Finance Philosophies

Are Mutual Funds bad?

It is bad logic to criticize mutual funds (or any other organization that holds portfolios on behalf of their clients) using the argument "mutual funds on average under-perform the market". Of course, if you take the average of any entire group of one thing, you will get an underwhelming average. (take people for instance: a smaller % of people are considered "worthwhile to deal with").

Of course if you take all mutual funds and average out their performance, it's going to be underwhelming. But this doesn't take away from the fact that an individual manager can be a skilled investor, and therefore can sell his services as a portfolio manager (ex. mutual fund)

Are markets a self-fulfilling prophecy?

This statement can only make sense to an extent. In order for a market to be a perfect self-fulfilling prophecy, every investor would have to have exactly the same time horizon. It doesn't make sense otherwise, so at best this statement is only partially true.
- it is true to the extent that people using similar moving averages (50 day vs 200 day) will reach similar conclusions to each other, and will place their stop losses along those same lines. When the stock price crosses this mark, those sellers who used the same technicals will sell their stock. This alone will have a sort of unified "shock" to the market that is in a sense a self-fulfilling prophecy, but it centainly does not tell the whole story. Not only are there many more MA periods that people look at, but many investors don't even use those methods to set stop losses, meaning their influence on the market won't reflect the influence of all the people who sold their stock. In the end, the price will be affected, when we are calling the market a Self-Fulfilling Prophecy, we are stretching that term quite a bit. It is cherry picking some data to make it seem more like it actually is
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Fundamental and Technical together

Sometimes the line is blurred between these two. For a tool like a moving average for instance, we are compelled to use it as a technical tool, since it is so precise, but we can also use it as a fundamental tool in a sense of "hey, this trend here signals a downturn generally speaking". In other words, some technical tools can inform fundamental analysis.

Taking advice

One of the biggest problems with taking advice of other traders/investors is that everyone has a different time horizon to work with, which results in vastly different conclusions on what the market is going to do.

Time Horizon

The longer the Time Horizon the more aggressive (riskier) portfolio an investor can build. The shorter the Time Horizon, the more conservative (less risky) the investor may want to adopt.

Intrinsic Value

def - the value that an individual investor places on a stock
can use various methods to arrive at this value
- Discounted Cash Flow - determined by future cash flows and WACC

Bid-Ask Spread

spec: The broker is an intermediary, so the bid-ask more accurately reflects the demand that the brokers are experiencing around a specific security.
This is the proverbial "two sides that can't come to an agreement about something's price"
- the larger the spread, the farther apart both sides are
The reason we set limit orders (instead of straight market orders) is because we want to eliminate the spread-risk. When we set a limit, we are remaining firm on our offer. This is the proverbial "take it or leave it" type of deal.
- When you buy a stock at market, you are succumbing to the ask price of a stock
- when you sell a stock at market, you succumb to the bid price
You can think of the spread as "the cost of trading", and is collected by the broker of the stock
can be considered a measure of the supply and demand for a particular asset. Because the bid can be said to represent demand and the ask to represent the supply for an asset, it would be true that when these two prices expand further apart the price action reflects a change in supply and demand.
low trading activity can result in a low spread
The spread is an important consideration for market orders, since less trade volume means you are less likely to get the last price of the stock.
Price takers buy at the ask price and sell at the bid price but the market maker (brokers) buys at the bid price and sells at the ask price (since they are always the counterparty to us, whether we are buying or selling)
The bid represents demand and the ask represents supply for an asset.
The bid-ask spread is the de facto measure of market liquidity.
- ex. the money market is highly liquid, and therefore has a very low spread
The primary determinant of bid-ask spread size is trading volume.
Ask/Bid price represents the number of shares (in lots of 10 or 100) that are limit orders pending trade

Ask size/bid size

the amount that the money maker (broker) is willing to sell/buy at the given ask price

the bid price of a stock (as it appears to us) is the highest bid entered to buy a stock
- and the prevailing ask price is the lowest ask entered to sell a stock.
  - if the ask size=10 and ask=$100, that means there are 10 shares available at $100.
The higher the ask size, the more supply there is that people want to sell
- and the higher the bid size, the more supply there is that people want to buy
ex. a stock has a

Tech stocks

We have to stop thinking about them as “Tech” stocks. Every industry is now a tech company because it’s woven throughout everything we do now. We need to highlight subsections within tech that will thrive.

“We must look at how well strategies, not stocks, perform.”

a true investor is prepared for whatever happens. A non-investor tries to predict what and when things will happen.

the best investors make more money in a down market move simply because the market falls faster than it rises.

"There are investors who buy assets and there are investors who create assets. If you want to solve the 90/10 riddle for yourself, you need to be both types of investors."

A good cash flow manager reviews his or her cash position daily, looking at cash sources and needs for the next week, month, and quarter.

qualified vs. ordinary dividends

Ordinary dividends are taxed differently (spec: U.S only? Applies to U.S. stocks, or U.S. investors?)