1.
Make better decisions to be a better investor
In this intriguing article, Barry Ritholtz talks about better decision-making for investors.
Most people believe that investing is the science of generating a return on capital. That is an accurate but incomplete assessment. I believe it is more valuable and comprehensive to define investing as the decision-making behaviour of human beings as they interact with money: What their financial desires are, the risks they embrace, how they think about wealth, and what emotional pain they willingly suffer in order to generate that return on capital.
At its heart, investing is a problem-solving exercise, filled with opportunities that also reveal the errors we all make. If a core part of investing is the study of human behaviour, then we must recognize the way human behaviour manifests itself is in the way we make decisions.
To be better investors, we have to learn how to make better decisions.
2.
Chip is the new router!!
Just like in the dotcom boom, Cisco, which made internet routers, was touted to be the next big giant fuelling the new world, the same narrative is playing out now for the GPUs made by NVIDIA. The GPUs are the drivers of the new AI boom.
China is hoarding chips before US sanctions kick in and starting clandestine operations to make and trade in semiconductors. Both UAE and Saudi Arabia are also hoarding chips and the US has also put in trade restrictions. And now the UK has also started doing the same.
All in all, it looks like semiconductors are the new tool for political supremacy.
3.
Momentum works wonders. Just not all the time.
Since I started getting enamoured by “quant equity” I have been speaking about different factors. Momentum is one of the most enduring and most hated factors. It is counter-intuitive in the sense that most traditional investors are loathe to buy stocks that have already run up, sometimes a lot, and at times are at high valuations. yet, it is one of the most robust and enduring factors that work in the markets. It follows the basic physical law of inertia which states that if a body is at rest or moving at a constant speed in a straight line, it will remain at rest or keep moving in a straight line at a constant speed unless it is acted upon by a force. In investing, momentum tries to cash in on stocks that are on the move.
Q10, part of the Quantamental basket that we run at Intelsense, continues its stellar run in recent times. It is up 16.73% in the last month, up 72.72% in the last six months as some stocks catch momentum. Q10 is the 2nd best-performing smallcase in the last month, the best in the last six months and tenth in the last year.
This validates our thesis that momentum is one of the most important factors of alpha generation in the markets. But it does not work always. Momentum went through a rough patch in the last couple of years when the market was rangebound. But now, it seems to be working once more.
Thought of the Week
“We do not have any formula that calculates risk. We do our own calculation of risk vs. reward in every investment. ... We do not think that the results would be changed favorably by having lots of committees and lots of spreadsheets. ... The first question we ask is: "Are we reasonably sure we know what we are doing?"
~ Warren Buffett
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