Do Stocks Outperform Treasury Bills

This is a good research paper on stock picking.

In summary, most active managers fail to beat the benchmark because the skew of returns is positive - a small number of stocks are responsible for a good part of the gains. Therefore the very definition of stock picking (selecting a few stocks) is statistically bound to produce many who fail to pick these ten-bagger stocks and thus underperform the benchmark.

Unless you have superior information (know in advance what these stocks are), you are likely better off sticking to an index - by buying a big bunch of stocks via an index, you will at least capture a few of these outperforming stocks.

Link to paper

Bessembinder, Hendrik, Do Stocks Outperform Treasury Bills? (July 17, 2017). Available at SSRN:

Why VIX is so low

As VIX continues to reach lower there's talk that it is too low and that markets are too complacent. I do, however, find possible reasons for why VIX can remain systematically low.

The main reason is that market participants are in aggregate more willing to buy into dips and less likely to engage in panic selling as compared to before. The result is greater price stability (less fluctuations).

This buy-the-dips behaviour is reinforced by more recent history when acting on fear has proven to be the unwise choice, costing early abandons many a missed rally.

At a deeper level, price stability can be attributed to better financial education, and investing habits that move away from speculation and towards long term investing. This can be direct, when investors change their mentality and expectations upon being more informed about investing, or indirect, when investors park their funds with asset management firms who espouse these investment styles. There is a general trend towards more passive style funds and a tapering of return expectations. 

The decrease of speculative and/or leveraged longs also help in this stability. Typically this group is the first to exit and can amplify sell-offs. 



The Valuation of Bitcoin

Fast rising markets are quick to catch the attention of financial news. Here I present my views on Bitcoin and how to possibly invest in or speculate in it.

In summary, I think bitcoin has no fundamental value and therefore no true pricing because bitcoin is an exchange of value (currency) and in itself is almost useless (not an asset or commodity). As a currency, the value is dependent on the demand for the assets it can buy, but there is a negligible amount of assets that only bitcoin can buy. The price of bitcoin can take any number - in fact, as a means of exchange, a smaller number is more convenient. My opinion is that people in general are pricing it as though it has value and that the value is increasing.

To profit from bitcoin, you have to estimate how people will 'price' bitcoin, which is incredibly complex because it's an endeavour in human psychology within the context of finance.

However, by looking at past prices, you can position yourself favourably (if the past is representative of the future). Buy in drawdown periods, not when the market is making new highs or is frothy. Expect to lose up to 80% of your investment, so allocate your funds accordingly. Hold the investment for a long enough time, say one year, and then maybe hopefully you will see some returns. How much the returns are is beyond the scope of modelling.

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