Weekend reading: Investing amnesia

Good articles from around the web.

My favourite read this week was a long memo (PDF download) from Oaktree Capital’s Howard Marks to his clients.

Entitled How Quickly They Forget, it’s a recap of the past five years from the coal face of active investing and a snapshot of the present, framed within a reminder that the investor sentiment cycle demands active amnesia from participants in the market.

Marks writes:

The human mind seems to be very good at suppressing unpleasant memories. This is unfortunate, because unpleasant experiences are the source of the most important lessons.

When I was in army basic training, I was sure the memories would remain vivid and provide material for a great book. Two months later they had disappeared. After the fact, we may remember intellectually but not emotionally: that is, the facts but not their impact.

The article is well worth a read for insights into how risk premiums priced into different markets can give a good heads-up on excessive euphoria or bearishness.

High-yield bonds are the big concern for the memo’s author. Equities look fair to fully priced, despite investors being ‘handcuffed volunteers’ forced to buy them by the artificially low yields on offer elsewhere.

From the investing blogs

• What is happening to the High Street? – Simple Living in Suffolk
• The promise of fundamental indexing – Canadian Couch Potato
• How Buffett really applies his margin of safety – Gannon on Investing
• Gold in a bubble? – Retirement Investing Today
• Asset allocation comes first. Then fund selection – Oblivious Investor
• A review of the excellent Free Capital by Guy Thomas – iii blog
• ETFs – worse than he thought – Terry Smith’s blog
• President Obama is an index investor – Bible Money Matters
• Overdoing the UK income gloom? – David Smith
• A red letter day [Endowment mortgages RIP] – A Grain of Salt
• $12 million underwear and other eBay finds – Len Penzo

Mainstream media money

• Faith and [or in] the markets – The Economist
• Is the UK government cooking up a mis-selling scandal – Peston/BBC
• Too Big To Fail [Review of the upcoming crisis film] – MoneyWatch
• 5 differences between passive and index investing – Swedroe/MoneyWatch
• Super podcast with Supertrends author Lars Tvede – Motley Fool
• Only 16 of 1,168 funds in top 25% for three years in a row – FT
• Reducing your energy costs for fun and profit – FT
• Income is out there, but not without risk – FT
• Uncovering high-charging ‘closet trackers’ – The Telegraph
• The ‘ostrich generation’ of pension fantasists – The Telegraph
• Top five equity release myths – The Telegraph
• Are Britain’s happiest families wealthy? – Independent
• Secondary market for VCTs [apparently!] opening up – Independent
• Mobile phones calling in the cashless society – The Guardian

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