About Bob Seawright

Robert P. Seawright is the Chief Investment & Information Officer for Madison Avenue Securities, a boutique broker-dealer and investment advisory firm headquartered in San Diego, California.

A Short Introduction to Investing (in 400 words)

  1. introduction“Investing successfully is really hard.” (Tadas Viskanta).
  2. “October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” (Mark Twain).
  3. Manage risk first.
  4. In the shorter-term, markets are voting machines; in the longer-term, they are weighing machines.
  5. “Markets can remain irrational longer than you can remain solvent.” (John Maynard Keynes).
  6. We like to think we see things as they really are, but we actually see things as we really are.
  7. Information is cheap; meaning is expensive.
  8. There is always someone on the other side of a trade and that someone is often smarter and more well-informed than you are.
  9. Investing is both probabilistic and mean-reverting.
  10. Cut your losses; let your winners run.
  11. “Investment success accrues not so much to the brilliant as to the disciplined.” (William J. Bernstein).
  12. When you’ve won, stop playing.
  13. Diversification is the only free lunch in the markets.
  14. Data is more reliable than your gut.
  15. “The big money is not in the buying or the selling, but in the sitting.” (Jesse Livermore).
  16. Various market approaches work…until they don’t.
  17. Value process over outcome.
  18. “We must base our asset allocation not on the probabilities of choosing the right allocation but on the consequences of choosing the wrong allocation.” (Jack Bogle).
  19. It probably isn’t different this time.
  20. Fight the current war, not the last one.
  21. Make sure your facts are right and your data is good.
  22. “The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” (Franklin Templeton).
  23. Being exceptional requires doing things differently.
  24. You can be and often are wrong.
  25. Plan (and have contingency plans).
  26. “For the simplicity on this side of complexity, I wouldn’t give you a fig. But for simplicity on the other side of complexity, for that I would give you anything I have.” (Oliver Wendell Holmes, Sr.).
  27. Correlation is not causation; consensus is not truth; and what is conventional is rarely wisdom.
  28. We always know less than we think.
  29. “Never confuse genius with a bull market.” (Humphrey B. Neill).
  30. History doesn’t repeat, but it often rhymes.

The Ubiquity of “Lost Decades”

thelostdecadesThe financial crisis (circa 2008-2009) brought out discussions about “lost decades” in the investment markets, 10-year periods that suffered negative equity returns. It even prodded PIMCO to argue that the investment universe had fundamentally changed, that an “old normal” had been overtaken by a “new normal” characterized by persistently slow economic growth, high unemployment, significant geopolitical tension with social inequality and strife, high government debt and, of course, lower expected returns in the equity markets.

A Journal of Financial Perspectives paper from last summer considers how unusual it really is for equity markets actually to “lose a decade.” As it turns out, lost decades of this sort are not the exceptional episodes that only very rarely interrupt normal steady economic growth and progress that so many seem to think. Continue reading

Laugh or Cry?

Our biases make it really hard to see things clearly.

Our biases make it really hard to see things clearly.

Ezra Klein (formerly of The Washington Post) has a new venture (Vox) dedicated to what he calls “explanatory journalism” and which offers consistently progressive “explanations” for various policies by a talented but ideologically pure staff. Klein’s big introductory think piece cites research (already familiar to regular readers here) showing that people understand the world in ways that suit their preexisting beliefs and ideological commitments. Thus in controlled experiments both conservatives and liberals systematically misread the facts in a way that confirms their biases.

Interestingly, if unsurprisingly, while Klein concedes the universality of the problem in theory, all of his examples point out the biased stupidity of his political opponents. Paul Krugman – a terrific economist but an often insufferable progressive shill – sees Klein’s bid and ups the ante, exhibiting classic bias blindness: “the lived experience is that this effect is not, in fact, symmetric between liberals and conservatives.” In other words, his “lived experience” trumps the research evidence (science at work!). In Krugman’s view, conservatives are simply much stupider than liberals because reality skews liberal. He even goes so far as to deny that there are examples where liberals engage in the “overwhelming rejection of something that shouldn’t even be in dispute.” If what is being expressed is perceived to be the unvarnished truth, bias can’t be part of the equation.

Yale’s Dan Kahan, who was Klein’s primary interviewee in the referenced piece and an author of much of the relevant research, found Krugman’s view “amazingly funny,” in part because the research is so clear. Biased reasoning is in fact ideologically symmetrical. Continue reading

Five Good Questions with Terry Odean

5 Good QuestionsTerrance Odean is the Rudd Family Foundation Professor of Finance at the Haas School of Business at the University of California, Berkeley. He is a member of the Journal of Investment Consulting editorial advisory board, of the Russell Sage Behavioral Economics Roundtable, and of the WU Gutmann Center Academic Advisory Board at the Vienna University of Economics and Business. He has been an editor and an associate editor of the Review of Financial Studies, an associate editor of the Journal of Finance, a co-editor of a special issue of Management Science, an associate editor at the Journal of Behavioral Finance, a director of UC Berkeley’s Experimental Social Science Laboratory, a visiting professor at the University of Stavanger, Norway, and the Willis H. Booth Professor of Finance and Banking and Chair of the Finance Group at the Haas School of Business. As an undergraduate at Berkeley, Odean studied Judgment and Decision Making with the 2002 Nobel Laureate in Economics, Daniel Kahneman. This led to his current research focus on how psychologically motivated decisions affect investor welfare and securities prices.

Today I ask (in bold) and Terry answers what I hope are Five Good Questions as part of my longstanding series by that name (see links below). Continue reading

Worth Watching

An ESPN cameraman (or woman) caught some Phillies fans taunting Dan Uggla of the Braves Monday Night but then being rudely interrupted by Uggla’s hitting a game-winning grand slam in the ninth inning. Deadspin took it a bit further by creating the video below using music (Take This Lying Down by The Lucksmiths) and extreme slow motion. It’s fantastic. Enjoy.

That’s right, the women are smarter

Regular readers will recall that I began my Wall Street career on the ginormous fixed income trading floor of what was then Merrill Lynch in downtown Manhattan. Of the hundreds of people who called the seventh floor of the World Financial Center home during the workday then, astonishingly few were women and even fewer were traders – those who committed hundreds of millions of dollars of Merrill’s capital every single day. Even so, and despite rampant and often aggressive sexism, the women were always amongst the very best of the breed – smart, shrewd, savvy and discerning.

Part of that was to be expected. In such a male dominated, testosterone fueled world, only the very best women would be allowed access to that boy’s club in the first place. And only the very best of them would be allowed to stay. Still, the women traders I knew seemed more calculating and less prone to foolish errors than many of their male counterparts. They were also quicker to recognize and fix the errors they did make. And the research data backs up my anecdotal experience.

Which, in a roundabout way, brings me to my point. Last week I participated in an excellent conference entitled Diversifying Income and Innovations in Asset Allocation put on by S&P Dow Jones Indices in Beverly Hills. I spoke about retirement income strategies. Among the other presenters was Deborah Frame of Cougar Global Investments in Toronto. Her presentation focused on asset allocation and it was very enlightening.

During the cocktail hour, she and I were discussing the research literature that looks at the differences in men and women when it comes to investing. She took exception to my having characterized one of those differences, consistent with the literature, as women being more “risk averse” than men. She made the point that women are more “risk aware” – more cognizant of the risks they face and smarter about dealing with them (in general, of course). In her view, that’s why, for example, women so routinely asked for directions (in the days when phones didn’t come with GPS) when they weren’t sure where they were, and men so routinely refused to do so.

And, by golly, she was right. Since women generally are better investors, they should be portrayed positively (more “risk aware”) rather than negatively (more “risk averse”). Moreover, since men (again, in general) are more risk seeking and more likely to make foolish investment decisions, they should not be the standard to which women are compared. It should be the other way around. It was sexist of me to look at things otherwise.

Thanks, Deborah. Lesson learned (I hope).