The Investor Sentiment Saga. And being part of the herd.

I found this:

Which I feel ties in quite nicely to yesterday’s post.

So the thing is: we know this. As in: everyone knows this. This is not new. It is not news. We’re generally aware of the fact that market bubbles are not the time to buy – because that’s when everyone is buying.

But in a world of supposedly rational individuals, the real question is: “But why though?”

I mean – if everyone knows not to buy shares when everyone else is buying – why do you still get these moments?

The Good News

Two things to realise:

  1. Firstly, it’s hard to have an independent opinion. Mainly because people get annoyed with you, start calling you names (“Mary contrary”), and question your sanity (popular opinion, after all, is against you – and “Are you saying that the whole world has it wrong?” is a tough counter to your “But this is madness!” statement).
  2. Secondly, it’s even harder to act on an independent opinion with real money #lossaversionbias

But the reason this is good news: it suggests that good investing can sometimes just be a question of moral fortitude and a willingness to step away from the herd.

And this should make sense.

Because logically, yes, the whole world could quite conceivably have it all wrong. And that’s not necessarily arrogance…

As herd animals, we like to be a part of things. Being part of a herd makes us feel safe and secure and like we won’t be the only one looking like an idiot if it all goes horribly wrong (and/or eaten by wolves). But there is a price to be paid for all that security: it means that we’re late to the good stuff and hang around for the scraps long after we should have moved on to greener pastures. It’s the sheep at the front that get the sweetest grass – the followers get the remnants, which can be dust depending on just how far back in the pack they are.

So the obvious solution: don’t be afraid to look up from time to time. And it’s okay to step out occasionally – just avoid the gullies and shadowy places where the wolves tend to hang out.

It’s just my view.

PS: apologies for the shortness of the post – busy morning!

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at

The Changing Face of Equity Trading

At the end of last week, I wrote a post on market corrections: “Wait – was that a bubble? BUBBLES.

The basic idea:

  1. I’m not convinced that you can talk about market corrections in relation to historic norms and averages.
  2. Basically, because of two things:
    1. Quantitative Easing – as of two weeks ago, the M2 money supply of the US dollar was sitting at around $11.5 trillion. 5 years ago, it was $8.5 trillion. That is a seismic 36% jump in such a short period of time.
    2. Wealth Inequality – the gap has been steadily growing for decades, and it leapt in the last five years, as most of that increase-in-money-supply recovery went into the investments of the already-rich*.
      *Of course, we’re also suddenly more aware of it now that the formerly-middle and now-mostly-lower classes can’t hide from it with credit.
  3. Those are foundational differences. If you look at the inequality story, the wealthy invest based on their expectation of a consumption demand – but if the middle class is disappearing, then you’re looking at a shrinking consumer base. What else can that imply but settling for lower returns on capital?
  4. Comparing today’s market to recent history is about as meaningful as expecting today’s communication levels to be one a historic par with average communication levels from the past 50 years (bearing in mind that we’ve only had the internet for the last two decades, and the first iPhone was only introduced in 2007). I mean – sure, we’re still human beings with a need to communicate – but our abilities have shifted.
  5. So for those reasons, and a variety of structural ones, I think that we’re headed into an era where the wealthy are going to accept lower returns for each level of risk that they take on.

When Paul Krugman talked about the Great Moderation in the 1990s, maybe he only got his timing wrong.

Anway – this weekend, I spent some time thinking about how other empirical theories in finance might have just become anachronistic.

The first big one that I came up with: stock-trading and the efficient market hypothesis.

How The World Of Trading Has Changed

For most of history, stock exchanges operated as you’d probably imagine: skeezy gentlemen in brown suits and bowler hats shouting at each other across a floor.

But then we invented the computer, and trading started to become electronic.

The first major stock exchange to do so was the London Stock Exchange in 1986. Then the Italian Stock Exchange in 1994, the Toronto Stock Exchange in 1997, and the Tokyo Stock Exchange in 1999. The NASDAQ has been mostly electronic since the 1987 crash – although the other US exchanges (the NYSE, NYMEX, Chicago Merc, the Chicago Board Options Exchange…) took a little longer to get on board. The NYSE only really stepped over to the electronic side in early 2007.

So obviously, with the rise of electronic trading, a whole world of algorithmic possibilities opened up. Instead of waiting for news, interpreting it, trying to decide how it would impact a stock, and then making a decision – you could make some decisions prior to the news event and tell an algorithm how to trade for you.

From there, it was only a quick leap to bandwidth speed being a determinant in the trade. And we witnessed the rise of High-Frequency Traders (HFTs). doing the split-second version of front-running.

This then led to Dark Pools and the fragmentation of the stock exchanges in attempts to assuage the fears of large institutional investors who felt they were being gouged by the HFTs. Which ironically led to even more gouging as the fragmentation permitted yet more speedy front-running.

Estimates of high-frequency trading amount range from between 50% to 70% of all stock trades. Algorithmic trading in general is estimated to be over 80% of all stock trades (and that was back in 2008).

To talk about “efficient market hypothesis” studies from the 80s and 90s, at this point, is madness:

  • You have algorithms that are pre-set to trade based on certain keywords in a news releases.
  • You have algorithms that are pre-set to trade based on the volume of trades in shares immediately after a news release.
  • You have algorithms that are pre-set to bid the share price up or down depending on the direction of the trade in order to earn the bid/ask spread.
  • You have algorithms that are pre-set to re-balance portfolios in response to specific movements in the market in order to match a pre-defined index.
  • You have algorithms that are pre-set to anticipate the re-balancing of those portfolios in order to profit off the trade up or down.
  • You have algorithms that are pre-set to anticipate the anticipation of the re-balancings.

In short: you have a trading environment of algorithms that can cause an infinite swirl of feedback loops – limited only by pre-defined limits in their formulae, their fund size, and a trade’s proximity to the next news release.

What this may mean

For human traders, this means that the short-term movements (and even the longer-term movements) in the market can cause dysfunctional disconnection between a share price and the share’s fundamentals.

And you really have no idea whether this is an appropriate market reaction, or whether this is just a market reaction based on conflicting opinions by the algorithm’s designers as to what the market reaction would be to an infinite array of determining factors.

Also, any move you make to take advantage of a perceived disconnection will likely throw the algorithmic traders into a frenzy, which could spark off even more swirling feedback mechanisms.

So what is one to do in all this chaos?

Accept the fact that “market efficiency” is a total misnomer because it implies that:

  • The market absorbs all information into the price; and
  • It does so correctly (or the absorption is rendered “correct” by the market consensus).

Only, you can’t have that when a piece of new information spawns new information which in turn spawns new information and so on into the dark night.

I can’t help but think that this creates an excellent opportunity for some long-term fundamentals-focused contrarianism.

Until, you know, they create an algorithm for that. If they haven’t already.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at

Wait – was that a bubble? BUBBLES.

After my post on Wednesday, I’ve had some questions come back – which I’m quite pleased about, because it allows me to draw together a couple of things that I’ve been thinking about this week.

To Recap

In Monday’s post (The Great Divestment), I said that the stock market appears to be going crazy, because:

Then on Wednesday (Investor Diaries: Week 30):

  1. The world today is very different to the world five years ago.
  2. Five years ago, the Fed was just beginning QE round 2.
  3. As of this October, we’re…well…5 years on – and the tapering is only finishing this month.
  4. Meaning that there is so much more money sloshing around in the global market place.
  5. Obviously there has been a steady increase in the stock market indices (where else was the money to go?).
  6. But does that mean “exuberance”?
  7. I think far from it.

Finally, here’s a graph of the S&P 500 and the JSE All Share over the last five years:


So my thinking is, over the last five years:

  1. The USA has leapt on and off the fiscal cliff repeatedly.
  2. The Eurozone has been a dire mess.
  3. China has slowed down and there has been constant warning of a shadow-banking crisis à la 2008.
  4. Russia annexed the Crimea.
  5. The Middle East has been the Middle East.
  6. The Arab Spring came and went and came back again and it’s all looking a bit dicey.
  7. Japan and China threatened war with each other over some islands.
  8. Syria.
  9. The Islamic Caliphate.
  10. The Rise of Bitcoin as an alternative to the existing financial system.
  11. Israel and Palestine.
  12. Libya and her oil imploded.
  13. North Korea regularly threatened nuclear warfare with just about everyone.
  14. Iceland’s volcano downed almost all air travel in Europe for weeks.
  15. And the current outbreak of Ebola has been ravaging West Africa since December 2013 (yes – that’s when it broke out – we’re talking about 10 months of epidemic).

And despite much calamitous reason for the markets to be anxious, we have witnessed the greatest equity rally in history:


The question is: does that sound like a “bubble”?

Well, to answer that, I’m going to call on Robert Shiller (mentioned above in Monday’s off-hand comment). Mr Shiller, who won the Nobel last year for his work on asset prices, is sort of the market authority on bubbles. I wrote about him last year in Bitcoin: Bubble Bubble but no Toil or Trouble (a post that I’m still rather proud of), and he defines asset-pricing bubbles thus:

…a psycho-economic phenomenon. It’s like a mental illness. It is marked by excessive enthusiasm, participation of the news media and feelings of regret among people who weren’t in the bubble.

“Excessive enthusiasm”?


The last five years have been a long dreary series of economic disappointments and compounding global crises.

If anything, we should have seen the opposite of an equity rally.

Only we didn’t.

Very deliberately: the world was pumped with liquidity.

This wasn’t an equity rally driven by enthusiasm – it was an equity rally driven by an overabundance of money. That is: asset price inflation – where “inflation” is the monetary phenomenon, rather than a function of animal spirits/whatever.

And yes – agreed, this has led to some seeming market dysfunction (high average PE ratios, etc).

The Return To Equilibrium?

Two potential paths to correction:

  1. Asset prices deflate.
  2. Earnings inflate.

On the Asset Prices front – how realistic is deflation? It was driven by money supply. So in order for a full correction to take place, my guess is that you’d need excess liquidity to be drained out of the markets by the Central Banks.

But the Central Banks don’t really do that kind of thing. Bad for growth, etc.

So we may have to wait for consumer price inflation before we get any type of correction of earnings relative to asset prices.

Only, Central Banks don’t really like that kind of thing either.

The Third Option 

As we move into a world with lower growth and more inequality – we might just have accelerated ourselves into a new equilibrium – one where capital earns lower returns.

That is: higher asset prices (from investments by the wealthy) and lower earnings (from the diminishing middle class) might combine to make higher PE ratios the norm.

After all – why should anything return to historic averages, when the circumstances that gave rise to those averages have so drastically changed?

It’s just a thought.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at

Nobel Prizes, Jean Tirole, and some vitriol

On Tuesday night, I went to a pub quiz and spent the last few minutes before it began googling the 2014 Nobel prizewinner for Economics – in case it came up as a question.

It didn’t.

There were, however, some questions about recent soccer scores. And a brief triumphant moment where I correctly guessed that the unit of currency in use today that was once a unit of weight in Ancient Mesopotamia was the (Israeli) shekel*.
*Confession: it did help that the quizmaster was Jewish.

Jean Tirole, who won the 2014 Sverige Riksbank’s Prize in Economic Sciences in memory of Alfred Nobel, is French. And he won it for his work in New Industrial Organisation (or “new IO” – or “calculated silliness” as Paul Krugman so affectionately refers to it).

“Calculated Silliness”

In a time before Jean Tirole (and his colleague Jean-Jacques Laffont – who suffers from the unfortunate personal crisis of being dead, thereby disqualifying him from sharing the prize), economists saw the world of business in two ways:

  1. A world in which a single business has all the power – moo ha ha! (Monopoly); or
  2. A world in which no business has any power whatsoever – boo. (Perfect Competition).

Of course, economists knew that the real world was somewhere in between – but then economists tend to live by “Yes, it works in practice – but does it work in theory, my good chap?”

You see – the problem is that the real world is econometrically-awkward. There are feedback loops, conundrums and irrational inconsistencies that make the whole business of modelling it with calculus – well – more than a life’s work. And that’s not good for winning Nobel prizes – because then you die and a protégé picks up where you left off and wins the 8 million kroner and all you’re left with is a passing reference in articles where the old guard are pretty sure that you would have won it if only you’d not been so unfortunately mortal. Humbug.

Anyway – because economists were so fixated on the extremes of perfect competition and monopoly, it meant that their solutions to market failures were somewhat prescriptive. As in “That market is a bit monopolistic – put a price cap on it!” or “Collusion is basically a monopoly, with is basically the root of all evil – destroy it with fines!”

There are some real problems with that kind of prescriptive approach. And just bear that “price cap” in mind for a moment – I’ll get to it shortly.

Jean Tirole was one of the many economists that noticed the problems associated with the simplistic measures being put in place. And instead of dealing with things mathematically, Jean Tirole went at the problem with a series of thought experiments, adding in dashes of game theory*.
*I’m simplifying – but that’s what I do.

So take the price cap as an example.

Thought experiment:

  1. If the government proposes a price cap, what might a rational firm do?
  2. It could set out to influence the setting of the price cap.
  3. It might present high cost schedules to justify the higher price cap – including lavish executive compensation packages, etc.
  4. It might also try to capture the regulatory bodies attempting to regulate it.
  5. And once the price cap is set, it might attempt to suppress any development or innovation that would result in lower prices due to lower costs – because why risk it?
  6. Cue: market failure.
  7. Which is not in the public interest – despite the original intention.

In particular, Jean Tirole’s work tended to focus on the large corporations that are so problematic to regulate – mainly because their size allows them to react to regulation in a way that can get a bit macro…

A quote from the New Yorker:

From Amazon’s battle with book publishers to Cablevision’s attempted takeover of Time Warner Cable and the European Commission’s investigation of Google, the issue of how to deal with companies that operate in markets where competition is restricted or absent has become front-page news around the world. Tirole and his colleagues, particularly the late Jean-Jacques Laffont, didn’t establish a set of hard-and-fast rules for governments to follow in individual cases. But they did create a unifying intellectual framework that regulators, aggrieved parties, and the companies themselves can draw on in thinking through the relevant issues.

The key point:

[Regulation is] an ongoing game between two players with different goals and secrets that they can hide from each other. In the language of game theory, in which Tirole is expert, it is a “principal-agent” problem, where the government is the principal and the firm is the agent. The general question then becomes this: Can you design a regulatory system that offers incentives to both sides—the regulators and the firms—to do things that are in the public interest?

And because I like flexible results, I’m a fan of this:

The Tirole approach doesn’t always point toward tougher oversight. In some cases, it may make sense for regulators to back off, lest they discourage firms from investing and innovating. As in many other areas of economics, a tradeoff is involved, in this case between stimulating technical progress and preventing firms from gouging consumers. On the other hand, Tirole points out, there’s also a danger that government officials will get “captured” by the industries they are supposed to be regulating, and go too easy on them.

Which sounds far more realistic than general economic theory would normally allow.

The Vitriol

When I was reading up on Jean Tirole, I came across this Austrian response: Nota Bene: Jean Tirole wins Nobel for a pseudo-problem.

In it, Mr Tirole is called “a garden-variety neoclassical economist”, alongside much belittling use of adjective (my personal favourite: “teeny-weeny”).

Basically, the crux seems to be “How dare you say that firms get caught up in games with each other – they’re just trying to find the right price to charge the market!”

Did I hear someone say ad hominem? And straw-man? And jealous much?


Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at

The Investor Diaries: Week 30

The Preamble

For the background to this series of posts: herehere and here. And the summary:

  1. Small investors have some investing options.
  2. You can invest occasionally in lump sums (the once-off investors) or monthly through debit orders (the monthly investors).
  3. As for things to invest in, I’m a general fan of low-cost equity-index-tracker ETFs (as is Warren Buffett). But there are other possibilities as well.
  4. This series of posts is there to see which would work out well.
  5. Then there are some indicators at the end. Because why not.

Before I start talking about market corrections, etc, a look at the week everyone had:

Once-Off Investors

Week 30 Once Off Investor Summary


And in pictures:

Week 30 Once-Off Investor Graph

Monthly Investors

And the debit-order guys:

Week 30 Monthly Investor Summary


In pictures:Week 30 Monthly Investor Graph


Don’t you think that the last few weeks of that graph are interesting? Up to that point, everything roughly moved in tandem (except for Naspers – but that’s to be expected – as it’s one of the few assets on the list that isn’t very diversified). But then from about Week 25 onwards, it dipped about all over the place.

Two reasons:

  1. There has obviously been some movement in the economy (see below); but also
  2. In the first few months of investment, each additional debit order was quite large relative to the size of the total investment (in Month 1 – it was a ±30% addition; Month 2 – 25%; Month 3 – 20%; Month 4 – 14%; etc). And because you had large relative injections of capital, the overall return was stabilised by them (ie. the larger proportionate return was coming from the debit order). But as time goes on, the return on the accumulated savings is happening off a larger base – and it’s therefore having a larger impact.

Is that not incredible? If you’re investing R1,000 a month, then by month 9, any additional investment is only a 10% addition.

Which is to say: once you’re in the habit of saving, your investment strategy becomes exponentially more important as time goes on.

Interestingly – that’s also kind of a good analogy for Thomas Piketty’s argument in Capital in the 21st Century – in which he argues that there is only a brief period of time in which the growth return (your salary/saving habit) is greater than the return on capital (your total savings). And as that difference grows exponentially, you get a magnification of the split between the wealthy (the capital-holders) and the poor (the workers reliant on monthly payments).

The Indicators

Week 30 SA Indicators

So we haven’t had much new macro data – just movements in the normal culprits.

Week 30 ZAR USD Exchange Rate

The exchange rate is continuing to pull back.

From what I’ve read on Twitter, and from what I’ve seen out in the field – over the last three weeks, a fair amount of cash exchange and forward exchange contracting took place in order to take advantage of the weak exchange rate. And obviously, with enough demand for rands, the exchange rate started to recover.

Bond yields are falling:

Week 30 10yr Govt Bond

Some potential reasons:

  1. The flow of money inward is going straight into the bond market.
  2. A growing government confidence, after the finance minister announced that he expected to delay some of the government programs in order to slow down the growth in the deficit.
  3. Panic in the stock market.
  4. A combination of the above.

Speaking of the stock market:

Week 30 ALSI

The JSE is going through a market correction, according to the pundits. That is: it’s been hitting record highs, which is indicative of over-excitement, and therefore, all things that go up…

So here’s the 5 year graph showing all the market exuberance:

ALSI 5 year


But here’s another graph showing a comparison with US equities (the S&P 500 index):



The two look to have been moving roughly in tandem. That is: the JSE “correction” looks a lot like what is happening in global markets.

I have a few problems with this type of thinking. Firstly:

  1. The world today is very different to the world five years ago.
  2. Five years ago, the Fed was just beginning QE round 2.
  3. As of this October, we’re…well…5 years on – and the tapering is only finishing this month.
  4. Meaning that there is so much more money sloshing around in the global market place.
  5. Obviously there has been a steady increase in the stock market indices (where else was the money to go?).
  6. But does that mean “exuberance”?
  7. I think far from it.

The other issue to bear in mind is that the JSE market is denominated in Rands. I realise that this is some pretty poor financial math (you can’t really dollarise an index), but I’m going to approximate it anyway by converting the ALSi using the spot ZAR-USD exchange rate:Week 30 ALSI Dollars


You’ll maybe notice that over the period that the stock market was “increasing” – in dollar terms, it seemed to be doing more stabilising?

I think that there is more of a hedge in equities than the market is giving it credit for. Specifically, there are some exporters in the market that are probably quite under-valued at this point in time – and that’s where we should be looking for more “correction”.

On the commodities front, oil continues to drop:

Week 30 Oil USD


And even more sharply in Rand terms, as the currency strengthens:

Week 30 Oil ZAR


Gold and Platinum might also be having a slight uptick:

Week 30 Gold Platinum USD

Week 30 Gold Platinum ZAR

Which is good news for the miners. Well – it’s a bit of good news, at least.

Until next week!

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at

When To Give Up Your Car And Uber Indefinitely…

Recently, I met someone in their early thirties that didn’t have a driver’s licence.

Naturally, my next question was “Trust fund, eh? And if not, what line of business allows you to have a full time chauffeur?”

Entertainingly, the answer was “Marriage”.

But that aside, Uber has brought chauffeuring within affordable reach. No longer do you need to own the car and employ the driver. Obviously, we’ve had taxis for a long time – but somehow, this feels more like being chauffeured*.
*I suspect that this has something to do with repeat business. Taxi drivers know that they’re unlikely to ever see you again – so if they’re profit-maximising, they’ll aim to make the highest fare possible off you. Uber drivers, however, know that their passenger ratings determine not only future business, but also whether Uber will continue allowing them to drive under the Uber banner. And I think it also helps that the rate is not up for negotiation.

So now that it’s affordable, we can now ask fun questions like “When can I dispense with car ownership?” and “Do I still need to hire a car at the airport?”

Building A Model

I like this kind of question because I think that you can get to some kind of a formula pretty quickly.

Here are the costs of driving a car:

  • Your monthly car repayment (including a maintenance plan)
  • Insurance
  • Fuel

Here are the costs of an Uber driver:

  • Monthly car repayment (including a maintenance plan)
  • Insurance
  • Fuel
  • Cellphone data
  • His salary (20% of the fare price)
  • Uber’s take (20% of the fare price)
  • Profit (say, 20% of the fare price in normal hours – MUCH higher during surge pricing)

So on the face of it, you might say that Uber is clearly more expensive – because at least 60% of the fare is extra.


Some mitigating factors:

  • Uber drivers drive around all day, almost every day. Which means that their monthly-car-repayment per trip is pretty close to negligible. That is: they use the asset very efficiently*.
    *Example: let’s say that an Uber driver does 25 trips a day, 22 days a month. If his monthly car repayment is R5,000 – his cost per trip is R9.
  • You, on the other hand, drive around for a bit in the morning, and a bit in the evening, and the car has to spend the rest of that time being parked. Your “owning a car” cost per trip is not negligible. It is high. And it has parking costs attached to it (including higher housing costs – because you’ll be buying a place with a garage).
    *Using a similar example, if you do 3 trips a day on average, 30 days a month, off a monthly car repayment of R5,000 and monthly parking costs of R700 – your effective cost per trip is R63. Which is 7 times as high as the Uber driver’s.
  • There is also some opportunity cost involved – you might be one of those people that can work in a car if you’re not driving.

Given that, we could probably identify a point at which you’d be ambivalent between owning a car and just using Uber. It would be where:

Your Monthly Car Repayment + Parking Costs + Opportunity Cost of Driving

is equal to

The extra 60% of your total Uber spend that goes to Uber and the Uber driver

A Test Run

Speaking for myself:

  1. Monthly car repayments would probably fall in the R3,500 region;
  2. Parking costs… maybe an extra R1,500, taking into account higher rentals and car-guard tipping and the astonishing cost of parking in malls;
  3. I don’t really have an opportunity cost of driving – I make calls on the hands-free, or I listen to podcasts. In fact, I’m almost protective of my time in traffic. It’s valuable.

So where that leaves me: about R5,000 in differential cost.

And if that were equal to 60% of the Uber fare, that would mean a monthly Uber spend of R8,333 – or about R275 per day.

That is: if I would normally spend less that R275 per day on Uber fares, then I should sell my car and Uber everywhere.

Here’s my check:

  1. According to the fare estimate on UberX, it would cost me around R53 to get from home to work (7 km). So that’s R106 return per day.
  2. It would cost me R86 to get to gym from the office (10 km) – but only R54 to get home from there, so there’d be no difference between getting home from gym or the office.
  3. That’s already R192.
  4. All I’d need is a few trips to business meetings during the day before that R275 would get blown out the water.

So basically, this is a mileage issue. With a R275 daily Uber budget, my guess is that you’re looking at around 40 km per day in actual distance travelled, depending on times of day, etc.

If you’re doing more than 1,200 km in a month, then you definitely need the car.

And even if you’re doing less – you wouldn’t really want to call Uber to come and fetch you each time you want to take a small trip down to the shops. There is independence at stake.

But Speaking For Married Couples…

I think that you might be looking at a different story altogether:

  • If one of the partners is pretty much office-bound – then their differential mileage might be significantly lower than 1,200 km per month. And in the evenings and on weekends, the couple would usually do stuff together.
  • At the same time, the differential parking cost saving is higher – because if you’re down to one car, you start looking for homes and/or apartments that have one off-street parking rather than two.

So given my opening paragraphs, isn’t that ironic…

For more on this, albeit with a strong American emphasis, check out:

Happy driving.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at

The Great Divestment?

In the space of just over a week:

All this demerging – all at once.

This kind of thing is interesting because it suggests that the financial world is filled with spin-doctoring and almost no reasonable explanations at all. The basic idea:

  • Companies merge in order to deliver shareholder value (mostly by firing a lot of people to create economies of scale).
  • Companies demerge in order to deliver shareholder value (mostly by firing a lot of people to create economies of scope).

It seems…oxymoronic.

Like explanations of the platinum price:

  • Platinum prices go down because of oversupply.
  • Platinum prices go down because of undersupply.

And explanations of the stock market:

I guess I should point out that Corporate Finance teams will earn their fees either way; and executives will earn fun bonuses for completing a transaction regardless of the transaction.

But if pressed to be contrarian to my own contrariness, I’d say something like:

  • Well, just after a crisis, companies go on buying sprees because companies are cheap.
  • Then when the crisis is abating, companies sell some of the companies that they bought because companies are no longer cheap.
  • And investment bankers are there to let you know when companies are cheap and when they are not cheap because that is their job.


  • Just after a crisis, shareholders aren’t concerned about specific risks – they’re concerned about market risks and weathering the crisis.
  • But a little while later once the market has recovered, they forget about market risks and start getting fussy about specific risks (like “I don’t want to have to buy eBay shares in order to earn Paypal profits – why can’t I just buy shares in Paypal?”).
  • Enter Carl Icahn and his shareholder activism.

Interesting times.

But it does make you wonder if we aren’t cresting a wave of asset prices?

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at