick on index vs non index funds but as mentioned it is about imperfect information and the choice of people to buy what they decide to based on the information they have and how they choose to use it rationally or irrationally. But you also do realize that how retail investors choose to invest in portfolios is not the same as how overall investment decisions are made don't you?

Firstly companies have to make profit to reinvest and / or convince lenders to give them money. This money is not coming from retail investors portfolio decisions. Furthermore, when retail investors make made decisions or fund managers create bad portfolios, guess what happens? Those making good decisions make more profit than those making bad decisions. And guess what happens then? Those who made good decisions control a larger proportion of investments. Think about the rise in hedge funds. Think about Buffet, Ichan, Soros. All making financial transactions that create wealth because they drive out inefficiencies. Buffet has helped build up numerous companies and hedge funds that break up underperforming companies are working to reallocate capital. Silicon Valley investors from angels to VCs take their experience to back startup that turn into Googles and Facebooks.

All these people make mistakes too, Buffet admits he made mistakes, many startups fail. But overall these investors create wealth and the market rewards them and they are allowed to keep doing what they are doing.

Nobody is saying financial markets are perfect, but they work to generate wealth. I as much as anyone am against certain setups that allow certain players to game the system, but that does not detract from the fact that just like any other market, they help to generate wealth.

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#3290433 - 02/22/14 10:30 AM Re: What i just put in the Clio [Re: bigjl]
TrevorS Offline


Registered: 07/14/13
Posts: 1281
Loc: California
And by the way, about Fama and financial analysis being a waste of time.

He said no such thing. This is a good example where you have had to google something to defend the points you believe to be true and have gotten it wrong because you don't have any background in this, so are forced to make things up as you go along. So you take micro information and assert it to be bigger than it is. Again, ironic that you accuse me of not putting information in context when you have neither.

Fama was talking about technical analysis and this came from his phd in the 70s. Here is an explanation of his conclusion that Technical Analysis is a waste of time. This in no way equates to the financial analysis that goes in in companies and the financial sector for all sorts of decisions.


"A popular technique used to predict stock prices, called technical analysis, is to study past stock price data and search for patterns such as trends and regular cycles. Rules for when to buy and sell stocks are then established on the basis of the patterns that emerge. The efficient market hypothesis suggests that technical analysis is a waste of time. The simplest way to understand why is to use the random-walk result derived from the efficient market hypothesis that holds that past stock price data cannot help predict changes. Therefore, technical analysis, which relies on such data to produce its forecasts, cannot successfully predict changes in stock prices."

Quite a leap from that to financial markets don't create wealth isn't it?

If you don't give up your argument here it doesn't matter because I'm done. You've misrepresented what a noble prize winning economist has said under the guise of you having some background in this topic and you're other leg has now fallen off.

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#3290744 - 02/22/14 03:16 PM Re: What i just put in the Clio [Re: TrevorS]
fdcg27 Offline


Registered: 09/25/09
Posts: 14339
Loc: OH
I thought you were already done?
From what you've written, I guess you had to Google Fama?
I didn't, since his seminal paper was assigned reading when I was in school.
You should try actually reading what he wrote in detail, rather than relying upon Wiki as your source.
Fama's whole point was that no analysis will allow any investor to beat the market average at any given risk level.
The whole goal of portfolio theory is to construct a basket of investments where returns cannot be increased without increased risk and risk cannot be reduced without reducing return.
This is called an efficient frontier.
You should try Googling it.
You might also Google the terms "systematic" and "unsystematic" risk.
You should also check out the concepts of operating and financial leverage as well as the historical capital structure of major non-financial companies versus those typical today.
I think you'll be amazed at how little long term debt major non-financial enterprises used up until about forty years ago.
Did you do anything productive today?
We went shopping buying some wine and some produce (asparagus sure is cheap at the moment), I got a haricut and I gave the Forester a needed oil change.
I think we'll have eye of round rare along with asparagus and a nice Beaujalais Nouveau (a red my wife likes) for dinner around eight.
How about you?
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#3290753 - 02/22/14 03:31 PM Re: What i just put in the Clio [Re: bigjl]
TrevorS Offline


Registered: 07/14/13
Posts: 1281
Loc: California
I'm in Vegas trying some of the Michelin restaurants this weekend, thanks for asking.

Beaujolais Noveau? How common! You should see how they sneer at it in the UK.

Yes I do know about Fama. I did my degree in economics at one of the top institutions in the world. I never saw anyone take specific points and extrapolate them like you have though.

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#3290784 - 02/22/14 03:59 PM Re: What i just put in the Clio [Re: TrevorS]
fdcg27 Offline


Registered: 09/25/09
Posts: 14339
Loc: OH
We've been to the UK and I'm not sure that they have much to sneer about, although it is a very nice place to visit with a depth of history you won't find on this continent.
Anyway, they would of course sneer at anything French, just as the French sneer at them, but then the French sneer at just about everyone.
I did my degree in finance and Fama was a part of what we studied, along with many other noted capital market theorists.
It was so disapointing to me to learn that I couldn't beat the market average over time just by being clever.
Fama has more recently said that the clever small investor probably can beat the market average rate of return.
I always have with my hobby SDIRA.
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#3290841 - 02/22/14 04:52 PM Re: What i just put in the Clio [Re: fdcg27]
TrevorS Offline


Registered: 07/14/13
Posts: 1281
Loc: California
Originally Posted By: fdcg27
We've been to the UK and I'm not sure that they have much to sneer about, although it is a very nice place to visit with a depth of history you won't find on this continent.
Anyway, they would of course sneer at anything French, just as the French sneer at them, but then the French sneer at just about everyone.
I did my degree in finance and Fama was a part of what we studied, along with many other noted capital market theorists.
It was so disapointing to me to learn that I couldn't beat the market average over time just by being clever.
Fama has more recently said that the clever small investor probably can beat the market average rate of return.
I always have with my hobby SDIRA.


I agree in your insights in terms of the French and Brits.

But I still don't know how we went from labor productivity to Fama's findings that the average investor won't beat the market using technical (historical) analysis techniques and how that is in any way connected.

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#3290845 - 02/22/14 04:57 PM Re: What i just put in the Clio [Re: bigjl]
TrevorS Offline


Registered: 07/14/13
Posts: 1281
Loc: California
Btw in the UK the people sneering at Beaujolais Noveau are those who believe they know a little about wine laughing at all the wine wannabes.

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#3290903 - 02/22/14 06:02 PM Re: What i just put in the Clio [Re: TrevorS]
fdcg27 Offline


Registered: 09/25/09
Posts: 14339
Loc: OH
Fair enough, but it was you who went from what oil some Brit put in a small diesel Citroen to this.
On another note, since the UK produces nothing that can fairly be called wine, nobody in the UK is in a position to laugh at those of us from regions that can and do.
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#3291425 - 02/23/14 09:03 AM Re: What i just put in the Clio [Re: TrevorS]
Trav Offline


Registered: 11/20/06
Posts: 16433
Loc: MA, Mittelfranken.de
Originally Posted By: TrevorS
I'm in Vegas trying some of the Michelin restaurants this weekend, thanks for asking.


Did you try Gordon Ramsay steak? Some say the breads are great.

Gordon Ramsay Steak


Edited by Trav (02/23/14 09:07 AM)
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#3328339 - 03/30/14 04:31 PM Re: What i just put in the Clio [Re: bigjl]
bigjl Offline


Registered: 09/06/12
Posts: 1984
Loc: London, England
A couple of weeks after this frankenchange i changed it out for Shell 5w40 Ultra.

Should work well as it meets Porsche A40 and Ferrari specs aswell as RN0700/710.

Other specs are APi SN/CF Acea A3/B3/B4 BMW LL01 MB Approved 229.5 and VW 502 00/505 00. And meets requirements of Fiat 9.55535-Z2

Filter was a Mahle
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