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Edition 8

29 March 2013

Welcome from Chris Cuffe

We have all observed markets overreact and behave irrationally at times, which can be frustrating for an investor who has put in the research effort and applied sound logic only to see the market spook in response to a minor news item. Anyone who invests in the sharemarket has to put up with this noise, and hope their detailed analysis pays off over time.

Kieran Kelly gives us some interesting observations on market behaviour and history repeating itself in the current market. I asked Ashley Owen of Philo Partners how many sharemarket cycles he could identify, and he gave me a graph with 14 since 1875. So while Kieran’s article finds similarities between post-1973 and post-2007, no doubt different patterns of movements can be fitted to current events from other time periods. Taking a look at the more recent past, Rick Cosier examines asset class performance since 1980, and it is notable how often one year’s best performer is next year’s disaster. Another reason to keep a diversified portfolio.

Graham Hand draws on a lifetime of work by Nobel Prize winner Daniel Kahneman to show how our intuitive and quick responses to many problems are often incorrect and illogical. Some of the examples in the article are challenging, but it’s a compelling argument to think deeper about problems.

In Cuffelinks Edition 4, I highlighted long term data which showed small companies outperform large companies, and while this has not been the case in Australia in the last decade, Chris Stott takes a look at why it might be true over the long term.

Have a good break and happy Easter reading. Chris

Latest posts from Cuffelinks, 29 February 2013, Edition 8

Jumping frogs and rhyming markets Kieran Kelly
Lessons from 32 years of investment performance Rick Cosier
So you think you think rationally. Think again Graham Hand
If the small cap fits, wear it Chris Stott
A new vision for retirement Harvard Business Review

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29 March 2013

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