In theory, price levels should not matter. Returns (hence profits) depend on changes, not absolutes. A stock at $50 that goes to $55 has done the same thing as a stock at $100 that goes to $110. Modern finance is built on this invariance. Prices are scaled quantities. Levels are irrelevant. And yet, in practice, […]

Opening Day is this week, which means baseball fans will spend the next six months arguing over stats that Bill James already told us not to trust. Investors do the same thing—just with money at stake. If Bill James had gone into finance instead of baseball, he would have become the patron saint of anti-hubris. […]

“Buy to the sound of cannons, sell to the sound of trumpets.” -Lord Nathan Rothschild, 1810   The Rothschilds were one of the world’s richest families and went on to form a financial dynasty. In 1815, they were rumored to have made a fortune when they used a carrier pigeon to send the result of […]

Every investor claims to be independent. Every manager insists their ideas come from first principles and rigorous work. And yet, if you look closely, professional portfolios behave as if managers spend most of their time peering over each other’s shoulders. The evidence comes from a fascinating study by Harrison Hong, Jeffrey Kubik, and Jeremy Stein, […]

Many long-term investors claim to love volatility because it creates opportunity. This is usually said immediately after experiencing a large loss. It is a form of emotional self defense. Volatility is not good for buy and hold portfolios. It is the engine that drives drawdowns and extends the time you spend underwater. But at the […]