We’re all donkeys

Good morning humans

1️⃣ Who da donkey?

In my experience, anyone who has any real experience trading or investing, and has been around for any length of time, will readily laugh about all of the ways they’ve managed to lose money.

2️⃣ Don’t confuse probability with certainty

A good chunk of advisors and distributors I’ve interacted sell certainties. If an advisor says “I don’t know” a bunch of times, then I’d run away from them in a hurry. But today, given the incentive to gather assets, attract clients, much of advisory has become all about certainty when pretty much everything in the markets is uncertain at best.

Financial planning is a world of probabilities, not certainties. It’s why I focus on financial planning (the verb) as opposed to the financial plan (the noun). There’s a huge difference. This isn’t the same thing as the media’s ever-present plea of “5 Reasons You Should Make Changes to Your Portfolio Now.” It’s nothing like that.

3️⃣ Education influences fund management style

This is really interesting. People who were more exposed to the efficient market hypothesis (EMH) tend to be less active or closet indexers. Fund managers who weren’t exposed to EMH tend not be index huggers. So lesson for the underperforming managers, forget EMH and go crazy with a 100% active share!😎

The new research thus shows that students who were more exposed to the EMH became fund managers who were less active and more likely to be closet indexers. They did, however, take on more systematic market risk in the form of higher beta. And as a result, underperformed. The new research shows that the fund performance of managers who were more exposed to the EMH in their student days had a significantly lower alpha than managers who were not as much exposed. How much lower? On average 0.6% per year. Given that alpha is such a rare thing to find, that is a massive performance gap.

4️⃣How Amazon’s Super-Complex Shipping System Works

5️⃣.This is a nice look at the beast that is Alibaba, more relevant considering that the Chinese regulators seem to be intent and cutting all the tech giants down to size

Tech firms helped broker trillions of yuan in micro-loans last year. That rapid growth far outstripped regulatory capacity. Much of the oversight fell to provincial watchdogs that were simply outgunned. A former mayor of Chongqing complained that Ant used the jurisdiction to securitise 3bn yuan in loans many times over to raise more than 300bn yuan. Beijing’s vice-mayor said in November that its finance bureau had 70 staff policing 70,000 firms.


6️⃣Air Pollution Kills Far More People Than Covid Ever Will

Apart from the tragic numbers here, this piece is another example of how how what’s loud and powerful narratives always trump boring facts and stats.

More than 10 million people die each year from air pollution, according to a new study — far more than the estimated 2.6 million people who have died from Covid-19 since it was detected more than a year ago. And while Covid is headline news, ordinary air pollution remains a side issue for policy wonks and technocrats.

This reminds me of this chapter in the book Freakonomics where the authors try to analyze whether guns in houses are deadlier than houses with swimming pools. If you guessed guns are more dangerous, you’d be wrong.

And the swimming pool is far, far more dangerous than the gun when it comes to young children. So what we did is we looked at the number of child deaths that were due to swimming pools, the number of child deaths that were due to guns, and then we put it in terms of how often will a given swimming pool kill a child versus how often will a particular gun kill a child. And it turns out that the swimming pool is far more lethal than the gun, that a given swimming pool is 100 times more likely to lead to the death of a child than a particular gun is to lead to the death of a child. And so, I know a lot of parents who would say I would never let my child go over to the house of someone who has a gun in the house, but I’ve actually never heard anyone say I will never let my child go over to the house of someone who has a swimming pool, when in fact that’s completely reversed when it comes to the risk that the two products actually have.


7️⃣ Stripe


A pile of other links

Indians’ inability to repay their loans is adding to shadow bankers’ woes

NFTs Are Signatures That Come with Artworks

Passion Investing

American Special Ops Forces Are Everywhere


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