Financial/Investing Content - Julianek's Essays

There seems to be a small community of people who like what I write here. I’d be ok to write more long-form content (essays), but it would be nice if you could give me directions. What kind of topics would you like to know more about? Finance and investing are vast domains…

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Some say that the central banks are the only or one of the major reasons why stock prices are rising.

Others say central bank are one reason among many, or play a little role, if any.

So far I have not come across a thorough analysis of the matter. I’m not sure if one can even actually quantify the influence of central banks.

That’d be something that would interest me.

They are not the only, but more and more a major reason.
Long time ago, there was a bond market and a stock market as mainstream markets.
So for financial investments, investors had a choice. They could build a portfolio with a mix of bonds with different yields, durations, risk levels, and stocks.
Since 2003 (since the Fed has set its benchmark rate below inflation rate) and definitely since 2008 (one bubble later), There Is No Alternative (google for the TINA acronym) to stocks.
A side effect is that pensions funds now rely on the stock market, so the Fed has to raise regularly its floor level.
Additionally zero rates allow for infinite leverage, which helps the rise of stock prices (not only, it can be prices of other investments).

How can I optimize my buy and hold strategy of VWRL (quarterly investments) using options trading?

That’s exactly what I mean. Yours is an opinion, an impression, a feeling.

There are many others who say the opposite.

I’d be interested in a quantitative analysis.

Probably it’s impossible to escape the non-quantitative part. Even central bankers themselves disagree on that question. Now there is the question of the choice and opportunity cost.
Say you have a certain sum to invest (as a fund manager) for a certain time and you have the choice between:

  1. bonds of company X with a 3% yield
  2. shares of the same company X with 5% dividend

That’s the “red-pill” variant.
In a parallel “QE blue-pill” universe, you could have the choices

  1. bonds of company X with a 0% yield (or just keep the cash in a vault)
  2. shares of company X with 2.5% dividend

X is a large stable company in good shape (Nestlé is the typical example).
Now, it’s impossible to prove the figures of the example are consistent (although you can grab for X=Nestlé some past data).
The next step is to ask 1000 people about what they would choose for which variant :slight_smile: . Mixes are possible: from 0% bonds, 100% stocks to 100% bonds, 0% stocks.
My guess (again an impression :wink: ) is that the answers will be different between variant “red” and variant “blue”.

My input: “red”: 50%, 50%; “blue”: 20%, 80%.

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Did Quantitative Easing Only Inflate Stock Prices? Macroeconomic Evidence from the US and UK by Mirco Balatti, Chris Brooks, Michael P. Clements, Konstantina Kappou :: SSRN and a few other papers seem to argue that most of QE went into inflating assets prices.

I’m having a hard time finding papers stating otherwise, but I probably should refine my query.

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Exactly. And maybe, if Mr @Julianek feels like it, he could serve us one of his nice and thorough studies on the topic. :slight_smile:

Interesting, thank you!

Additionally, if a majority of papers confirm this hypothesis, it becomes the truth, since 99% of people follow other people’s opinion (NB: it works recursively). Then you find in Wall Street Bets that JPow makes brrrr with the money printer, it’s why you have to YOLO to the moon :rocket: :rocket: :rocket:.
Ultimately people post videos about Elon printing money (the “information” about the central bank and QE was lost on the way).

A nice counter-example is Japan. Perhaps experts there have found that QE does not influence stocks, and it has worked so far apparently.

I did a bit more research yesterday, I looks more nuanced (but what’s hard is that I am not enough of an expert to make sure I have the right search terms :slight_smile: )

I probably should ask my sibling who’s doing that as their job :smiley: (working for a central bank).

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Interesting, I did not expect that the questions would be mainly about macro factors (my strengths are more at the microeconomics/business analysis level), but I will try to take that into account :slight_smile:

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There is a video from Ben Felix about it:

I know the video. He says central banks are just one factor among many.

You specifically asked for financial / investing content but what I’d also be interested in is this: Something like an overview or guide on how you generally manage and organize knowledge and data.

Reading some of your other posts you seem to be a true Galactic Grand Master of personal development, learning and reading.

For example, thanks to this answer in another thread, I’ve just discovered Obsidian. How do you use it, specifically? What other tools do you use?

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Thanks for the kind words.

As you can see, I did not write much in the last six months due to an unexpected project that ended up taking a lot more time than I expected (this is also why I was not present in discussions as much as in the past).

As it relates to learning in general, I don’t think I have theorized my process much (I know that @MrRIP is much more organized/thoughtful about personal knowledge management).

My guiding star is the Charlie Munger’s talk A lesson on Elementary, Worldly Wisdom (not only in finance, but for life in general). That is: figure out the big ideas of the big disciplines, and see how they interrelate and how they apply in everyday life. (By the way, this speech is also part of Poor Charlie’s Almanack. I know i repeat myself, but this book is my favorite).

So if you are curious about multi-disciplinary learning, this is quite a fun journey.
At first you might be overwhelmed by all the material there is to know, so I’d say:

  • go where your curiosity leads you
  • be good at figuring out what are the really great books/sources/blog on your topic of interest (opportunity cost is real and your time is limited)
  • integrate what you learn in a latticework of mental models/knowledge tree (as in the message that you highlighted).

On the practical side:

  • I indeed use Obsidian, not because it is the best tool (although I personally think it kicks ass), but because it is free, and all the notes are stored as text files and not in a proprietary online database. This way, i own my notes, and if a better tool comes up in five years from now, i can easily migrate.
  • I use a cloud provider to synchronize all my notes-as-text-files across all my machines
  • On the geeky side, I also use version control (git and github) to save all the history of my notes.

Also, I don’t have a particular methodology to take notes. I tried the Zettelkasten method for some time, but I found out it works well in some areas and not so well in others. But what I use a lot is the concept of link and back-links between notes (ex: if I have a Note A at hand, to which other notes does it link? Conversely, what are all hte notes talking about the topic of Note A?). There are also other methodologies (for instance I have heard about Tiago Forte’s PARA method), but I have not tried them so far, being happy with what I have.

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Agree.

I feel like an :gorilla: with a :keyboard: that‘s reasonably good at googling stuff on the internet - and that‘s that.
Julianek‘s insight and writing though is on another level. Kind of too good to be free on a random forum.

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Does somebody know where i can order it ?

I ordered my copy on the website of the publisher here.

It is a rather expensive book, so if you prefer to get a taste first you can also read an abridged version for free by borrowing it at the library of the Internet Archive. The abridged version has 248 pages, while the full one has 500+ pages.

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You can download the book for free at library genesis.
Here’s a link: Library Genesis

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I like to +1 your view of Julianek :slightly_smiling_face: He always makes me feel like I know nothing, but hopefully I’m just at “the valley of despair” on the Dunning-Kruger Effect scale :joy:
@Julianek you should be professor at a university teaching finance and economics, I really like the way you describe and explain things (especially complex topics) in a structured way that is easily understandable.
@Neville
In case you are still looking for a note taking app, I can highly recommend Joplin, it’s also free open-source software, runs on Desktop and mobile and has countless of helpful plugins, e.g. one that automatically adds back-links to the notes you linked to, one that gives you an overview similar to obsidian where you can see the links between notes and notes with lots of links are bigger circles. I used Evernote in the past but stopped after they started charging CHF 60 per year for the advanced features, I switched to Joplin around 2 years ago, never looked back. All my notes are synced across devices through my selfhosted nextcloud instance.

@Julianek
Have you ever thought about sharing your notes online? I’ve been thinking about this myself recently, to let others (hopefully) benefit from my “knowledge”. As J.M. Cornwell said:

Knowledge is wasted when it isn’t shared.

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