The Game Has Changed. Time to Learn the New Rules.
SilverDoctors.com
May 13, 2016
It’s not just that we’re entering uncharted waters; in a world of negative interest rates and negative bond yields, the entire investment landscape has changed. Investment strategy must reflect that.
If the game has changed, learn the new rules.
With the financial weather now a function of economic policy, different laws apply. Old investment models are obsolete…
Submitted by Tim Price, Sovereign Man:
In their efforts to jam the square peg of financial theory into the round hole of human nature, economists have perpetrated some pretty stupid things.
But few of them are dumber than the efficient market hypothesis (EMH).
EMH states that it is impossible to beat the market because the efficiency of the market means that prices always incorporate and reflect all relevant information.
Why was the Dow Jones Industrial Average worth 22.6% less on Tuesday October 20, 1987 than it had been the previous day?
Why is Warren Buffett worth $67 billion?
Must be all that efficiency.
Buffett himself claims, “I’d be a bum on the street with a tin cup if the markets were always efficient.”
EMH and its bastard cousin CAPM (the Capital Asset Pricing Model), continue to send students of finance down intellectual blind alleys.
CAPM is a model that describes the relationship between the risk and expected return of an asset in a diversified portfolio.
CAPM requires reality to be bent using what can politely be termed “assumptions”, including the assumptions that:
1) All investors are of the species homo economicus, i.e. they are seeking to maximise returns
2) All investors are rational and risk-averse, instead of the emotional creatures we really are.
3) All investors are well diversified across a broad range of investments
4) All investors have an equal and non-influential relationship with prices
5) All investors can lend and borrow without limit at a risk-free rate
The Rest…HERE
