Optimal Investing Strategy

This blog is about my search for the ultimate investing strategy - the one that, in theory, I could put on auto-pilot, and watch my wealth grow.  My inklings at the start of this journey was that Value Investing in equities would prove to be the ultimate investing strategy, and along the journey I would learn an optimal algorithmic implementation that I could automate.

I still believe this to be the case, however, today, I do not see much value in equities. More so, the most undervalued asset at the moment, appears to be gold.

But, the point I want to make in this post is the gaming meta-strategy: 

• Find the game with the highest expectation value.
• Play it in the optimal way.

Peak-Oil Gold Price

Priced in gold, do oil producers want a high oil price or a low oil price?

The answer, I think, depends on how much oil the oil producers have left.  And just to clarify, when I refer to "oil producers", I'm not talking about individual companies, I'm talking about all oil producers, or, at least, the middle eastern collective of oil producers.

Initially, when the oil producers have lots of oil, they would want a very high price for their oil.

Counter intuitively though, when their oil  reserves start to run low, they would want a lower price for their oil.

World Currency Systems

The current world currency system is the US dollar.  This means that a) most global goods (including oil) are priced in US dollars, b) most international trades are transacted in US dollars, and c) many (people, banks, nations) save in US dollars. Not surprisingly, the primary beneficiary of this arrangement is the United States, as they get to export "dollars" in exchange for real goods and services.

So, why does the rest of the world put up with such a one-sided system? And, is there a better system?

It seems to me that countries like Australia put up with this system because they need the US for protection.  This essentially amounts to a protection racket being run by the US.  There are many countries in a similar situation to Australia.

Other countries support this system out of pure fear, and rightly so.  To date, the two countries that have tried to side-step the US dollar for international oil trade have been Iraq and Libya, and we know how that ended for them.

Xmas reading, asset allocation, and how much gold?

Down in the bottom right hand corner of this blog, I keep a list of Interesting People.  Generally, what qualifies someone as sufficiently interesting to make the list is that they have published a collection of works that are worth reading.  Someone that I recently added to the list is Michael Mauboussin.  He has written some interesting articles in the investing game theory space, and a particularly relevant article on the importance of position sizing (asset allocation) in investing called Size Matters.

The point of that article is that, just because you have a strategy with a positive expectation value, doesn't mean that you should go all in on your first bet.  You might lose, and then you'd have nothing.  Clearly, this is not the best way to play a game that, in theory, gives you an edge and should allow you play profitably over the long term.

ASX Investor Hour with Jim Berg

Once a month, the ASX run lunch time investor hour seminars in each capital city in Australia, and occasionally, they are worth going to.  Today's was called "When you should reinvest and how you should do it" by Jim Berg, and it sounded interesting enough, so I went along.

Before hand though, I checked out his website, and this made me somewhat skeptical of the seminar.  Basically, I figured it was going to be a sales pitch, and sure enough, his book was on sale as I entered the foyer and for $30 a month I could subscribe to his newsletter.

Still, I took some notes, so here goes:

Invest in your health 2

Some videos that I recommend, if, like me, you're a little too tubby:


Beware of the carbs:

Beware of fructose:

Be healthy, be happy.

Gold Symposium Panel Questions

Earlier this week, I attended the Gold Symposium in Luna Park in Sydney.  All in all, it was a great couple of days, with great keynote speakers.  The final session was Q&A with a panel that included Eric Sprott, John Embry, Ben Davies and Egon von Greyerz.  Anyway, there were a couple a questions that were posed to the panel that I don't think they did a great job of answering, and with the benefit of contemplation time, and a text editor, I'd thought I'd give them a shot.

Question 1: If I had invested 1 ounce of gold into the equity market 100 years ago, today it would be worth 1400 ounces (or whatever), yet if I had kept it as gold, it would still only be 1 ounce.  So, why should I buy physical gold?


My answer to this is three fold:

Money Money Money

If you don't already read and follow FOFOA, you should.  He's written a great article on Money. 

What I learnt:

• It is important to consider the functions of money separately.  Specifically, that the "unit of measure" can be anything, eg, we could prices things (everything) in units (eg. "Man-days work", Bit Coins, 0-10) irrespective of the transactional currency (eg. AUD, cigarettes) and the store of wealth (works of art, houses).
• Base (government) money, is not the same as credit (bank) money. Base money is the "unit of measure", or the yard stick, or the zero to ten system of pricing things.  Changing the amount of base money is different to changing the amount credit money.
• MMT is NQR.  Sectoral balance sectoral shmalance.
• Government spending is the main problem.  (D'uh!)
• USA is headed for hyper-inflation.
• Gold is the place to be.

Fooled by randomness

As I have briefly mentioned before, I have just finished reading Fooled by Randomness, by Nassim Taleb.

Taleb's take on the investing world is that in the spectrum of skill verses luck, many people attribute the success of successful traders, including the traders themselves, down to skill, whereas Taleb mostly attributes it to luck.  Even if the traders have demonstrated "long running" success, Taleb attributes this to survivorship bias rather than skill.  He believes that many traders essentially follow a well masked "increase risk until you blow up" strategy, he says that it's only a matter of time until they actually blow up, and there is no point praising those that are yet reach that point.