Evidence Based Investing

“Live everyday as if it were your last because someday you’re going to be right.” – Muhammed Ali There appears to be trouble ahead – the Brexit Vote, the US Presidential election, and the tensions arising therein, have created a dangerously entrenched set of opposing sides. It is happening across the globe, with potentially de-stabilising effects on markets. There are a number of flash-points which bear close attention.

“You can’t cheat an honest man” – 1939 Film by W. C. Fields.

“The secret of success is sincerity. Once you can fake that you’ve got it made.” Jean Giraudoux We have seen a series of big rises and scary falls in the last year. Since the April 2015 highs, the market has gone nowhere, but very fast. As the market continues its most recent ascent, participants are getting increasingly nervous. As the chart below shows, Fund Managers have been hoarding cash, and according to Bank of America’s regular client survey, so-called “smart money” have been net sellers for 17 consecutive weeks ![Up Date: According to Lipper Fund Flow data, the selling continues, especially of equities:

“As we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know. And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones” -Donald Rumsfeld 12/2/2002. “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so”- Mark Twain

“I would rather have questions that can’t be answered than answers that can’t be questioned” -Richard Feynman, Physicist. The markets currently present somewhat of a paradox – since the low point in February, the MSCI World Index has risen 13% (as has the S&P 500), becoming on one metric the most overbought since 2009, whilst at the same time seeing NYSE Short Interestreaching the same levels as 2008 (see charts below). This is a Schrödinger market – both bullish and bearish at the same time.

“Capitalism requires a structure and value system that people believe in and can depend upon.” – John C. Bogle It is commonly supposed that the Dinosaurs were wiped out by the Chiucxlub asteroid that landed in Mexico around 65 million years ago, but it is possible that the die had already been cast- they had been declining in numbers and diversity over several million years, and the Asteroid may well have been akin to the knock-out punch that floored an already wobbly boxer. So may it be with Hedge Funds- there have been a number of high profile “blow-ups’ recently, which has caused even the mainstream media to wonder aloud why Investors still use them.

[Up-date: This morning,(18/4) Pepsi announced results: by the magic of Accounting, it managed to convert an $0.64 EPS number into a non-GAAP EPS of $0.89 on a non-GAAP basis. Voila, a $0.25 improvement, with only a little effort required !! ] “Never attempt to win by force what can be won by deception.” ― Niccolò Machiavelli, The Prince…