Resources for you:

  • Puzzle's investment toolkit.
  • Puzzle's philosophy.
  • Basic Investment Theory - and the Permanent Portfolio concept.
  • Portfolio Volatility and Variability of Returns.
  • Best guide to future share market returns. Cyclically adjusted P/E ratio.
  • Markets are ripe for Minsky moments.
  • Secular trends are key to good investment returns.
  • Risks and opportunities in the Asian Century.
  • The West has a debt problem. Implications?
  • The risk of economic depression is very real.

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    Puzzle's investment toolkit.

  • Puzzle's investment toolkit. Different investment tools are needed for different times.
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    Puzzle's philosphy.

  • Puzzle Financial Advice philosophy. Are you going to ride out the volatility of markets? Or are you going to try to buy them when cheap, and sell them when expensive? And how can you tell when share markets are cheap or expensive?
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    Basic Investment Theory - and the Permanent Portfolio concept.

  • Basic Investment Theory. You need to start out understanding the basics.

    People apply this theory in different ways. Consider these issues when applying Harry Markowitz's theory on diversification:
  • Before the 2008-2009 Global Financial Crisis (GFC), most people thought they were well diversified between risky assets (shares and property), by diversifying between Australian shares, International shares, and some Australian listed property. During the GFC, these investors found that all of these assets crashed together. Commercial property also crashed. A few investors, recognising that this is what tends to happen in a major crisis, pursue a strategy along the lines of the so called Permanent Portfolio. You will find a fair bit of discussion on the Internet if you google Permanent Portfolio . Given the issues that central banks are seeking to fight (March 2016 - deflation and risks associated with a mountain of government debt), the ideas in the Permancent Portfolio concept have potentially a lot of merit for these times.
  • Warren Buffett famously stated that diversification is protection against ignorance. It makes little sense if you know what you are doing.
  • Some people over-diversify in my view. I would argue that it makes no sense to diversify for the sake of it. For example, I think that it never makes sense to diversify into a sector or asset class that has a high probability of a negative return.
  • Apply the commonsense test, when diversifying. This can help you avoid costly mistakes.
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    Portfolio Volatility and Variability of Returns.

  • Variability and volatility of returns from last 150 years. The link above takes you to some of my very long-term research investment return. Volatility and variability of returns are far higher than most Australians believe. The comparatively high and reliable returns for Australian investments 1982-2007, has lulled most Australians into believing that investing is always that easy. Sadly, that era is now over.
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    Best guide to future share market returns.

  • Using Professor Robert Shiller's cyclically-adjusted price/earnings (CAPE) to estimate future returns. My research paper at this link discusses how to use Professor Robert Shiller's cyclically-adjusted P/E ratio as a useful guide to estimate future share market returns. The value in this tool is therefore to help you to identify markets which are cheap (where a high return might be possible). It can also help you to identify markets which are expensive where future returns might be low or negative, so that you can avoid those markets.
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    Markets are ripe for Minsky moments.

  • Minsky Moments. In periods of high debt levels like now, investors need to be aware of the risk of Minsky Moments. A Minsky event is what made the Global Financial Crisis so violent. Now consider this. The level of Western debt is now higher than before the Global Financial Crisis. Food for thought?
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    Secular trends are key to good investment returns.

  • Secular trends. Secular share markets average around 20 years. Secular bear markets average around 15 years. In Japan's latest secular share bear market, the Nikkei 225 Index fell 82% between 1990 and 2009. It is easy to make the case that Australian shares are now in a secular bear market. The good news is that Asian and Japanese shares are currently in secular bull markets.
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    Risks and opportunities in the Asian Century.

  • The Asian Century. There are always risks, and there usually are opportunities. We see to avoid the pot-holes, while finding the gems.
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    The West has a debt problem. Implications?

  • Balance sheet recessions. The Global Financial Crisis was a balance sheet recessions - Bank of International Settlements. It is important for Aussie investors to understand how balance sheet recessions are different from normal recessions - because most likely, a balance sheet recession is ahead for Australia. Basically, the Western developed word has a debt problem, which is likely to be a major drag on western economies for the next decade or so. This document will help you understand that Financial Repression is likely to be part of our future. It seems likely we will have negative real interest rates for many years. This is a major risk factor for retirees, trying to living off their savings.
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    The risk of economic depression is very real.

  • Usually debt bubbles lead to econonomic depression. Japan post-1989 is the only exception so far. My 2004 research paper at this link, discusses some of the history of debt bubbles being followed by economic depression. Every debt bubble in USA and Australia over the last 200 years, has been followed by economic depression. This knowledged helped me warn clients of event like the Global Financial Crisis ahead of that event. The scary thing is that in 2016, these Western debt bubbles are even more extreme than they were in 2004.

    Western central banks are trying to avoid economic depression by following a path somewhat similar to that which Japan followed post-1989. But while Japan has avoided economic depression post 1989, the Japanese Nikkei 225 share index was down from 39000 in 1989, to approximately 7500 in 2009. And Japan's property prices fell more than 60% in the 15 years after 1989. Is something like this ahead for the West?

    • “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” Ludwig von Mises (Austrian School of Economics).

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    There is a “tendency of capitalism to grave instability”. In “The Economy Since The Wars”, John Kenneth Galbraith notes that “built into the systems are recurrent episodes of devastation”. Kerr Neilson 12/4/00 also reports George Soros‘s view “that markets are inherently unstable.”