A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
It is one of my most strongly held beliefs that, for investors, how to think is far more important than individual stock picking methodology. This most often takes the form of avoiding the usual psychological pitfalls like herding (chasing rallies), and confirmation bias (getting locked in to one particular view by only reading research that agrees with the thesis). Berkshire Hathaway's Charlie Munger – the closest thing we have to The Yoda of Finance – has frequently voiced this idea by noting that Berkshire's success is more a matter of not doing stupid things than it is being smarter than everyone else.
Michael Mauboussin furthered this discussion with "How To Improve Your Forecasting Ability." Mr. Mauboussin is the former chief investment officer at Legg Mason and a prominent figure at the Sante Fe Institute – essentially an extended summer camp for the insanely intelligent from a wide variety of academic and artistic fields. The vast majority of Mr. Mauboussin's advice involves keeping an open mind at all times, according to his point-form summary of the necessary "Abilities and Thinking Styles":
"Beliefs are hypotheses to be tested, not treasures to be protected… intellectually curious, enjoy puzzles and mental challenges .. introspective and self-critical."
"Michael Mauboussin: How To Improve Your Forecasting Ability" – Value Walk
Mr. Mauboussin also wrote what I believe is the best, and most important short paper for individual investors, "Decision-Making for Investors" – Retail Investor.org
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Bloomberg warns this morning that a considerable number of Canadian corporate bonds in the energy sector are in danger of a downgrade:
"Almost 80 per cent of Canadian energy companies are trading at levels that imply credit ratings lower than those assigned by Moody's Investors Service as crude prices remain near six-year lows. Of the 37 Canadian oil and gas companies whose bond prices are followed by Moody's Analytics, the credit rater's market-tracking unit, 29 are trading as if they've already been downgraded."
"Canada Oil Patch on Downgrade Alert as Credit Raters Take Stock" – Bloomberg
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Far more positive investing news in the energy sector comes from Reuters. Executives in the sector are predicting a large decline in U.S. shale production that will help support the commodity price by alleviating glut conditions:
" 'We are about to see a pretty dramatic decline in U.S. production growth,' the former head of oil firm EOG Resources Mark Papa, told the conference. Papa, now a partner at U.S. energy investment firm Riverstone Holdings LLC, said U.S. oil production would stall this month and begin to decline from early next year. He said the main reason for the decline would be a lack of bank financing for new shale developments."
The potential extent of this commodity price rally is an open question. It is entirely likely that if the WTI price surges, more supply will be turned back on. In other words, the oil price might be capped for the foreseeable future.
"U.S. oil output on brink of 'dramatic' decline, exec says" – Reuters
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George Mason University economics professors Tyler Cowen summarizes Ben Bernanke's newly released memoir of the financial crisis so we don't have to read it (I probably will anyway). Among the interesting tidbits:
"The Fed did not have a good, legal way to bail out Lehman. It needed a buyer, and no buyer was to be found. A short-term infusion of cash would not have sufficed. And Ben was afraid at the time that if he confessed the Fed's impotence in this regard, the market reaction would have been negative… He thought QE should been done through the purchase of corporate bonds, but the Fed didn't have the right kind of authority at that time… He is still upset at the coverage he received from Paul Krugman."
"Ben Bernanke's memoir *The Courage to Act* – Cowen, Marginal Revolution
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The dilemma continues. Most Canadians agree that infrastructure investment is a good idea, but, as Ontario's billion dollar, non-existent gas plant highlights, they reasonably don't trust the government to mete out the taxpayer funds with high degrees of efficiency or competence.
"A few small deficits may actually be just what Canada needs" – Ragan, Report on Business
"Conservatives' $1B pledge for auto sector just 'a drop in the bucket' " – CBC News
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Tweet of the Day: "@JP_RGMP Wow. Pardon me while I spend the next two weeks browsing photos from 1935-1945 on Yale's Photogrammar website. photogrammar.yale.edu/map/" – Twitter
Diversion: "Proof that the sky is both a magical being and a terrifying force of nature" – Sploid
Scott Barlow