What we're about

“There are two kinds of people who lose money: those who know nothing and those who know everything." - Henry Kaufman

"The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.--Thomas Sowell

“The eyes of other people are the eyes that can financially ruin us. If everyone was blind but myself, I should want neither fine clothes, fine houses, nor fine furniture. ”--Benjamin Franklin

"Given a 10% chance of a 100 times payoff, you should take that bet every time." — Jeff Bezos

“Success is a lousy teacher. It makes smart people think they can't lose.” – Bill Gates

“Things that have never happened before happen all the time”-Scott Sagan( In other words use past and forecasted financial information with care.)

Our book club involves reading a chosen investment or economics book before each meeting in order to learn, discuss and debate the content of each book.

Skepticism, curiosity, independent thinking and openness to learning new ideas is what our book club is all about.

There is no such thing as a panacea for all economic ills, as there are no magic formulas for investment success. But there are many ways to improve and that is what we will focus on.

Here are some of the investment topics we will discuss:

Investment approaches that have generated high returns in the past. Various investment valuation methods. Why is it so hard to beat indexes? Does the past performance of various investment approaches mean similar returns in the future?

Why is it so foolhardy to trust many in the investment industry with your wealth? Could it be that many in the industry are sales-driven strivers, hyper-competitive advancers, joiners and cheerleaders who are prone to herd together to market the latest of investment manias to their clients? As Maynard Keynes once said: "Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”

And why do many investment retirement goals become less ambitious as time goes by? A quote from Confucius may help in addressing this question: "When it is obvious that the goals cannot be reached, then don't adjust the goals, adjust the action steps.”

The following are investment quotes from authors of books or shareholder letters that we will read and discuss:

The Stock Market is designed to transfer money from the Active to the Patient. --Warren Buffett

“Large amounts of money aren’t made by buying what everybody likes. They’re made by buying what everybody underestimates”.—Howard Marks

"The stock market is filled with individuals who know the price of everything, but the value of nothing." - Phillip Fisher paraphrasing Oscar Wilde's definition of a cynic

"Risk means more things can happen than will happen" - Elroy Dimson

“Time is the friend of the wonderful business, the enemy of the mediocre” —Warren Buffett

Knowledge in the field of investments helps, but it is certainly not everything. Without a self-controlled temperament an investor can become his or her own worst enemy. In the words of Charlie Munger: "Warren Buffett and I aren't prodigies. We can't play chess blindfolded or be concert pianists. But our investment results are prodigious, because we have a temperamental advantage that more than compensates for a lack of IQ points."

Also this group is for avid readers of economics books and here are just a few of the topics we will be discussing:

Global asset price inflation (at a more local level look at Toronto house prices these past few decades)

Growing income and wealth inequality. As Warren Buffett recently wrote: “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”

An unsustainable trend of many economies growing at the slow pace of a tortoise and debts growing at the swift pace of a hare.

The diminishing role of global and free market competition and the increasing role of trade barriers, national security considerations , government interventions ,regulations and potential higher taxes. These trends have been accelerated since COVID 19.

Will robots and AI take away most of our jobs? Will the majority become a reluctant and stress-fully bored leisure class? Or will there not be enough robots to steal our stressful jobs and the dream of unlimited leisure remains nothing more than wishful thinking.

Here are two economics quotes from authors of books that we will be reading and discussing:

"By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens."-Maynard Keynes

"When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it." - Frederic Bastiat

And here are three quotes from ancient times that are neither from an investor or an economist, but are included here because they convey some timeless wisdom about wealth.

“Wealth consists not in having great possessions, but in having few wants.”--Epictetus

"In a country well governed and not corrupt, poverty is something to be upset about. In a country badly governed and corrupt, wealth is something to be ashamed about."--Confucius

"For the wise man regards wealth as a slave, the fool as a master.”---Lucius Annaeus Seneca

Those of you who find the above three quotes as being too idealistic may find the following quote more truthful:

“There is nothing so disturbing to one’s well-being and judgement as to see a friend get rich”-Charles Kindleberger

I look forward to having some very interesting discussions and debates with fellow members.

Tarek El Dewy, CFA

Upcoming events (5)

Statistical Consequences of Fat Tails by Nassim Nicholas Taleb

We will read and discuss The Statistical Consequences of Fat Tails by Nassim Nicholas Taleb. The author of Black Swan, Anti-Fragile and Fooled by Randomness. The book investigates the misapplication of conventional statistical techniques to fat tailed distributions and looks for remedies, when possible.

Switching from thin tailed to fat tailed distributions requires more than “changing the color of the dress.” Traditional asymptotics deal mainly with either n=1 or n=∞, and the real world is in between, under the “laws of the medium numbers”–which vary widely across specific distributions. Both the law of large numbers and the generalized central limit mechanisms operate in highly idiosyncratic ways outside the standard Gaussian or Levy-Stable basins of convergence.

A few examples:

- Most of the failures of financial economics, econometrics, and behavioral economics can be attributed to using the wrong distributions.

- The sample mean is rarely in line with the population mean, with effect on “naïve empiricism,” but can be sometimes be estimated via parametric methods.

- The “empirical distribution” is rarely empirical.

- Parameter uncertainty has compounding effects on statistical metrics.

- Dimension reduction (principal components) fails.

- Inequality estimators (Gini or quantile contributions) are not additive and produce wrong results.

- Many “biases” found in psychology become entirely rational under more sophisticated probability distributions.

This book, the first volume of the Technical Incerto, weaves a narrative around published journal articles.

About the author:
Nassim Nicholas Taleb wrote the Black Swan ,Skin in the Game, Antifragile, The Bed of Procrustes, and Fooled by Randomness) plus a technical version, The Technical Incerto (Statistical Consequences of Fat Tails). Taleb has also published close to 55 academic and scholarly papers as a backup, technical footnotes to the Incerto in topics ranging from Statistical Physics and Quantitative Finance to Genetics and International affairs. The Incerto has more than 200 translations in 41 languages.
He spent more than two decades as a risk taker before becoming a full-time essayist and scholar focusing on practical, philosophical, and mathematical problems with chance, luck, and probability. His focus in on how different systems handle disorder.
spent more than two decades as a risk taker before becoming a full-time essayist and scholar focusing on practical, philosophical, and mathematical problems with chance, luck, and probability. His focus in on how different systems handle disorder.

https://www.amazon.ca/Statistical-Consequences-Fat-Tails-Preasymptotics/dp/1544508050/ref=sr_1_1?crid=1ZYC7OB46N578&dchild=1&keywords=statistical+consequences+of+fat+tails&qid=1606609149&sprefix=statistical+con%2Caps%2C166&sr=8-1

Bitcoin, Currencies and Bubbles by Nassim Nicholas Taleb

Bitcoin, Currencies and Bubbles by Nassim Nicholas Taleb

https://www.scribd.com/document/512617134/Bitcoin-Currencies-and-Bubbles-by-Nassim-Taleb#from_embed

In a recent six-page draft paper titled "Bitcoin, Currencies, and Bubbles," Taleb laid out four key arguments against the cryptocurrency, which he promoted to his 743,000 Twitter followers.

First, the author said that in spite of the hype, bitcoin failed to satisfy the notion of "currency without government." In fact, he said, bitcoin proved to not even be a currency at all.

"The total failure of bitcoin in becoming a currency has been masked by the inflation of the currency value, generating (paper) profits for large enough a number of people to enter the discourse well ahead of its utility," he said.

Taleb's second criticism said bitcoin can neither be a short nor long-term store of value. He used the famous juxtaposition of gold versus bitcoin — which he said was poor comparison — to illustrate his point.

"Gold and other precious metals are largely maintenance-free, do not degrade over a historical horizon, and do not require maintenance to refresh their physical properties over time," he said. "Cryptocurrencies require a sustained amount of interest in them."

His final two points argued that bitcoin is not a reliable inflation hedge, contrary to some analysts' views, and is not a safe haven for investments — whether meant to protect against government tyranny or other catastrophes.

"Not even remotely," he said, citing the March 2020 market panic when bitcoin sank lower than the stock market, as well as the recent ransom payments following the Colonial Pipeline cyberattack, which authorities were able to track.

"Government structures and computational power will remain stronger than those of distributed operators who, while distrusting one another, can fall prey to simple hoaxes,"

Taleb has been a vocal critic of bitcoin, but the paper also slammed the underlying technology bitcoin relies on. The author pointed to what he sees as a lack of utility of blockchain technology.

"There is no evidence that we are getting a great technology —unless 'great technology' doesn't mean 'useful.'"

He continued: "And we have done —at the time of writing —in spite of all the fanfare, still close to nothing with the blockchain."

In April, Taleb told CNBC that bitcoin is an open Ponzi scheme and a failed currency.

He hasn't always been a bitcoin bear, though. In 2017, Taleb wrote the foreword to "The Bitcoin Standard," a book by economist Saifedean Ammous.

Back then, Taleb wrote that bitcoin is "an excellent idea" as it "fulfills the needs of the complex system … because it has no owner, no authority that can decide on its fate.

Lying for Money: How Legendary Frauds Reveal the Workings of the World

Lying for Money: How Legendary Frauds Reveal the Workings of the World by Dan Davies

If you want to learn to fend fraud, read this. And if you want to commit fraud ... don't. But if you absolutely must, first read this.” —Nassim Nicholas Taleb

“An engaging and indispensable guide for novice fraudsters - and for those who want to keep out of their clutches.” —John Kay, author of Other People’s Money

“Swindling is never a black and white business, and Davies is good on the shades of grey in fraud-land.”—Financial Times

“Dan Davies tells all these stories with verve and wit ... Much of the book is a romp through the crimes of scoundrels - Ponzi, Madoff, Keating, the Krays ... Yet what takes it from absorbing to excellent is the author's insight. Read Lying for Money and you will look at fraud in a whole new way. Actually, you will look at every market transaction you take part in in a whole new way.” —Sunday Times (UK)

An entertaining, deeply informative explanation of how high-level financial crimes work, written by an industry insider who’s an expert in the field.

The way most white-collar crime works is by manipulating institutional psychology. That means creating something that looks as much as possible like a normal set of transactions. The drama comes later, when it all unwinds.

Financial crime seems horribly complicated, but there are only so many ways you can con someone out of what’s theirs. In Lying for Money, veteran regulatory economist and market analyst Dan Davies tells the story of fraud through a genealogy of financial malfeasance, including: the Great Salad Oil swindle, the Pigeon King International fraud, the fictional British colony of Poyais in South America, the Boston Ladies’ Deposit Company, the Portuguese Banknote Affair, Theranos, and the Bre-X scam. Davies brings new insights into these schemes and shows how all frauds, current and historical, belong to one of four categories (“long firm,” counterfeiting, control fraud, and market crimes) and operate on the same basic principles. The only elements that change are the victims, the scammers, and the terminology.

Davies has years of experience picking the bones out of some of the most famous frauds of the modern age. Now he reveals the big picture that emerges from their labyrinths of deceit and explains how fraud has shaped the entire development of the modern world economy.

https://www.amazon.com/Lying-Money-Legendary-Frauds-Workings-ebook/dp/B078WFT5JV

The Little Book of Common Sense Investing by John Bogle

From the Back Cover
"Rather than listen to the siren songs from investment managers, investors— large and small— should instead read Jack Bogle's The Little Book of Common Sense Investing."
—WARREN BUFFETT

The Bestselling Investing "Bible" Offers New Information, New Insights, and New Perspectives

The Little Book of Common Sense Investing is the classic guide to getting smart about the market. Legendary mutual fund pioneer John C. Bogle reveals his key to getting more out of investing: low-cost index funds. Bogle describes the simplest and most effective investment strategy for building wealth over the long term: buy and hold, at very low cost, a mutual fund that tracks a broad stock market Index such as the S&P 500.

While the stock market has tumbled and then soared since the first edition of The Little Book of Common Sense Investing was published in April 2007, Bogle's investment principles have endured sand served investors well. This tenth anniversary edition includes updated data and new information but maintains the same long-term perspective as its predecessor.

Bogle has also added two new chapters designed to provide further guidance to investors: one on asset allocation, the other on retirement investing.

A portfolio focused on index funds is the only investment that effectively guarantees your fair share of stock market returns. This strategy is favored by Warren Buffett, who said this about Bogle: "If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. . . . Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me."

https://www.amazon.ca/Little-Book-Common-Sense-Investing/dp/1119404509/ref=asc_df_1119404509/?tag=googlemobshop-20&linkCode=df0&hvadid=292950383186&hvpos=&hvnetw=g&hvrand=18397055319676153527&hvpone=&hvptwo=&hvqmt=&hvdev=m&hvdvcmdl=&hvlocint=&hvlocphy=9061009&hvtargid=pla-325361778136&psc=1

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Sustainable Energy without the hot air

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