Twitteretter

In Twitteretter 300 I took advantage of the name Robin Hood, used by the stock trading platform, to try to draw a connection between investment and classical literature. Now the SEC has decided to join the party, by allowing the analogy to continue. It seems that regulations need to be strengthened, to avoid this kind of action, a group of small investors playing havoc with the shorting strategies of the big hedge funds, bringing volatility into the market. The SEC is assuming the role of the Sheriff of Nottingham, determined to keep the status quo steady, to protect the mechanism that, slowly and without volatility, transfers wealth from the poor small investors to the wealthy funds. It seems that the system was so much about that at the time of the Crusades as it is today. I cannot wait to find out which person or organisation takes on the role of Maid Marian, although it must be noted that in Howard Pile’s original her role was much more peripheral than in later movie adaptations Le...

Pile wrote, in the late XIX Century, The Merry Adventures of Robin Hood, highly recommended bedside reading for any young teenager. Orwell wrote the outstanding Animal Farm, which I have quoted previously, highly recommended bedside reading for older teenagers. In it, Napoleon enunciates the darkly meaningful All pigs are equal, but some pigs are more equal than others . This week, in Wall Street, Robin Hood Trading suspended GameStop shares to control volatility, as private investors teamed up to drive up the price, in a move which has cost shorting hedge funds a fortune, and, for once, transferred wealth from funds to small investors. Robin Hood’s action seems to protect the rich from the poor, hardly the modus operandi of the Middle Ages folklore hero the trading platform takes its name from. This makes for a great, Orwellian conspiracy theory, but I fear the true explanation is more prosaic, related to Robin Hood’s lack of financial resources to cover exposures, as it must do in la...

One argument I have been hearing of late which seems sensible at first sight is that it is not possible for societies to prepare well for something that we don’t know is going to happen. It has been used, to good effect, to defend the fact that we were fairly (not completely) unprepared for the coronavirus pandemic. The argument sounds sensible, but it does not stand careful analysis. Firstly, we did know something like this was going to happen, and the same is true of the next global problems, climate change, antibiotic resistance, the diabetes pandemic and growing inequality. We know they are coming, we should be preparing much better. Secondly, the same politicians and leaderships who use the argument as an excuse disprove it daily with their security and military investment. Countries spend annual fortunes in military capability and exercises, to prepare for the uncertain eventuality of conflict. But the wars that really matter will be fought against the challenges listed above Len...

Still on the stockmarket and its randomness, I am reminded of a conversation I had no long ago with a big time market trader who was trying to understand the potential impacts of coronavirus to finetune his investment strategy. This, of course, is a pretty hopeless aim, which is brought about by the illusion that previous investment strategies yielded returns. The chances are that some beat the market, whilst others underperformed it. The illusion is born from bias, traders (as well as politicians, business people and the public, to name just a few) are much happier to take ownership of their successes than of their failures. Success is put down to strategy, failure to unforeseen circumstance. This ego building may be necessary to survive in the city, but it is not a good counsellor to devise future strategy. Danny Kahneman and Amos Tversky wrote extensively about biases, and you could waste your time in much more unproductive and less entertaining ways than reading some of their work ...

The economic shock brought about by coronavirus has resulted in a partial collapse of stock market valuations. This presents opportunities – even for supernormal returns if you read Somerset Capital Management advice - which have attracted a significant number of newcomers to the stock investing game. I happen to know a couple of them and it is fun observing them each day, trying to make some sense of how the market has reacted. Like journalists, they seek a causal relationship, attempting to bring some certainty to an uncertain world: ‘It must be because of this…’ The short term behaviour of the stock market is normally random, as it synthetises the decisions of many people with very different backgrounds, objectives and incentives to yours. Embrace the uncertainty, take long term positions and enjoy the ride, without trying to find logic in every move. ‘A Random Walk Down Wall Street’, by Burton Malkiel, can provide good understanding of the uncharted waters you have just sailed into...

Why does US have a much greater number of tech start ups than Spain? Some commonly cited reasons are skills and entrepreneurial spirit. This is the myth of Silicon Valley. It no longer holds true. Spain has many high quality, highly educated individuals, and many have entrepreneurial spirit. After years of international ‘entrepreneuring’, I have concluded that the biggest difference is access to capital. US is full of family offices, angel investors and venture capitalists who will fund tech start ups. In Spain, there are very few. And funding is critical to both the success and dimension of any new business. A great Spanish idea with a hugely entrepreneurial founder will most likely not reach the mass needed to succeed globally due to lack of finance. This, I think, is because US is full of people who have made fortunes in technology. They understand tech and that investing in tech is highly profitable. In Spain, money has been made differently, and that understanding is lacking