Taking the Pulse and Thoughts About Market Inefficiency

Sometimes you come across a tidbit which is so good that you decide on the moment: "this is so good that I have to share it with everyone".

A recent entry from Greenbakd is a case in point.
http://greenbackd.com/2014/01/20/lose-as-little-money-as-possible/

The author, Tobias Carlisle, has shared a wonderful speech by Dean LeBaron, which, in turn, was shared with him by Wesley Gray and David Foulke who maintain a blog entitled, Turnkey Analyst.
http://turnkeyanalyst.com/2013/02/28/dean-williams-maybe-youre-trying-too-hard/

Highlights of the speech are noted in the link above.

Here's my take on highlights of the speech:

Confidence with a forecast rise with the amount of information that goes into it. But the accuracy of the forecast stays the same. 

The tendency towards average profitability is a fundamental, if not the fundamental principle of competitive markets ... it can be a powerful investment tool. 

Mr. LeBaron offers view on the three routes to success in investing:

1. Simplicity 
2. Consistency
3. Tolerance for Nonsense & A Beginners Mind

I've printed his speech and the pages now sit by the computer in a folder entitled, Compulsory Repeated Reading.  There are very few articles in that folder ... this is one of them.  

The full text of Mr. LeBaron's speech is available here:
http://turnkeyanalyst.com/wp-content/uploads/2013/02/Williams-Trying_too_Hard.pdf

What to know what Mr. LeBaron's strategy is today?  Click on this:
http://blogs.wsj.com/moneybeat/2014/01/17/new-warnings-from-an-investing-pioneer/

In Mr. LeBaron’s view, the easy-money policies of central banks, including the Fed, have created what he calls “administrative markets”–in which prices are set at least partly by government policy rather than by market forces.

But, he worries, that can’t last forever. “In complex systems, the dynamics are predictable but the timing isn’t,” he says. “It’s like adding a grain of sand one at a time to a pile: You can’t tell when it will collapse, but you know it will.”

I have a similar view and have continued my practice of investing in "real assets".  Over the next few months, I'm going to take profits and invest some of the gains in real assets.  That's one of the reasons I sold off Powell Industries (POWL) - not so much as to any qualms about the future of the company as a desire to shift my asset mix.  Besides, one never gets poor by taking profits. 

I'll keep some of my gains in cash in order to have a stash to fund acquisitions in equities once  the "administrative markets" markets have succumbed to a different reality ... I don't think that the current state of affairs is sustainable. 

Cash will be king as will real assets.

One other thing: the notion of cyclical inefficiency - to boldly invest where others fear to invest.

To learn more about market efficiency and inefficiency, read this wonderful memo by Howard Marks.  He concludes:

How then, do I expect to find inefficiency?  My answer is while few markets demonstrate great structural inefficiency today, many exhibit a great deal of cyclical inefficiency from time to time.  Just five years ago, there were many things that people would not touch with a ten-foot pole, and as a result they offered absurdly high returns.  Most of those opportunities are gone today, but I'm sure they'll be back the next time investors turn tail and run. 
Getting Lucky