Effectively the rich end up subsidizing the low rates for the poor, which is a very sensible setup it seems to me. The market functions fairly well even though it is distorted a bit to let the poor (or anyone that uses very little electricity) to pay low rates.

In a country like Malaysia as people become rich they may well decide to use a great deal of electricity for air conditioning (it is in the tropics). But their ancestors didn’t have that luxury and having that be costly seems sensible to me. Allowing the poor to have access to cheap electricity is a very good thing with many positive externalities. And subsidizing the rate seems to be a good idea to me.

Often you get bad distortions in how markets work when you try to use things like subsidies (this post is expanded from a comment I made on Reddit discussing massive bad investments created by free electricity from the power company to city governments – including free electricity to their profit making enterprises, such as ice rinks in Puerto Rico).

View of downtown Johor Bahru from my condo (a small view of Singapore visible is in the background)

With the model of low residential rates for low usage you encourage people to use less electricity but you allow everyone to have access at a low cost (which is important in poor or medium income countries). And as people use more they have to pay higher rates (per kwh) and those rates allow the power company to make a profit and fund expansion. Often in developing countries the power company will be semi-private so the government is involved in providing capital and sharing in profits (as well as stockholders).

The USA mainly uses central air conditioning everywhere. In Malaysia, and most of the world actually, normally they just have AC units in some of the rooms. In poor houses they may well have none. In middle class houses they may have a one or a couple rooms with AC units.

Even in luxury condos (and houses) they will have some rooms without AC at all. I never saw a condo or house with AC for the kitchen or bathrooms. The design was definitely setup to use AC in fairly minimal ways. The hallways, stairways etc. for the “interior” of the high rise condos were also not air conditioned (they were open to the outside to get good air flow). Of course as more people become rich there is more and more use of AC.

Related: Traveling for Health Care – Expectations – Looking at the Malaysian Economy (2013) – Pursuing a Growing Economy While Avoiding the Pitfalls That Befall to Many Middle Income Countries – Singapore and Iskandar Malaysia – Looking at GDP Growth Per Capita for Selected Countries from 1970 to 2010 – Malaysian Economy Continues to Expand, Budget Deficits Remain High (2012) – Iskandar Malaysia Housing Real Estate Investment Considerations (2011)

Within the market there is tons of variation those things of course are not nearly that simple, but the idea I think holds. Well if you look back at historical data the returns will include the adjustment of going from a PE of 11 to a PE of 14. Now maybe the new few decades would adjust from PE of 14 to PE of 17 but maybe not. At some point that fundamental re-adjustment will stop.

And therefore future returns would be expected to be lower than historically due to this one factor. Now maybe other factors will increase returns to compensate but if not the historical returns may well provide an overly optimistic view.

And if there is a short term bubble that lets say pushes the PR to 16 while the “fair” long term value is 14, then there will be a negative impact on the returns going forward bringing the PE from 16 to 14. That isn’t necessarily a drop (though it could be) in stock prices, it could just be very slow increases as earning growth slowly pushes PE back to 14.

Monument to the People’s Heroes with the Shanghai skyline in the background. See more photos by John Hunter

Another thing to consider is another long term macro-economic factor may also be giving long term historical returns an extra boost. The type of economic growth from the end of World War I to 1973 (just to pick a specific time, there was a big economic slowdown after OPEC drastically increased the price of oil). While that period includes the great depression and World War II, which massively distorts figures, from the end of WW I through the 1960s Europe and the USA went through an amazing amount of economic growth.

During that period the boom in communications, electricity, industrialization, air conditioning, modern farming practices (which continues booming significantly after 1973) indoor plumbing… increased the economy dramatically. We have had a subsequent period of massive boom related to computerization and software advances and health care drugs and technology. And Japan was a bit offset booming from 1950 to about 1990. And China has been booming from about 1990 to now.

While we may see similar boom, perhaps from robotics and continuing with health care technologies and perhaps India, Africa and South America could boom in massive globally macro-economicly significant ways. But it also is possible these huge macro-economic booms are not repeated. If so, it is natural that the historical stock market return would be reduced.

To a lessor extent financial engineering that was wise and useful, as apposed to just reckless gambling has boosted stock returns significantly. It is likely that won’t be repeated.

I like the idea of paying attention to long term historical data. And that has value for stock investors. But when you look at long term data you have to consider whether that data is not just providing measurements of what stock market performance can be expected to be (as say you would from testing scientific facts such as the boiling point of water). The historical stock data was true for a period of time and informs us about that period. But the next 40 years will be much different and to what extent the past data is relevant is open for debate.

Related: Global Stock Market Capitalization from 2000 to 2012 – Misuse of Statistics, Mania in Financial Markets – Are Stocks Still Overpriced? (2008) – Data Can’t Lie, But People Can Be Mislead – Investing Return Guesses While Planning for Retirement – S&P 500 Dividend Yield Tops Bond Yield: First Time Since 1958 (2008)

If you are not comfortable with the risk of an investment most of the time you shouldn’t make that investment. There is a bit of a conflict, for example, where an investor is scared of any loss from say an investment in a stock market index and trying to save for retirement on a median level income. It is nearly impossible to save for retirement without investing in stocks if you are not already rich, so as with most investment advice there is a bit of difficulty at the extremes but in general investors shouldn’t take on risk they are not comfortable with.

For experienced investors with a high level of financial literacy more speculative options can have a useful role in a portfolio. Though you should realize most people fail with speculation, so you have to be realistic about your prospects. I have used speculative investments including naked short selling, leverage (margin) and options.

Spread betting is another speculative strategy that can play a part in an investment portfolio. Spread betting is not allowed in the USA (with our highly regulated personal investing environment but is available in most other countries). They are somewhat similar to binary options (which are allowed in the USA) and to futures contracts (they are not the same, just those are comparable to get some idea of how you would use them in a portfolio).

Spread betting really is a bet on what will happen. You don’t buy a financial instrument. You place a bet with a company and if the prices move for you and you close the position with a gain they pay out a gain to you and if you close out the position with a loss your capital held with them is reduced by your loss amount.

Since the price to control a position is much less than the notional position size there is a large degree of leverage which increases the affect of gains and loses. Since positions can move against you and must be settled if the loss exceed your deposit with the company you are trading with having a substantial cash cushion is the way I would use such a speculative account. If I decided I could afford to risk losing $5,000 I would deposit that amount.

My purchases would about 10% of the capital in the account (so $500 at first). If that is leveraged at 20 to 1 (just requiring 5% down on margin), that would make my effective leverage just 2 to 1. But if I added other positions that would increase my leverage, say 2 more purchases and my leverage would be 6 to 1.

The way I have managed the speculative portion of my portfolio is to fund it and then pull off part of the gains to my long term portfolio and retain part of the gains to build my speculative account. It isn’t really quite that clear as I have different level of speculation in my portfolio. Options are speculative but have a limit of 100% loss. Selling stocks short (naked shorting) is speculative but has theoretically unlimited losses. Using margin on regular stocks has the potential to lose more than you have invested though most of the time you should be stopped out before the losses are too much beyond your entire account value.

So I don’t really have a clear cut speculative portfolio but I roughly follow that procedure. I have added to the speculative portion when I have had very large gains in a particular portion of my main portfolio.

Another factor with spread betting, shorting and options is that they can actually be used to reduce the risk of your overall portfolio using certain strategies. If you believe there is a risk for a market downturn but don’t want to sell any of your stock holdings you can use spread betting to create a position that will gain if the market declines. That gain then will offset the likely loss on your stock positions thus reducing you risk in a market decline.

Of course, if you do that and the market moves up you will create a loss on you spread betting position that offsets your gains on your stock positions. You could also bet against specific stocks that you think will decline more in a market decline and seek to increase your return of course that has risks (including the market declining along with your stocks but that stocks you bet against could move against you anyway). I have used this strategy with selling stocks short occasionally.

See this site for a bit more on the details of spread betting. An additional risk to consider with spread betting is you need to find a company you trust to be around to pay off your gains. You would want to examine the safety of your funds and that (in the UK) the account is covered by the Financial Conduct Authority (FCA) and complies with the FCA’s Client Assets provisions (and in other countries they have similar coverage). To be safe you should consider whether holding more than the covered amount is wise in your account. The last 10 years have provided examples of the riskiness of financial companies going out of business; that your funds wouldn’t be accessible is a risk that must be considered.

Related: Shorting Using Inverse Funds – Books on Trading and Speculating in Financial Markets – Selling Covered Call Options

Alibaba makes the top ten, just weeks after becoming a publicly traded company. The next ten most valuable companies:

Petro China reached to top spot in 2010. I think NTT (Japan) also made the top spot (in 1999); NTT’s current market cap is $66 billion.

Market capitalization shown are of the close of business today, as shown on Yahoo Finance.

According to this March 2014 report the USA is home to 47 of the top 100 companies by market capitalization. From 2009 to 2014 that total has ranged from 37 to 47.

The range (during 2009 to 2014) of top 100 companies by country: China and Hong Kong (8 to 11), UK (8 to 11), Germany (2 to 6), France (4 to 7), Japan (2 to 6), Switzerland (3 to 5).

Related: Stock Market Capitalization by Country from 1990 to 2010 – Global Stock Market Capitalization from 2000 to 2012 – Investing in Stocks That Have Raised Dividends Consistently – The Economy is Weak and Prospects May be Grim, But Many Companies Have Rosy Prospects (2011)

A few other companies of interest:
Facebook, USA, current market cap is $210 billion.
Pfizer, USA, $184 billion.
Toyota, Japan, $182 billion.

China Construction Bank Corporation, China, $182 billion**.
Merck, USA, $161 billion.
BHP, Australia, $159 billion.
Walt Disney, USA, $154 billion.
Samsung, Korea, $152 billion.
Tencent, China, $143 billion**.
Bank of China, China, $133 billion**.

* China Mobile market cap taken from their website and converted to USD.
** calculation by taking cap from Yahoo Finance and converting to USD – even though it doesn’t say I am guessing they are quoting the cap in HK$ – which Google Finance also does.
*** from Google finance (the market cap varies depending on which symbol you use)

As I have written before: Avoiding Hedge Fund Investments is One of the Benefits of Being in the 99%.

This is pretty well understood by most knowledgeable investors, financial planners and investing experts. But funds that charge huge fees continue to get away with it. If you are smart you will avoid them. A few simple investing rules get you well into the top 10% of investors

• seek low fees
• diversify – pay attention to risk of portfolio overall
• limit trading (low turnover)
• use tax advantage accounts wisely (in the USA 401(k)s and IRAs)

From a personal finance perspective, saving money is a key. Most people fail at being decent investors before they even get a chance to invest by spending more than they can afford and failing to save, and even worse going into debt (other than to some extent for college education and house). Consistently putting aside 10-20% of your income and investing wisely will put you in good shape over the long term.

Warren Buffett put his money (a tiny bit for him, just $1 million) on the idea that hedge funds can’t outperform the market given the huge fees they charge. After 6 years he is well up on his bet with his pick (Vanguard S&P 500 index soundly beating a portfolio of hedge funds selected by the opponent in the bet).

I do wonder at what point the huge amount of index investing creates opportunities that can be exploited profitably. I actually think that point has been passed. The question now is can you profitably and reliably find active investing managers that are wise and charge relatively low fees? Passive investing may now account for over 60% of investments in the market.

Also in certain market environments where the market is likely to ignore useful data (bubbles or fads) or where data is questionable and smart digging can provide useful and profitable insight (China may fit this idea now – I pay for actively managed Templeton developing market funds and have for 20 years, I also have Vanguard developing market index type fund – VWO). I think most investors should primarily use index funds (REITs, etc.) but I think the prospects for investors picking their own stocks may be better as more investing is based solely on index funds mass buying and selling.

I am worried about the price level of the overall market now. I am less worried about some stocks; this means I am more comfortable holding Apple, Google, Toyota, Abbie etc. (not so much – Amazon) than I am the S&P 500 right now.

Related: Trying to Beat the Stock Market – Lazy Golfer Portfolio Allocation

I think sites like oDesk provide a potentially great way for people to lead productive and rewarding lives. They allow people far from rich countries to tap into the market demand in rich counties. They also allow people to have flexible work arrangements (if someone wants a part time job or to work from home that is fine).

These benefits are also true in the USA and other rich countries (even geography – there are many parts of the USA without great job markets, especially many rural areas). The biggest problem with rich country residents succeeding on something like oDesk is they need quite a bit more money than people from other countries to get by (especially in the USA with health care being so messed up). There are a great deal of very successful technology people on oDesk (and even just freelancing in other ways), but it is still a small group that is capable and lucky enough to pull in large paychecks (it isn’t only technology but that is the majority of high paying jobs I think on oDesk).

But in poor countries with still easily 2 billion and probably much more there is a huge supply of good workers. There is a demand for work to be done. oDesk does a decent job of matching these two but that process could use a great deal of improvement.

I think if I became mega rich one of the projects I would have would be to create an organization to help facilitate those interested in internet based jobs in poor countries to make a living. It takes hard work. Very good communication is one big key to success (I have repeatedly had problems with capable people just not really able to do what was expected in communications). I think a support structure to help with that and with project management would be very good. Also to help with building skills.

If I were in a different place financially (and I were good at marketing which I am not) I would think about creating a company to do this profitably. The hard part for someone in a rich country to do this is that either they have to take very little (basically do it as charity) or they have to take so much cash off the top that I think it makes it hard to build the business.

But building successful organizations that can grow and provide good jobs to those without many opportunities but who are willing to work is something I value. I did since I was a kid living in Nigeria (for a year). I didn’t see this solution then but the idea of economic well being and good jobs and a strong economy being the key driver to better lives has always been my vision.

This contrast to many that see giving cash and good to those in need as good charity. I realize sometimes that is what is needed – especially in emergencies. But the real powerful change comes from strong economy providing people the opportunity to have a great job.

I share Dr. Deming’s personal aim was to advance commerce, prosperity and peace.

Related: Commerce Takes More People Out of Poverty Than Aid – Investing in the Poorest of the Poor – I am a big fan of helping improve the economic lives of those in the world by harnessing appropriate technology and capitalism – A nonprofit in Queens taught people to write iPhone apps — and their incomes jumped from $15k to $72k

I realize some people see risk in what sites like oDesk make possible to create a market that means people can’t earn a decent living. I do actually see that risk and think it is real. I don’t think trying to block commerce because of this risk is an effective strategy. I do think many millions of people can be helped (and some will be hurt). I think we are better off trying to help those that want to work in such a way to do so.

I do worry that we may well not have decent work for people that are not interested in highly valuable skills and/or are not willing to work (just expect to be given the rich life many of those in places like the USA got to have the last 70 years without much effort). As long as we have corrupt politicians selling out the country to those giving them cash the richest 20% in the USA will have huge trust funds to live off, so they will be rich. Those that aren’t living off trust funds or inheriting huge windfalls will have risks to survive.

They are still economically super lucky to have been born in the USA so I don’t really feel very sorry for them. But yes, there are real risks to the easy riches that we have had (and even so many in the USA struggled even while we have the richest middle class the world has ever seen in the richest country the world ever saw). But it is going to be harder going forward (at least comparatively to the rest of the world contemporaneously) – compared to the struggles people had 100 years ago I am not at all sure it will be more difficult for the average kid born in 2010 than it was for the average kid born in 1910 (especially if average doesn’t mean white boy but everyone and both boys and girls).

Iskandar is 5 times the size of Singapore and is in the state of Johor in Malaysia. Johor Bahru is the city which makes up much of Iskandar but as borders are currently drawn Iskandar extends beyond the borders of Johor Bahru.

The prospects for economic growth in Iskandar Malaysia in the next 5, 10 and 15 years remain very strong. They are stronger than they were 5 years ago: investments that produce economic activity (theme parks, factories, hospitals, hotels, retail, film studio…) have come online and more on being built right now.

Cooperation with Singapore is the main advantage Iskandar has (Iskandar is next to the island of Singapore similar to those areas surrounding Manhattan). It provides Iskandar world class advantages that few other locations have (it is the same advantages offered by lower cost areas extremely close to world class cities – NYC, Hong Kong, London, San Francisco etc.). Transportation connections to Singapore are critical and have not been managed as well as they should have been (only 2 bridges exist now and massive delays are common). A 3rd link should be in place today (they haven’t even approved the location yet).

A MRT connection to Singapore (Singapore’s subway system) should be a top priority of anyone with power interested in the future economic well being of Iskandar and Johor. Johor Bahru doesn’t have a light rail system yet this would be the start of it. It has been “announced” as planned for 2018 but not officially designated or funded yet.

Transportation within Iskandar is also a big concern. This is good now. I worry they will become as bad as Kuala Lumpur which would be a horrible outcome. JB had the chance to build a good transportation system and avoid the economically extremely costly friction of bad transportation system that KL is stuck with. If JB does this well, JB will be the economic center of Malaysia in 2030. If this is messed up the economy of JB will suffer a great deal.

The health of Malaysia’s economy will also have a large role to play. Overall things are very positive on this front though government and consumer debt are getting to be serious problems.

Economics is often tricky. Externalities (like pollution – essentially externalities are positive or negative impacts that are not captured economically by the market transaction, so economic theory requires government to implement policies to take externalities into account) are easy to ignore, for a awhile). So you have situations like China where huge negative consequences (health risks, health care costs, costs to pay staff to accept unbreathable air…) are taken on and short term economic gains seem better than they are.

Economic bubbles create lots of golden eggs. They are false golden eggs though. They are only available as long as the bubble tempts people to ignore the real economic worth. And cleaning up after bubbles burst is extremely costly and damaging to economies (especially ones that have high debt and are not lucky enough to have a fiat currency that the global market accepts – the USA).

I am extremely skeptical of the boom in luxury housing in IM. I don’t see the boom in very high paying jobs that create a sustainable demand for luxury housing. The transportation links to Singapore are not great enough to allow the jobs to all be in Singapore. Even if they were that is a risky model to be completely dependent on Singaporean jobs for over 50% of the housing being built now in Iskandar. There is likely to be a dependence on Singapore jobs to sustain many of those living in IM but for it to a strong economy there have to be a reasonable number of high paying jobs in Iskandar.

Right now, it seems to me (I would really need to have much more data to be more certain as I don’t have nearly enough data now), that there is a bubble in luxury housing in IM. I think the government is wise to take bubble suppressing steps. Doing so is never easy. Getting it exactly right is very hard. I think they waited to long, which then means the bubble has inflated and makes taking the right steps even harder.

On the good side of things, real estate prices were extremely low 10 years ago. So while prices have increased a great deal they are still not exorbitant compared to other desirable areas (Singapore, KL, Penang, Bangkok…). Of course, JB hasn’t been on comparable terms with those locations. I truly believe IM has the potential to do so, and thereby justify even higher prices going forward. But that is dependent on maximizing the Singapore location benefits and while lots of good things are happening on that front, more is needed. And more is needed quickly.

The riskiest area for IM is a huge oversupply of luxury housing. It would be foolish of the government not to address this risk. Wether the steps taken are correct or not, I am not sure, but I think they are a reasonable guess and basically are wise. Things should be watched and adjusted as needed. The policy change I like the least is the 1 million MYR limit (I would do no more than 750,000 MYR if it were up to me).

What I see as the top priorities

• reducing speculation in luxury housing in Iskandar
• reducing government debt levels
• reducing consumer debt levels
• increasing the number of high paying jobs in IM – focus on health care is good (I more could be done there I would try), finance is another good target, manufacturing is decent but I seriously doubt IM will have huge numbers of high paying/high skilled manufacturing jobs (some yes, but limited). I would also target high tech, software development etc. I would work closely with organizations in Singapore and KL. I would focus a significant amount of effort on this area). Education is good (and worthily of continued effort) but provides limited high paying jobs. If engineering and entrepreneurship programs can be developed that integrate with high tech business community that is the path to huge success for JB (pretty much everywhere else on earth would like to pull this off so there is lots of competition – JB has better than average potential with Singapore next store and the Malaysian economy and efforts such as IRDA and decent English language skills for students – improving English would help).
• increasing the tax base (sales taxes make sense), hotels and retail are great (especially when they attract tourists and you get tax dollars on others – not just your citizens)
• transportation – MRT, busses in JB, roads, taxis… Should be worrying about JB’s own MRT system (even if that is a long term issue, planning should be done now, building should likely begin within 5 years – beyond just the initial few stations linking to Singapore, it should be over 12 stations in JB by 2025 – likely a north/south line and east/west). Should likely also plan on 2nd and 3rd link MRT connections to Singapore by 2025 would be nice, but certainly by 2030 I would think?
• increasing number of jobs overall – this seems to be fairly well done but looking down the road 30 years the issue is going to be raising the pay level (lots of retail and tourist related jobs are good at first but they are low paying jobs in general)

Related: The Growing Market for International Travel for Medical Care – The Potential of Iskandar is Very High but Investing in Iskandar has Risks (2011) – Iskandar Housing Real Estate Investment Considerations – GDP Growth Per Capita for Selected Countries from 1970 to 2010 – Channel News Asia Report on Iskandar

The “industrial” heritage (represented by the name) is still visible but as the economy has changed the makeup of stocks has moved to reflect the growing importance of services.

The 30 stocks in the DJIA will be:

• American Express Company – AXP
• AT&T – T
• Boeing – BA
• Caterpillar – CAT
• Chevron – CVX
• Citigroup – C
• Coca-Cola – KO
• Du Pont – DD
• Exxon Mobil – XOM
• General Electric Company – GE
• General Motors – GM
• Goldman Sachs – GS
• Home Depot – HD
• Intel – INTC
• International Business Machines – IBM
• Johnson & Johnson – JNJ
• J. P. Morgan Chase – JPM
• Kraft Foods – KFT
• McDonald’s – MCD
• Merck – MRK
• Microsoft – MSFT
• Minnesota Mining & Manufacturing – MMM
• Nike – NIKE
• Pfizer – PFE
• Procter & Gamble – PG
• United Technologies – UTX
• Verizon Communications – VZ
• Visa – V
• Wal-Mart Stores – WMT
• Walt Disney – DIS

Related: GM and Citigroup Replaced by Cisco and Travelers in the Dow (2009) – Bank of America and Chevron replace Altria and Honeywell in the DJIA – Stock Markets Down $30 Trillion for 2008

• Front running – having orders executed milliseconds in advance to gain an edge (there is no market benefit to millisecond variation). In the grossest for it is clearly criminal: putting in orders prior to known orders from a customer to make money at the expense of your customer and others in the market. My understanding is the criminal type is not what they are normally accused of, of course, who knows but… Instead they front run largely by getting information very quickly and putting in orders to front run based on silly price difference (under 1/10 of a cent).
• Putting in false orders to fake out the market – you are not allowed to put in false orders. It is clear from the amount of orders placed and immediately withdrawn they are constantly doing this. Very simply any firm doing this should be banned from trading. It wouldn’t take long to stop. Of course the SEC should prosecute people doing this, but don’t hold your breath.

Several things should be done.

• Institute a small new financial transaction tax – adding a bit of friction to the system will reduce the ludicrous stuff going on now. Use this tax to fund investigation and prosecution of bad behavior.
• Redo the way matching of orders is done to promote real market activity not minute market arbitrage and manipulation – I don’t know exactly what to do but something like putting in a timing factor along with price. An order that is within 1/10 of cent for less than 1,000 shares are executed in order of length of time they have been active (or something like that).
• Institute rules that if you cancel more than 20% of your order (over 10 in a day) in less than 15 minutes you can’t enter an order for 24 hours. Repeated failures to leave orders in place create longer bans.
• Don’t let those using these strategies get their money back when they do idiotic things like sell bull chip companies down to 20% of their price at the beginning of the day. You don’t get to say, oh I didn’t really mean to buy this stock that lost me 50% the day I bought it, give me money back. There is no reason high frequency traders should be allowed to take their profits and then renege on trades they don’t like later.

Speculation is fine, within set rules for a fair market. Traders making money by manipulating the system instead of through beneficial activities such as making a market shouldn’t be supported.

To the extent high frequency trading creates fundamental buying opportunities take advantage of the market opportunity. Just realize the high frequency traders may be able to reverse you gains (and if you lose you are not going to be granted the same favors).

Related: Naked Short Selling – Misuse of Statistics, Mania in Financial Markets – Failure to Regulate Financial Markets Leads to Predictable Consequences – Fed Continues Wall Street Welfare

The truth is the billions of dollars high frequency traders steal from others market returns matters much less to true investors. For long terms holdings the less than a cent they steal from other market participants is small. It is still bad. Just people really get more excited about it than they need to. I would love to just get 1/1000 of cent on every trade made in the markets, I could retire. But they are mainly stealing very small amounts from tons of different people. Now the fake orders and trades that go against them that they then get reversed are a different story.

And a big problem for investors is that while I think there are plenty of inefficiencies to take advantage of finding them and investing successfully is quite hard. And so most that try do not succeed (do not get a return that justifies their time and risk – overall trying to take advantage of inefficiencies is likely to be more risky). Some Inefficiencies however seem to persist and allow low risk gains – such as investing in boring undervalued stocks. Read Ben Graham’s books for great investing ideas.

There is also what seems like an increase in manipulation in the market. While it is bad that large organizations can manipulate the market they provide opportunities to those that step in after prices reflect manipulation (rather than efficient markets). It is seriously annoying when regulators allow manipulators to retroactively get out of bad trades (like when there was that huge flash crash and those engaging in high frequency “trading” front-running an manipulation in reality but not called that because it is illegal). Those that were smart enough to buy stocks those high frequency traders sold should have been able to profit from their smart decision. I definitely support a very small transaction tax for investment trades – it would raise revenue and serve reduce non-value added high frequency trading (which just seems to allow a few speculators to siphon of market gains through front running). I am fine with speculation within bounds – I don’t like markets where more than half of the trades are speculators instead of investors.

Related: Market Inefficiencies and Efficient Market Theory – Lazy Portfolios Seven-year Winning Streak – investing in stocks – Naked Short Selling