This week's theme is adaptability.
"It is not the strongest or the most intelligent who will survive but those who can best manage change." Leon C. Megginson
"There can be no life without change, and to be afraid of what is different or unfamiliar is to be afraid of life." Theodore Roosevelt
"Human nature is water, not stone." Marty Rubin
"Life requires of man spiritual elasticity, so that he may temper his efforts to the chances that are offered." Viktor E. Frankl
"Adaptability is about the powerful difference between adapting to cope and adapting to win." Max McKeown
Contrary to belief, markets are not efficient or rational. Possibly the bond market is the most efficient or at least is rational. The bond market though, contrary to most thinking, is not without overreaction.
Markets are traded. One side has one set of data and assumptions and another side a different set of data.
Downside corrections are not only to be expected, they are healthy as buyers become over enthusiastic without rationale, or sellers become over pessimistic without rationale.
As most of you know one of my most liked books on investing is THE INTELLIGENT INVESTOR by Benjamin Graham.
On the more technical side is a book I read in early 2000's called A NON-RANDOM WALK DOWN WALL STREET by Andrew W. Lo and Craig Mackinley. Andrew Lo is the Harris Professor of Finance at MIT Sloan School of Management and founder of the Alpha Simplex Group.
Andrew has made a very strong case academically and practically, that, to be successful in finance and investing you need to be adaptive. Life changes and the world changes. That rate of change has increased significantly during our lifetimes.
Over the last year we have seen almost every Investment Management Firm develop new products. They are called multi-factor funds, low volatility funds, multi-alternative funds, global funds, global-macro funds, alternative beta funds and smart beta funds.
Everyone knows the world and investing must change from plain vanilla capitalization weighted indexes. The need to be knowledgeable on how to build diversified portfolios, while having expertise to analyze investing factors, strategies and active share is increasing. All of this is made important because of the increasing levels in the depth of volatility in global markets and the thirty-five year drop in US Bond yields.
Some of what he presents is a bit technical, but you can look at the jest of his thoughts.
Below is a link to a research paper titled "ADAPTIVE MARKETS and the NEW WORLD ORDER".
If you want to hear from Andrew Lo there is an access to avideo below.
*Note Andrew is not on the video until after about 13 minutes of introductions.
"In the Adaptive Markets Hypothesis (AMH) intelligent but fallible investors learn from and adapt to changing economic environments. This implies that markets are not always efficient, but are usually competitive and adaptive, varying in their degree of efficiency as the environment and investor population change over time." Andrew Lo
Please forward this on to anyone who you think may be interested.