books to read

http://www.ritholtz.com/blog/2010/02/apprenticed-investor-reading-is-fundamental-2/

ridiculous logic?

The more supply, the more buyers?

Back in July of 2005, someone on a web forum about housing prices pointed out that "the more the supply, the higher the prices, because high supply brings out more buyers since there is more selection". What is your opinion of this logic?

Barry Ritholtz's ten suggentions

http://www.ritholtz.com/blog/2010/04/10-thoughts-on-psychology-valuations-adapative-investing/#comments

1. Whether a premise is fundamentally true or false is irrelevant as to whether it is actionable. If enough fools believe something is so, it will impact the markets.

HL: 1. Never fight idiots. Learn to love them

2. Valuation/fundamentals can not be used to trade short-term. Market can remain irrational (overvalued/undervalued) for much longer than I can remain solvent. This reflects my own overconfidence bias

2. Always be conscious of the cognizant biases and selective perceptions you bring to investing. Recognize the same bias in the crowd, the media, and Wall Street. Avoid the herding effect.

HL: How I leave my own bias out of the door when I analyze and invest?

3. After a a 55% market sell off, most of the terrible structural news that existed before the collapse is reflected in prices. (Let it go).

HL: Do not agree. Maybe I do not understand why he says this? Is he a long-biased since he is a money manager, being paid by long/in the market?

4. You must acknowledge when the data gets stronger or weaker, regardless of your current market posture. Be skeptical, but not rigid.

HL: When facts/data changes, I change my mind

5. Variant perception is a rarity; Identifying the moment when the crowd figures out they are wrong is rarer still.

HL: Hard to call top when idiots figure out they are wrong?

6. Market Pros simply cannot afford to sit out a 75% rally; Individuals that miss that sort of move should reconsider their investment strategies immediately.

HL: Money manager's career risk of not being long. So, they have long bias

7. Every thing cycles: Recessions turn into recoveries; bull markets give rise to bear markets. Every rally that there ever was or there ever will be eventually ends. Adapt to this truism or lose all of your money.

HL: We know market cycles, but it does not help timing

8. One of the hardest things to do in investing is to reverse your thinking. It is even more difficult to do after a certain approach has been successful for long time. The longer the period of successful thinking, the more importnat the reversal will be.

HL: Reverse according to what?

9. Cheap markets can get cheaper; Expensive markets can get dearer.

HL: Buying cheap according to value-investing is still a better strategy, collecting dividend, even it get cheaper and cheaper than short a overvalued market in which expensive markets gets dearer to wipe short out for its leverage.

Wally (from BP): Contradictory things (refereing to 6 &9) . The difficulty is that the first thing – a big rally – can only be identified after the fact. If you put your money into what was instead a ‘cheap market’ that got cheaper, you’d be toast and you wouldn’t be around later talking about the big rally. The hardest thing in investing is to look back and identify what you really “knew” as opposed to what you lucked into.

10. The markets frequently diverge from the macro economic environment. This can be both long lasting and maddening; Your job is to be aware of how wide the gap between the two is.

HL: See 1.

Investment fallacy

1. Single source/rumor

2. Correlation/causation

3. Backwards looking---linear extending to future

4. "This time is different"

5. Partial evidence (availability overweight)
5.1 Is three a small number? Is 1mil a large number? It depends on what it refers to.

6. Incentive bias
6.1 Am I predicting what I expect or I want? Are they predicting what they expect/bias to/want to happen?

7. Qualitative vs quantitative


Antidose:
1. Who said, as verified independently, what happened when and where for what reason?

2. How does it look historically? Proportionally? Money weighted wise?

3. Which part/terminology eludes me?

Bob Farrell's ten rules for investing

1. Markets tend to return to the mean over time
When stocks go too far in one direction, they come back. Euphoria and pessimism can cloud people's head. It is easy to get caught up in the heat of the moment and lose perspective.

2. Excesses in one directioni will lead to an opposite excess in the other direction
Think of the market baseline as attached to a rubber string. Any action too far in one direction not only brings you back to the baseline, but lead to an overshoot in the opposite direction

3. There are no new eras--excess are never permanent
Whatever the latest hot sector is, it eventually overheats, mean reverts, and then overshoots. As the fever builds, a chorus of "this time it's different" will be heard, even if those exact words are never used. And of course, it ---Human Nature --- never is different

4. Exponential rapidly rising or falling markets usually go further than you think, but the do not correct by going sideways
Regardless of how hot a sector is, don't expect a plateau to work off the excesses. Profits are locked in by selling, and that invariably lead to a significant correction---eventually

5. The public buys the most at the top and least at the bottom
That's why contrarian-minded investors can make good money if they follow the sentiment indictors and have good timing

6. Fear and greed are strong than long-term resolve
Investors can be their own worst enemy, particularly when emotions take hold.

7. Markets are strongest when they are brad and weakest when they are narrow to a handful of blue-chip names
Hence, why breadth and volume are so important. Think of it as strength in numbers. Broad momentum is hart to stop, Farrel observes. Watch for when momentum channel into a small number of stocks ("Nifty 50" stocks)

8. Bear market have three stages---sharp down, reflexive rebound and a drawn-out fundamental downtrend

9. When all experts and forecasts agree---something else is going to happen
As Stoval, the S&P investment strategist, puts it: "if everybody is optimitics, who is left to buy? If everybody's pessimistic, who's left to sell?"
Going against the herd as Farrel repeatedly suggests can be very profitable, espcially for patient buyers who raise case from frothy markets and reinvest it when sentiment is darkest

10 Bul market are more fun than bear markets

Every so often, exogenous events will cause a major collapse in prices. If you wait for these opportunities, then load up on great companies at cheap price, you will outperform every one.

Stock price direction is a function of several factors: valuation, future expectations, sentiment, and liquidity

Good trader's trait: unemotional, hard-working, and disciplined

Never make a bet you cannot afford to lose

You have to be very decisive, extremely disciplined, relatively smart, and above all, totally independent.

Per ghostfaceinvestor, Lipper is the best source for retail (stock) investors flow

non-residential and residential construction

5% and 2% for non-residential and residential construction.
But is it true those construction expenditure has spill-over effect, like building a new home leads many other works (wood, concrete, ...) and buying a new home leads buying furniture, appliance, landscaping, etc?

How how big is the spill-over effect quantitatively?

in reference to:

"Dollar-wise, non-residential construction is about 5% of GDP, residential only about 2%. So the even if residential recovers somewhat, a dropping non-residential will be a net drag on the economy."
- Construction Spending increases in August | Hoocoodanode? (view on Google Sidewiki)