Greater Volume. More Volatility. Less Time.
The last few weeks highlighted the need to bring a new understanding of, and strategy for, investment risk. Volatility is increasing and occurring over a significantly compressed timeframe — for individual stocks and the overall market. Recent trading activity in GameStop, AMC, and a few other stocks demand an investment strategy focusing on Risk Adjusted Return.
The new power of retail investors is here to stay, and that will shake up traditional portfolio managers because they are increasingly losing control of the trading process.
A Trading Floor in My Pocket.
Finance is a Global Digital Closed Loop
“Being Digital,” the groundbreaking book by Nicholas Negroponte written in the early 1990s described what happens to a global economy when all assets can be digitized. Presciently predicting the impact on music, film, retailing, and commerce in general, Negroponte intuitively understood the disruption and the creative/destruction that would be unleashed when a globalized infrastructure could deliver all products and services, including assets and intellectual property, instantly via a worldwide digital infrastructure and network.
The same “digital” effect is impacting global finance today. Now, all financial assets are “being digitized” and can…
It’s a Cryptoasset, Not a Cryptocurrency
Bitcoin is an innovative, rapidly expanding network for storing and exchanging value among investors. As discussed previously in our article, “Inflation, Profits, and Bitcoin,” Bitcoin has some interesting characteristics:
· A Bitcoin is a slot on a decentralized, permissionless, unhackable, peer-to-peer permanent computer network.
· Only 21 million Bitcoins will be produced and 18.5 million have already been mined and circulated.
· Demand continues to grow far in excess of supply.
If it’s an asset, does it have an inherent value, like gold? Arguments about “inherent value” are, and always will be, meaningless. Is…
Cryptocurrencies Hit New Highs. Should we be terrified?
Bitcoin, Ether and, the most recent joke, frenzy, and punch line, Dogecoin, have increased 10x to 20x over the last 12 months. A spectacular return, but can it last?
The forces driving the eye-watering returns are the same as those that drove the insanity behind GameStop: the equivalent of a trading floor in every pocket funded with excess cash looking for disruptive investment opportunities and charging forward like an out of control herd — or lemmings — however you want to envision it. Cryptocurrency became the overwhelming target of…
Ethereum: Disruptor and Investment
Ether is getting an upgrade, and that presents an interesting investment opportunity. While Ether, the cryptocurrency that runs on the Ethereum blockchain, continues to increase in value, there is more than just a cryptocurrency here because of the Ethereum platform and its capabilities.
A greater number of potential transactions and, more importantly, a broad range of digital assets can be created and transacted on the Ethereum platform. It will be a potent player, and most likely the dominant blockchain development tool for current and future digital assets.
The Ethereum blockchain can process many more payments and…
Digital Central Banks Are Here
Because bureaucratic governments handle these things so well.
Initiative, savvy, luck, circumstance, and convolution have taken over currencies — or at least digital creations purported to be currencies (but in reality don’t, and never will, quite fit the bill). Those entities that create and support real currencies are taking notice. In other words, welcome to government in action. Here come central bank digital coins
Luck rather than leadership, circumstance rather than foresight or political skill, seem to have been more helpful in triggering these developments. Digital coins (while loosely described as “currency” are more like…
Inequality and Wealth Creation
Inequality is not an appropriate measure of economic performance or wealth creation.
Inequality is a relative and comparative statistic. It shows how wealth is distributed, which is not that meaningful, and certainly should not be the basis of economic policy. Essentially, inequality is a comparative metric and not an absolute one. That is, if everyone does better but a few people do much better, inequality increases, and this is seen as something bad even though everyone is better off. It is used to create misleading policies that focus on redistributing wealth that is created versus policy…
The Shock, the Recovery, and the Excess
Covid, Stimulus, Inflation, and the Dollar
The world economy is struggling to escape the Covid-19 economic shock. During the worst of this pandemic, the world’s developed economies provided an enormous fiscal stimulus on a scale not seen since the second world war.
Now, however, the US is proposing to more than double its already generous fiscal stimulus. Is this a good idea or excessively risky?
Go Big, But Where?
For its proponents, the idea of “going big” is designed to be a transformative political moment. …
Risk is the permanent loss of capital.
It is not volatility, nor is it uncertainty. It is the realization of a loss. Therefore, risk is hard to understand because it is only clear with hindsight that a loss has occurred. Understanding how risk works can avoid this permanent loss by avoiding the mistakes that cause the permanent loss of capital.
Risk can also be used advantageously. Knowing that there is the prospect of loss, planning, and investment strategies that profit from these losses put you on the right side of the equation. Risk can be used to an investor’s advantage.
“I believe that the present, accurately seized, foretells the future.” V.S. Naipaul
There is a lot of uncertainty today in the markets, but there has always been uncertainty in the markets. We have never had certainty regarding the economy or the future. The most reasonable exercise, as V.S. Naipaul reminds us, is simply to understand the present.
So what’s going on?
1. The economy is accelerating.
2. Inflation isn’t a problem.
3. The Fed is going to keep interest rates as close to zero as possible for the foreseeable.
These components are driving valuations higher, and in some cases, approaching…
I am an investor, entrepreneur, writer, and lecturer.