Month: February 2016

Seven Research Reports you don’t want to miss this week (ending February 26)

Weekly Roundup OpinioPro

Keyword of the week: Brexit. To read all docs related to the tag Brexit just click here. Some are also mentioned in this blog.

  1. Degroof Petercam published its monthly Asset Allocation Flash. They still think a hard Chinese landing can be avoided. For Emerging Markets in general they stay neutral. Valuations seem attractive but earnings growth remains under pressure.
  2. In the Research Paper (28 pages) “Brexit”, AXA takes an in depth look at the consequences of a possible Brexit. Especially they look at the impact on UK trade and the financial services. What will be the costs to the UK?
  3. In “Four months of uncertainty for the UK” Source is asking the question whether a Brexit is likely or not. Instead of looking at notoriously unreliable poll results they look at the odds offered by the bookmakers. For now that suggest a slight majority for a “stay”.
  4. In “Brexit: Initial Thoughts and Possible Implications” Pioneer takes a look at the possible implications for the UK of a Brexit. According to them it would likely lead to lower ratings for the UK government and, by implication, potentially UK companies as well.
  5. Novus is asking the question “How Do Hedge Funds Become Better Forecasters?” Or more in general how you can become a better forecaster. The good news for the most of us: genius isn’t required (pfff). Some simple steps may improve your forecasting skills. First step is to get serious about data collection and management. Last step is to think in probabilities, not certainties.
  6. Barclays also delved into the subject of forecasting. In the “The blind men and the elephant” they draw an analogy from this story to the world of investing. Here’s the story (Wikipedia version). “It is a story of a group of blind men (or men in the dark) who touch an elephant to learn what it is like. Each one feels a different part, but only one part, such as the side or the tusk. They then compare notes and learn that they are in complete disagreement.” For what you can learn from this story please refer to the article.
  7. And last but not least AXA published an update of their 2016 economic outlook. With the title they are not beating around the bush “2016: Weakest year since 2009”. Eric Chaney, Chief Economist AXA Group, takes you on an 82 pages slide show trip of economic analysis. So be sure your coffee is ready!

 

How the case of the missing submarine Scorpion is relevant for professional investors

The Wisdom of Crowds by James Surowiecki was published in 2004, already a long time ago. However, it still has some valuable insights for professional investors. Surowiecki is editor at The New Yorker and has his own column called ‘The Financial Page’. The Wisdom of Crowds has made him famous, because he explains how large groups show more intelligence than very smart, isolated individuals.

The Wisdom of Crowds starts with a few examples, on which Surowiecki elaborates his story in the rest of the book. When you have finished this book, the conclusion is you should not ask groups what tomorrow’s stock prices are going to be. Philip Tedlock explained the same thing in his book Superforcasting, it works better if you divide questions into sub-questions.

A great example is how the case of the missing submarine Scorpion was solved in May 1968. After a first inventory it seemed impossible to find the submarine. They tried to solve the case by letting a large group of experts from several disciplines describe all possible scenarios, but this did not give a clear solution. Nonetheless, because of all these scenarios they were able to make an average scenario. In this way they could make an estimation where the submarine should have been. After five months the Scorpion was found only 220 yards from the estimated place!

Collective mistakes, mistakes from groups, are rarely too big to be unmanageable. James Surowiecki explains that you get the best results with groups who are diverse in expertise, origin, intelligence and they should not know each other too well. When people know each other too well, respect for the other could stand in the way of a good discussion.

OpinioPro vs The Wisdom of Crowds

The Wisdom of Crows shows you, that a vision or opinion hasn’t been made on just one source. A group does not necessarily need to exist of experts, because  diversity makes discussion possible to prevent tunnel visions. Divide the question about expected returns for example,  into questions about economic growth, expected inflations, expected profits and dividends. Let a group answer these four questions and based on their responses you can determine what possible returns you could expect.

OpinioPro has currently over 2,500 investment research reports on these four subjects at its platform. However, it is possible to search for only ‘expected returns’ as well and find the most recent reports of experts in this area. The best ‘research engine’ is now available without registration at www.opiniopro.com

TheWisdomOfCrowds

 

Seven Research Reports you don’t want to miss this week

Worry or not to worry, that’s the question! And the question is answered, but the answer depends on whom you are asking.

  1. In a 24 page long special Deutsche Asset Management guides us through the world of Oil. Main question after the sharp decline of the oil price is: Are markets right to worry that a low oil price is bad for the world economy? The short answer to this question according to DAM is clear. Don’t worry. For the long answer just click on the link.
  2. According to KBC in “Storm op de beurzen” there are five developments that make investors nervous: China, Oil, Oil Companies, US Economy and FED policy. On each development their message is more or less the same. Things are not as bad as they look. Be patient and stick to your guns. The market is overreacting.
  3. Russ Koesterich from BlackRock seems to worry a little more than the colleagues from DAM and KBC. As the title of Midwinter Forecast: More Volatility Ahead already suggest he thinks that “the elements are in place for continued volatility”. He suggests to look for strategies that minimize downside risk.
  4. In Oil price and equities: don’t trust their correlation AXA shows a 10 year graph of the correlation between oil and equity (MSCI World index) prices. The correlation is mainly positive. But they argue that this positive correlation is not robust (but maybe just a little stubborn in the short run).
  5. Pioneer expects the US Dollar bull market to continue in 2016. For this they state four reasons. Divergence in G-4 monetary policies, Fed tightening, a more market oriented RMB exchange rate and EM deleveraging.
  6. For the coming year Standard Life Investments is expecting continuing financial volatility, and they suggest investors to be highly selective in their asset allocation decision. You can take a look at theirs in Global Outlook February 2016.
  7. There is so much interesting material to read, where to start? The author of the Novus Guide of Crowding is pretty clear on this subject. “If there is anything you read this month, read this practical guide to the most relevant factor moving your portfolio today”. So of course that’s what we did. If you want to know why Crowding is an Important Risk Factor, we suggest you do the same.

Weekly Roundup OpinioPro

 

Excess Returns vs OpinioPro

Excess Returns, A comparative study of the method of world greatest investors by Frederik Vanhaverbeke was published in 2014. Currently, Vanhaverbeke is Bond Portfolio manager at the Belgium KBC, however, he studied Electrical Engineering in Antwerp. Excess Returns is a very detailed book about stocks. Although portfolio construction is not discussed very thoroughly, the book describes in much detail the investment process, buying and selling and risk versus return of individual stocks. The last chapter is called “The Intelligent Investor”.

This book is highly recommendable for all equity investors. Seldom was written such a complete, well-ordered book about all aspects of selecting stocks. The very specific text alternates with light examples about stocks, which professional investors will recognise.

Nowadays the discussion whether to invest actively or passively is still not closed. Frederik Vanhaverbeke shows which top investors by using stock picking are standing out. These investors are much discussed in this book to illustrate why a good process is important and to show that you should as little as possible be dependent on coincidence.

Vanhaverbeke shows frequently tables, graphs and diagrams to give a very clear overview. At the end of the book there are conversations with management teams. Is this a pro or a con? Management normally knows a lot more than the equity investor, however can you get valuable information from them or do they only cause confusion?

According to Warren Buffet this is what management is all about in the end: “The first question I always ask myself about somebody in his position: Do they love the money or do they love the business?”

OpinioPro vs ‘Excess Returns’

‘Excess Returns’ shows us that making good stock selections, you need to make a case. Conditions for a good case are: valuable information, in other words research that  supports a case, and research that claims the opposite. Being aware of  the consensus is useful here as well. OpinioPro has currently got over 2,500 research documents uploaded on its platform.

The best investors read a lot and support their case fundamentally. OpinioPro has fundamental research about nearly every subject a professional investor needs. OpinioPro wants to assist professional investors optimally, by making investment research very accessible. This will lead to better decisions when investing. The best ‘research engine’ is now available without registration at www.opiniopro.com

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