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Blame it on Bachelier

A random walk into recession
You’ve got to watch these two interviews with Benoit Mandelbrot:

part 1
part 2

Mandelbrot saw the financial crisis of 2007 coming, He couldn’t have told you exactly when or how it would happen. His achievement was simply in recognising that big, and sometimes destructive events do happen in financial markets.
Maybe [...]

Reward, without the risk

In theory:
The holy grail
Contrary to conventional notions of risk and reward, buying shares in safe companies really does improve returns. That’s the message from a research note published last year by Morgan Stanley.
It published an alluring chart, which depicts what goes on over a stockmarket cycle (click on it for a larger version):

The story [...]

The simplest way to select bargain stocks

Three statistics and a newspaper
Much of the analysis on this blog is devoted to finding cheap companies with little financial risk. That’s because paying too much for companies, or buying companies that are financially insecure, is likely to affect return, adversely. Investing only in cheap, safe companies, on the other hand, boosts returns.
I favour the [...]

This week’s shares: United Drug, Sage and Europa Oil & Gas

Prospecting for oil in Reigate
Europa Oil & Gas (EOG)
We’re getting used to companies divining oil in the deepest, furthest and most inaccessible of places so it’s with a chuckle I turn to Europa and its wells or prospective wells in Lincolnshire and near Reigate (among others).
Europa’s auditor is not the first I’ve seen to sign [...]

The Rediscovered Benjamin Graham

This is going to be a long review, but considering many of the words will be quotations from the mouth, or pen, of an icon, perhaps you’ll forgive me.
The Rediscovered Benjamin Graham is a collection of articles and lectures written and given by Benjamin Graham, plus a few interviews with him. It gives insight into [...]

The great value divide

The market’s reasonably priced for a change, but should investors wait until it gets ludicrously cheap?
Students of the market are tripping over themselves touting obscure measures of value, while erstwhile bears are suddenly bullish.
That’s because after decades of excessive prices the market has fallen to something like fair value. Fair, that is, relative to the [...]

Are you a speculator who thinks he’s an investor?

Apologies for this chart, a sketch from my notebook, but I’ve never seen it drawn by anyone with the patience to use a ruler, so this will have to do*1.
I imagine many of us thought we were investors in the bull market and, having, seen our profits evaporate, we’re now coming to terms with the [...]

The Subprime Solution

The boss told me I should review this book last Wednesday. On Friday, he dangled a copy over my shoulder and reiterated his suggestion. On Monday, the US Market fell further in one day than on any day since 1987 as the US Government failed to bail out banks that had overdosed on subprime mortgages.
His [...]

Sorting terminal stocks from turnarounds

How can you tell the difference between a company getting into trouble, and one getting out of it? It’s an important question for investors who try to buy shares on the cheap, when the price is low relative to the value of the company’s assets or earning power.
Typically, these companies are financially distressed. Profitability may [...]

Darwen reaching for critical mass

Investors in suspended Darwen are waiting to hear about the company’s reverse takeover of Optare, and what it means for the rapidly developing bus company. This is what chief executive Andrew Brian told me yesterday.
Just to recap. Darwen only floated on the Alternative Investment Market last February, and already it’s suspended while it hashes out [...]

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