Currently pursuing an academic career writing my dissertation focusing on behavioral aspects and influence on the macroeconomic environment. Coming from a background as a standard economist up until the recessions hitting the global economy 2007, I was as many in my field a firm believer that mathematical models were superior in explaining the economic reality. Having spent 8 years in the financial sector after graduation I managed to experience firsthand the burst of two bubbles, neither which would in a rational economic environment should exist. As banking was still good to it employees in 2007 I decided to leave the industry and go back to University to pursue an academic career. Few economists foresaw the impact of the housing bubble popping I would love to say I was one of the few, I wager so would many of the clients I had, but it was not the case. Some economists realized a paradigm shift is needed and to this group I belong. At the same time all too many economists went into denial refusing to rethink models and theories.
As my interest is in macroeconomics this was a natural field to pursue, as the mathematical side was known to me. Going into the field of behavioral aspects on the macroeconomic field was both appealing and new. For example the by academics frowned on method of technical analysis, research done show that an investor using technical analysis as a tool, achieve a return 2-3 % above the risk adjusted expected return. At the same time doing a random-walk simulation (which shares are assumed to follow) of a share and applying technical analysis, it is virtually impossible to achieve a statistically significant return above risk adjusted expected return. Another example is that the return of multinational company in a certain sector listed on a bullish exchange is significantly higher than the return on an equivalent company listed on a bullish exchange.
Both of the above examples cannot be explained by mathematical methods or fundamental analysis. Not in the short term at least, fundamental valuation tends to correct itself of the long period. The fact stands, pure mathematical or fundamental methods do not give a full answer to valuating equities. As little as being able to fully explain recessions, bubbles or booms. A nation entering a “normal” recession has the day after the equal amount of real assets as the day before it entered a recession ceteris paribus. So even as the mathematical models explain the basics underlying events it never gives a full explanation. To take a base example which I have lived through which is baking bread. I was 36 when I for the first time tried this heroic feat, being me I had of course prepared everything from the start. I had the ingredients, I had a picture of what my bread would look like and I even had a room prepared with the perfect temperature for the jest to live in. Taking in account the value of labor I put in and the cost of ingredients, the grey blob that emerged could be the most expensive never eaten grey blob in history. To this day I don’t know what I did wrong but I had all the mathematical calculations at hand so, it should have become the tasty home baked bread my mother does in half the time without even reading instructions and not the alien life form I made.
To aggregate this there is a great likelihood in my meaning to why academic papers fail to disprove technical analysis and why a thriving bank in Spain is valued less than a mediocre bank in Germany. Technical analysis is not a magical mean to earn more on investments, technical analysis reflects the sentiment, legal restrictions, cognitive bias and other behavioral input that affect even the most rational investor. Same reasons explain different valuations of companies equally successful in the same sector but listed on different exchanges.
Released from the investment constraints in wealth management I tried using a behavioral approach to investing both short and long term. Able to invest globally and disregarding risk this strategy was highly successful. Firstly looking at a depressed economy, secondly finding companies with little exposure to the depressed economy, thirdly picking the companies with successful business models and lastly reading through five years of quarterly and annual reports. The combination made my portfolio increase with 231 % to date including some skimming. The only modification made during this time is taking the luxury of investing long term as I found short term investing uneconomical considering the time invested. 10 long investments with 5 year horizon and 2-3 potential buys means minimal time spent looking after the portfolio with 2 potential investments maturing each year with a ready option to buy already screened companies.
My investment strategy is therefore long, long being 5 y, with no preference in markets as investing in a market with high currency volatility even a small investor can hedge via derivatives or using mutual funds. I only invest in companies with a history of positive earnings who pay dividend, if no dividend payouts the reason why is investigated. I use derivatives at times mostly issuing call-options on my own shares if the premium is worth the “risk” of selling cheap. BoA was the last issued and closed in Nov. Derivatives are mostly used as a way of getting dividend if a share is highly unlikely to move upwards. In basics I am a boring investor, this far it has taken less time than trading and produced nice gains.
Currently I am long in ABB, BoA, NBG, BSA, DIA, ERIC, BOL, AXA, ARR and PSEC
I plan to write mostly about investment strategies in general as well as direct investments. Less frequent about macroeconomic issues.