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More research points to power in piggyback investing

Posted on July 29, 2010 at 2:14 pm

Tradestreaming is all about finding the right investor willing to share the most valuable information.  Sometimes, sharing important information is required by law.  Like, when an investment fund or company is required to report portfolio holdings.  Piggyback investing using regulatory filings to create all-star portfolios made up of the best picks by the world’s most profitable investors.

Warren Buffett is clearly one worthy of piggybacking and a new research paper further dissects his historical performance and lays the groundwork for investors willing to mimic Buffett’s investment moves.

In Overconfidence, Under-Reaction, and Warren Buffett’s Investments, authors Hughes, Liu, and Zhang examine what contributes to a market underreaction to news that Buffett’s Berkshire Hathaway has made a new investment.

Findings of market under reaction to Berkshire Hathaway’s public disclosures through quarterly filings of their holdings of publicly traded company stocks through Form 13f with the SEC for up to a year or more rationalizes Buffett’s long-term investment strategy.  We investigate over confidence as   an   explanation   for   under   reaction   indirectly   by   examining   associations between  changes   in Berkshire  Hathaway’s  holdings   and  changes   in both  financial   analysts’ recommendations   and   institutional   holdings   for   the   same   stocks…

The link to overconfidence is based on the argument that overconfidence on the part of analyst and fund managers is likely given the highly competitive investment community in which they perform and the high rewards afforded   those   who   distinguish   themselves   as   possessing   independent   expertise.     As   a complementary  finding,   insiders  whose overconfidence   is  more   likely  to overweight   similar private information to that of Buffett tend to follow Buffett’s lead when buying by, as net sellers, selling less.

Interesting aside, the study also finds net sales of corporate insiders of stocks held by Berkshire Hathaway tend to decrease when those holdings increase consistent with shared private information.

Source

Hughes, John S., Liu, Jing and Zhang, Mingshan, Overconfidence, Under-Reaction, and Warren Buffett’s Investments (July 5, 2010). Available at SSRN: http://ssrn.com/abstract=1635061

[Hat tip: CXO Advisory Group]

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  • The real-time web and its impact on investing (Future of Investing)

    Posted on August 2, 2010 at 1:02 pm UTC

    This post was originally included as part of an ebook that I published alongside the launch of my book, Tradestream, entitled “Tradestreaming and the Future of Investing”.  The content was so good I wanted everyone to have access to it :-) .

    ***********

    The rise of independent publishers through blogging tools such as WordPress has been profound for the investor community.  With the integration of RSSCloud, PuSH, Twitter, and Facebook — blogs are now part of the real-time stream and are playing an ever large role in the day-to-day of the investors. I’ve seen firsthand two major trends that were previously unthinkable and nearly impossible to pull off. The first is the micro specialist blogger who focuses on a very niche topic — perhaps a single stock or a single bucket of previously uncovered equities.  The exposure and insight from these publishers has provided a key data point to investors, and provides content on topics that are not covered by analysts and the MSM financial publications.

    The second major trend has been the inclusion of bloggers covering seemingly non-financial content, but who are in fact informing investors with their coverage.  This trend includes fashion bloggers who impact investors covering retail, and local political bloggers who cover topics which impact energy markets, currency trading, and the like.

    Raanan Bar-Cohen has over 15 years experience as an entrepreneur and innovator in the digital media space.  Raanan currently serves as Vice President of Media Services at Automattic, which leads the WordPress Open Source publishing project and runs a number of online services including WordPress.com, Akismet, Gravatar, IntenseDebate, and PollDaddy.
    Raanan blogs often @ http://raanan.com and can be followed @ http://twitter.com/raanan

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  • Best selling business books (NYT) August 1, 2010

    Posted on August 1, 2010 at 12:19 pm UTC

    Here is a short compilation of top investment books core to Tradestreaming (if you purchase off these links, my Amazon account gets credited a minute sum).  Hopefully, this is useful.  Some, if not all, of these titles should be on your nightstand.?

    Top selling business books according to the NYT Bestseller List (Hardcover), August 2010.

    Delivering Hapiness: A Path to Profits, Passion and Purpose

    Delivering Happiness: A Path to Profits, Passion, and Purpose -- Tony Hsieh

    The CEO of Zappos -- you know the great shoe company with kick-ass service bought recently by Amazon -- explains how focusing on corporate culture can lead to hugeness.  Good read.

    Switch: How to Change Things When Change is Hard

    Switch: How to Change Things When Change Is Hard -- Dan and Chip Heath

    I really enjoyed the Heath Brothers' Made to Stick.  Switch is made of the same engaging writing style that presents shared patterns of successful changes.  God knows I need this book in my life.

    Tradestream your Way to Profits

    TradeStream Your Way to Profits -- Zack Miller

    Yes, it's a shameless plug for my own book but it really is the best resource to put all of these strategies together and help investors become smarter and make more informed, more accurate investments.

    There is a bull market in financial content -- Tradestreaming teaches investors how to use it.

    Drive: The Surprising Truth About What Motivates Us

    Drive: The Surprising Truth About What Motivates Us -- Daniel Pink

    Ever notice how popular business books only contain one word?  Drive is a sort of Dan Ariely/Nudge type book that emphasizes how workers crave autonomy, mastery and purpose.  The rest, as they say, is in the details.

    Rework

    Rework -- Jason Fried

    I've been a big fan of Jason's and his firm 37signals, a software development firm and couldn't wait to read about the core of 37signals' success.  Do less and create more.  I like that.

    Doing Both: How Cisco Captures Today's Profit and Drives Tomorrow's Growth

    Doing Both: How Cisco Captures Today's Profit and Drives Tomorrow's Growth -- Inder Sidhu

    Newcomer on the NYT Bestseller list and this one's a keeper.  There's so much in here that it's impossible to list them all but it focuses on being able to be everything at once: sustaining and disruptive innovation, existing and new business models.  It's sort of a rebuff to Christensen's Innovator's Dilemma.

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  • Insider buying trends (SINLetter.com)

    Posted on August 1, 2010 at 11:29 am UTC

    Asif Suria has done great work over the past couple of years.  Check out what he does at SINLetter.com.

    He publishes an Insider Weekend which runs down insider buying/selling trends (a Tradestreaming hallmark) and highlights specific names that are seeing significant insider activity.  Here’s the current installment.

    Insider buying rebounded last week with insiders purchasing $13.42 million of their stock last week when compared to just $3.4 million in the week prior. Selling picked up pace with insiders selling $498.22 million worth of stock.

    Suria compares buy/sell ratios to previous weeks’ activity:

    The Sell/Buy ratio this week compares favorably with the week prior when the ratio stood at 98.64 (51.13 without the AutoZone sales).

    On the notable buy/sell side, Suria calls out activity in Blackrock (BLK) and Eagle Bancorp (EGBN) among others.  Check it out.

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  • How to make Betterment better (Hint: truth in marketing)

    Posted on July 30, 2010 at 11:58 am UTC

    Sometimes, it’s worth reading the fine print — especially, when it comes to financial products.

    I was interviewed by Mint.com recently about my thoughts on Betterment, a startup that performed pretty well at recent tech conference, TechCrunch Disrupt (see, Betterment wants to be your new, higher-yield savings account).

    What is Betterment?

    Well, it’s really an investment advisory service that masquerades as being a better savings account.  By removing much of the jargon (the site doesn’t even mention securities by name), Betterment removes many of the barriers to putting money in the market.  As I said in the Mint interview:

    For most people, opening an online trading account and figuring out what to buy and who to listen to, there’s so much noise out there.

    And that’s true: how many individuals really understand asset allocation, diversification, risk when professionals have such a hard time defining them?  It’s kind of like I know it when I see it.  Betterment provides a usability layer that requires only one decision point: what percentage of my money do I want in the market?  That’s it.

    Removing the confusing jargon and the pain points associated with complicated concepts is ultimately a good thing.  I can just picture my grandparents trying to navigate an E*Trade account trading screen.

    Oops, it’s not actually a bank account

    While pursuing a noble end (making investing easier for the mass majority), Betterment stumbles when it positions itself as an alternative to a savings account.  It is most definitely NOT a savings account.  Money in Betterment is split between Exchange Traded Funds (ETFs), one of which will include U.S. Treasury Bonds if you allocated to that.  That means, an account holder

    • risks losing some, if not all, his money
    • will see fluctuations in the account
    • will have investment-level taxes on gains

    I was quoted in the interview:

    “They took a process that’s inherently scary and overwhelming for people and used technology to simplify it,” says Miller. “I think that’s an honorable thing. But to market it again and again, to talk about a savings account, is just disreputable. It’s scary, actually.”

    Though it appears that they’ve toned it down recently, there’s still just too much talk/discussion on the Betterment website about safety and savings.  Betterment may be a great product to *invest* spare cash just sitting in a savings account (much like ShareBuilder used to be).

    Just don’t compare it to the savings account.  At 90 basis points (.9%), it’s also expensive.

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    Source

    A Better Savings Account? (Mint.com Blog)

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  • CNBC’s Hedge Fund Trade of the Week (video)

    Posted on July 30, 2010 at 2:26 am UTC

    A look at hedge fund trends, with Anthony Scaramucci, Skybridge Capital

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About Tradestreaming

Tradestreaming is a community of investors learning directly from experts. I’m Zack Miller, investor, entrepreneur, and founder of Tradestreaming.com and I literally wrote the book on how to invest in the age of Facebook and Twitter. Tradestreaming is the resource I’ve created to help me become a better investor.  I believe it will help you … Continue Reading