An Entire Assortment

Barry Ritholtz posted a video that was all about being wrong which was useful to watch. As I view a big part of portfolio management as being about mitigating the consequences of the times I will be wrong it served as a confirmation of some of what I believe in.

From the standpoint that no one can be correct with every portfolio decision they will make the end result then becomes a netting out of correct and incorrect decisions. If you have the self-awareness to understand ahead of time that some decisions will be incorrect you increase the chances that mistakes will not crush you. Small setbacks are one thing, completely re-writing you financial plan every five years is another.

At one point in the video, the speaker says something along the lines that what we know is far less important than what we don't know. This is similar to Taleb talking about the most important books in your library being the ones you haven't read yet.

Next is an article posted at Seeking Alpha by Kevin Feldman who writes for the iShares corporate blog. The title was What's in the iShares Silver ETF? Silver! As you can imagine it drew a lot of comments with all sorts of reasons why the fund is a fraud. Some of the comments went into great detail. One of the lines of discussion had to do with a short position that JP Morgan has in silver. The relevance per the comments is that JP Morgan is conflicted in terms of being the custodian of the bars and being a participant in the market with this short position.

I don't know for a fact that JPM is short but I will take the commenters' word that there must be something to their being short. In among the comments was one that is along the lines of my questions about this. The short position that the bank supposedly has, how big is, when did they put it on and where are the risk controls that would have them get out? Using SLV as proxy, silver is up 50% YTD, for the trailing 12 months it is up 154% and for two years it is up 289%.

The other aspect of this I don't understand is why they would take the reputational risk implied in these accusations. SLV has $16.5 billion in AUM. I've not seen the short position quantified, is it larger than the size of the SLV fund? Given how underwater the position would have to be now, there is no winning in the trade so the implication becomes that the bank is risking everything for a trade that now cannot work--all that can happen from here is that the loss would get smaller. The tradeoff simply doesn't make sense to me.

A more plausible idea here would be some sort of incompetence or even malfeasance at the lowest levels where some small "unnoticeable" amount of bars were unaccounted for. Some dishonest employee stealing a few hundred ounces makes far more sense than fraud at the institutional level. To be clear, the "dishonest employee" scenario is completely made up.

Yesterday I had a couple of fun debates. One was in the comments of Friday's post. A reader did a good job defending the argument that alpha is finite and the zero sum nature of any form of market timing. If this debate interests you then you already know what the reader said and you already know what I said but you can glance through for a quick recap. I essentially countered his arguments with what I think were plausible yeah-buts many of which I have mentioned before.

For me it boils down to there being far too many variables in strategies, objectives, tactics and investment choices (many of which I've addressed before) along the lines of Karl Popper's it only takes one instance to disprove something. For me it simply does not stand up for being too academic to be practical, you should draw your own conclusion. That I do not believe alpha is finite does not mean I believe everyone will or can beat the market. Just as there are countless variables that (in my eyes) debunk finite alpha, there are countless variables that impede success.

The other debate was about the financial crisis that I had on Facebook. The particulars of the debate are less important than a big picture thought process that I think was relevant. In the past I've talked about staying on your own mat (a yoga term for not worrying if the person next to you in the class does the positions "better" than you do). Personally, my job is not to solve the world's problems it is to understand the world's problems as best as I can and then try to protect my clients (and my wife and I) from the world's problems if it all possible.

If you are the caretaker of someone's money (yours, other people's or both) then you are probably not going to be able to do that unless you take the time to understand (as best you can) the dynamics of the thing in question. It is very difficult to do this if you only read things that agree with your position or put differently, confirm your bias. I think we are more likely to be adversely affected by points of view we don't like that we have not taken the time to understand.

Lastly, this blog was mentioned by CNNMoney as one of the 100 best money moves. A friend mentioned this to me on LinkedIn but I didn't know what he was talking about, I thought he was referring to something from many years ago but then a blog reader mentioned it in a comment yesterday. One of the comments from the writeup was that I am not a loudmouthed tout. And just when I was considering a format change. Just kidding.