Author Archives: philosophicalecon@gmail.com

Growth and Trend: A Simple, Powerful Technique for Timing the Stock Market

Suppose that you had the magical ability to foresee turns in the business cycle before they happened.  As an investor, what would you do with that ability?  Presumably, you would use it to time the stock market.  You would sell equities … Continue reading

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Trend Following In Financial Markets: A Comprehensive Backtest

“My metric for everything I look at is the 200-day moving average of closing prices.  I’ve seen too many things go to zero, stocks and commodities.  The whole trick in investing is: ‘How do I keep from losing everything?’  If … Continue reading

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The Impact of Taxes on Investor Returns

If you had invested $100,000 in Altria Group ($MO) on March 31st, 1980, and reinvested the dividends, the position today would be worth $93.6MM–a 21.0% annualized return. If you had invested the same amount in Berkshire Hathaway ($BRK-A), the position … Continue reading

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Momentum: Slip Counterfactuals, the “Stale Price” Effect, and the Future

The recent piece on the dangers of backtesting has attracted an unusual amount of attention for a piece on this blog.  I’d like to thank everyone who read and shared the piece, and also those who offered up commentary on … Continue reading

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Financial Backtesting: A Cautionary Tale

Consider the following market timing strategy, which we’ll call “daily momentum”: (1) If the market’s total return for the day, measured from yesterday’s close to today’s close, is positive, then buy the market at today’s close and hold for one day. … Continue reading

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Operant Conditioning, Market Trends, and Small Bets: A 2012 vs. 2008 Case Study

In this piece, I’m going to examine the question: why do markets trend in the way that they do? Part of the answer, in my view, can be found in the process of operant conditioning, a process that we explored … Continue reading

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B.F. Skinner and Operant Conditioning: A Primer for Traders, Investors, and Economic Policymakers

Markets and economies are agglomerations of interconnected human behaviors.  It’s a surprise, then, that in the fields of finance and economics, the work of history’s most famous behavioral psychologist, B.F. Skinner, is rarely mentioned. In this piece, I’m going to present … Continue reading

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Beer before Steel: Ranking 30 Industries by Fundamental Equity Performance, 1933 to 2015

From January of 1933 through July of this year, beer companies produced a real, inflation-adjusted total return of 10% per year. Steel companies, in contrast, produced a return of 5%.  This difference in performance, spread out over 82 years, is enormous–the … Continue reading

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Thoughts on Negative Interest Rates

The big surprise from Thursday’s Fed announcement was not the decision to hold interest rates at zero, which most Fed observers expected, but the revelation that an unidentified FOMC member–probably Narayana Kocherlakota, but possibly another dove–is now advocating the use … Continue reading

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The World’s Best Investment For the Next 12 Months

Suppose that you’ve been given $1,000,000 of cash in an IRA to manage.  Your task is to invest it so as to generate the best possible risk-adjusted return over the next 12 months. You don’t have to invest it immediately–you can … Continue reading

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