Things are not the same, since we broke up last June
Don Boudreaux had an oped in Saturday’s WSJ, on “Learning to Love Insider Trading.” The economic case against banning insider trading seems strong, yet the public overwhelmingly wants bans. (…)
Even with laws against insider trading, the speculation game is and must remain ridiculously uneven. Today most inside info gets into prices before official announcements, and well-connected well-organized investment groups are vastly better equipped to find and exploit pricing errors than almost all amateurs.
{ Overcoming Bias | Continue reading }
One of the nice aspects of trying to solve investment puzzles is recognizing that even though I am not always going to be right, I don’t have to be. Decent portfolio management allows for some bad luck and some bad decisions. When something does go wrong, I like to think about the bad decisions and learn from them so that hopefully I don’t repeat the same mistakes. This leaves me plenty of room to make fresh mistakes going forward. I’d like to start today by reviewing a bad decision I made and share with you what I’ve learned from that error and how I am attempting to apply the lessons to improve our funds’ prospects.
At the May 2005 Ira Sohn Investment Research Conference in New York, I recommended MDC Holdings, a homebuilder, at $67 per share. Two months later MDC reached $89 a share, a nice quick return if you timed your sale perfectly. Then the stock collapsed with the rest of the sector. Some of my MDC analysis was correct: it was less risky than its peers and would hold-up better in a down cycle because it had less leverage and held less land. But this just meant that almost half a decade later, anyone who listened to me would have lost about forty percent of his investment, instead of the seventy percent that the homebuilding sector lost.
I want to revisit this because the loss was not bad luck; it was bad analysis.
related { Glossary of Trading Terms and Phrases. }
