https://joelstevens.net Essays on investing (Financial) and living (Rational Awakening) by Joel Stevens. en https://joelstevens.net/financial/puts-and-takes/ https://joelstevens.net/financial/puts-and-takes/ Thu, 31 Dec 2020 00:00:00 GMT Staying invested in good times while keeping dry powder for crashes is the perennial squeeze of portfolio management, and both shorting and holding cash exact a steep toll. The alternative here is buying deeply out-of-the-money puts for pennies, dead weight in most years but capable of returning many multiples when volatility spikes and prices fall, handing you cash at the exact moment bargains appear. https://joelstevens.net/personal/good-enough/ https://joelstevens.net/personal/good-enough/ Thu, 31 Dec 2020 00:00:00 GMT Our brains were never engineered for the scale and strain of modern life, so the demand to be perfectly rational and good, whether aimed at ourselves or at everyone we disagree with, is doomed from the start. Accepting that opens a calmer place to stand: forgive yourself your mistakes, extend the same benefit of the doubt to everyone else, and let 'good enough' actually be good enough. https://joelstevens.net/personal/life-investments/ https://joelstevens.net/personal/life-investments/ Thu, 26 Dec 2019 00:00:00 GMT The tools value investors use on capital, inversion, avoiding turnarounds, refusing to average down on losers, work just as well on where you spend your time and attention. Prune the relationships and habits that consistently drain you, pour energy into the few that reliably give back, and remember to water the flowers rather than the weeds. https://joelstevens.net/financial/price-and-value/ https://joelstevens.net/financial/price-and-value/ Thu, 23 May 2019 00:00:00 GMT Value investing rests on the gap between what a business is worth and what it costs, yet almost no one asks how long that gap takes to close. Rolling-period data on the S&P 500, Berkshire, and Coca-Cola gives an uncomfortable answer: true convergence of price and value can take twenty-five years or more, though buying cheaply, sticking to quality, and holding a portfolio can meaningfully shorten the wait. https://joelstevens.net/personal/building-social-wealth/ https://joelstevens.net/personal/building-social-wealth/ Thu, 27 Sep 2018 00:00:00 GMT Negativity bias makes us default to neutral with strangers, because the occasional cold response stings more than the many warm ones reward, and so we forfeit most of the good that going first would bring. The remedy is deliberate generosity: become the trustworthy, kind person everyone is quietly searching for, give freely without keeping score, then cultivate the givers over the takers. https://joelstevens.net/financial/a-few-thoughts-on-banks/ https://joelstevens.net/financial/a-few-thoughts-on-banks/ Thu, 07 Jun 2018 00:00:00 GMT The 2011 thesis on big American banks, that they were under-earning, cheap on tangible book, and destined to normalize, had largely played out by 2018, yet the case for holding wasn't finished. Overcapitalized and returning nearly all their earnings through buybacks and dividends, with rising rates and flat costs at their backs, the banks could still deliver double-digit returns, provided the credit cycle didn't intervene. https://joelstevens.net/personal/seeking-wisdom/ https://joelstevens.net/personal/seeking-wisdom/ Sun, 31 Dec 2017 00:00:00 GMT For years the author gave careful, considered behavior to strangers while handing his bluntest, most unfiltered self to the people closest to him, on the theory that loved ones would read his intentions charitably anyway. The painful correction is that those nearest to you are the most sensitive to your carelessness, not the least, so the people who earned your trust deserve more care, not less. https://joelstevens.net/financial/evaluating-performance/ https://joelstevens.net/financial/evaluating-performance/ Mon, 30 Oct 2017 00:00:00 GMT Trailing one-, three-, five-, and ten-year returns hang on two arbitrary dates and can flatter or condemn a manager on the strength of a single lucky stretch. Rolling-period statistics fix this by asking how often a manager beat the benchmark across every possible holding window, and running the numbers on Buffett, Schloss, Munger and a dozen other value greats reveals who was genuinely consistent. https://joelstevens.net/financial/measuring-returns/ https://joelstevens.net/financial/measuring-returns/ Thu, 05 Jan 2017 00:00:00 GMT The return your manager reports and the return you actually earned can diverge sharply, and the reason hides in which formula gets used. Time-weighted return flatters the manager by ignoring your cash-flow timing, while the internal rate of return captures what really happened to your dollars, rewarding the investor who added money into a downturn and punishing the one who fled it. https://joelstevens.net/personal/no-will/ https://joelstevens.net/personal/no-will/ Sun, 25 Dec 2016 00:00:00 GMT If our conscious choices are merely after-the-fact reports of decisions the brain already made, and if genes, upbringing, and circumstance we never chose shaped that brain, then free will begins to look like an illusion. Following that thought through the tragic case of Charles Whitman leads somewhere unexpectedly gentle: if people are closer to weather patterns than free agents, blame gives way to compassion. https://joelstevens.net/financial/cost-of-leverage/ https://joelstevens.net/financial/cost-of-leverage/ Tue, 11 Oct 2016 00:00:00 GMT A margin loan and a call option both buy you leverage, but their costs look nothing alike until you convert them to a common, apples-to-apples measure. Doing so for the post-crisis TARP warrants exposes a trap the author fell into himself: a warrant's cost of leverage climbs as the stock falls and shrinks as it rises, so warrants meant to amplify Bank of America's recovery barely outran the common stock. https://joelstevens.net/financial/price-and-returns/ https://joelstevens.net/financial/price-and-returns/ Thu, 31 Dec 2015 00:00:00 GMT Every investment return comes down to three things: the price paid, the value ultimately realized, and how long you wait for it. Working through high-, low-, no-, and negative-growth companies shows each has a natural 'sweet spot' holding period, with compounders rewarding patience and a willingness to slightly overpay, while melting ice cubes punish anyone who lingers no matter how cheap the entry. https://joelstevens.net/personal/feelings/ https://joelstevens.net/personal/feelings/ Fri, 25 Dec 2015 00:00:00 GMT As adults we stopped treating a stubbed toe or a bee sting as an identity-defining catastrophe, because we know the pain will pass. Emotions deserve the same treatment: anger and sadness are passing sensations, not who you are, and they fade on their own unless you keep them alive by telling yourself stories about what happened. https://joelstevens.net/financial/why-hold-cash/ https://joelstevens.net/financial/why-hold-cash/ Sat, 15 Nov 2014 00:00:00 GMT Holding cash to pounce on the next crash feels prudent, but a century of backtests says it usually costs you, even granting perfect timing on when to deploy, and worse still once taxes on the extra turnover are counted. Cash earns its keep only in a narrow case: an active investor volatile enough to suffer thirty-five-percent drawdowns who can reliably put that cash to work at the bottom. https://joelstevens.net/personal/scoping/ https://joelstevens.net/personal/scoping/ Wed, 01 Oct 2014 00:00:00 GMT Viktor Frankl located our freedom in the space between stimulus and response, and this turns that space into a usable rule: the size of your reaction should match the future good it can do, not the size of whatever provoked it. Road rage after a near-miss is effort spent on a danger already past, while a thank-you note costs almost nothing and can quietly reroute a life. https://joelstevens.net/financial/hurdle-for-active-investors/ https://joelstevens.net/financial/hurdle-for-active-investors/ Tue, 25 Mar 2014 00:00:00 GMT Beating the index before taxes isn't enough to justify picking stocks in a taxable account, because the active investor's higher turnover triggers taxes the index holder gets to defer. Modeling that gap across returns, turnover, and holding periods yields the precise extra outperformance an active manager must clear just to tie a passive fund after tax. https://joelstevens.net/financial/holding-period/ https://joelstevens.net/financial/holding-period/ Sun, 22 Sep 2013 00:00:00 GMT Trading frequently doesn't just rack up brokerage fees; every sale is a taxable event, and each one quietly erodes your compounding. Because the government defers capital-gains tax until you sell, a long holding period acts as an interest-free loan working on your behalf, which is why the trader must earn several points more per year, pre-tax, just to match the patient investor's after-tax result. https://joelstevens.net/financial/know-your-graph/ https://joelstevens.net/financial/know-your-graph/ Mon, 02 Apr 2012 00:00:00 GMT A realized return is only one draw from the full distribution of outcomes an investment could have produced, which is why a stellar year can hide reckless risk and a mediocre one can reflect real discipline. Picturing every possible result as a 'graph' reframes risk as the probability of permanent capital loss, and argues for the manager whose curve almost never touches ruin.