onsdag 31 december 2014

The 3-2-1 principle for mixing perfect cocktails for New Year's Eve

During my time at the hedge fund Futuris I was often invited (by commission hungry brokers) to various wine and champagne tastings.

A couple of times we even ventured into the land of cocktail tasting (and mixing). Here are a few hints and tips on cocktails made easy, that I took away from those. My notes are quite rare, since most things got lost at those occasions...

Cocktails and other drinks made short and simple

Make your own syrup by bringing 1 liter of water and 1 liter of sugar to a boil. Let it simmer until the syrup is clear. Put it outside to cool before pouring it into a PET bottle. That should be enough for about a hundred drinks. Will keep well in the refrigerator for a year if you and your friends don't finish the whole batch tonight.

Make your own lemon juice or lime juice by pressing fresh lemons and limes (use within a day or two)

Use the 3-2-1 principle for mixing tasty and well-balanced drinks:

3 parts alcohol/liquor (vodka, gin, rum, whiskey etc)
2 parts sour (freshly squeezed lemon juice)
1 part sweet (your own syrup or a sweet liqueur)

Mix, shake in ice and pour it without the ice

The simplest good, strong and tasty 6cl cocktail is made from 6 cl liquor, 4cl lemon juice and 2 cl syrup. The rest is just variations and tweaks of that basic recipe.

A short drink is a cocktail with one more ingredient, such as ice (yes, it's an ingredient), soda or juice

A long drink is a short drink with even more stuff in it, such as mint, cinnamon, liqueur, berries etc

Try a whiskey sour even if you don't like whiskey: Take 3 parts bourbon (Jack Daniel's), 2 parts lemon juice and 1 part syrup. Shake with ice and pour without the ice. That's it. Add ice cubes and/or Angostura bitter if you want.

A side car: 3 parts cognac (VS), 2 parts lemon juice, 1 part triple sec or cointreau (or blue curacao for color, it's the same thing as triple sec and cointreau). Shake in ice.

Mojito: crush a whole lime sliced into wedges, crush 10 leaves of fresh mint, mix with 6cl of dark rum (not too dark and full) and 1.5cl syrup. Pour in a high glass filled with ice cubes and top off with anything bubbly, e.g. club soda or champagne.

or try my favorite, Blue Lynchburg Lemonade:

Blue Lynchburg Lemonade:

2 parts Jack Daniel's
2 parts Blue Curacao
1 part lemon juice
1 part syrup
4 drops of Angostura Bitter
1 wedge of lime
6 parts crushed ice

Mix and shake like hell and serve including all the ice.

You can make it on ordinary triple sec or Cointreau instead of Blue Curacao, and the Angostura is just to make it more adult. Some (a.k.a. girlie girls) like to add a few parts of lemon soda as well.

Tips on stocking your liquor cabinet

Use american whiskey=bourbon (not brandy or scotch) for mixing cocktails and drinks
Use simple (VS) cognac for drinks, not more expensive, aged variants like VSOP, Extra etc
Keep a bottle of Triple Sec/Cointreau at home - or Blue Curacao
A few drops of Angostura bitter makes almost any drink taste better, deeper, fuller, more grown up, a bit like adding broth to a casserole

Cowboy drinks are only for emergencies

Remember that 2-step "cowboy" drinks like Gin & Tonic, Vodka & Red Bull, Rum & Coke etc don't take into account basic gastronomical insights about which balance of flavors are palatable. Be better than that, more refined. Or do you serve hot dogs for New Year's dinner as well?

If the bartender has no idea what he's doing, go ahead and order a GT, but otherwise; just say NO.

Right after a pool dive that went just a little too deep
this summer on Ibiza

FYI: The next post will be from my own domain, mikaelsyding.com

3..., 2..., 1... GO!

måndag 29 december 2014

2 important vows for 2015 - and armpit bacteria in the face

Do you want to look younger, reduce injuries and pain, waste less time, be healthier, and stop the feeling your years are rushing by?

Here's how:

    Do you usually make new year's resolutions, or are you "above" such gimmickery? I recommend you rethink and consider these 2 ideas:

  • Make 2015 memorable
    • Make sure you experience things in the coming year that will make you remember what you did in 2015 forever
    • Make sure you instantly have an answer for the question "What did you do in 2015?"
      • What did you do in 2014? Hurry up; you only have a couple of days left to fill your quota for the year. 
      • Strong experiences and feeling create memory milestones and take up more brain space. That makes your life seem longer and fuller in retrospect, rather than having rushed by faster and faster. Check out more brain science at this podcast.
  • Stretch your psoas, doing the couch stretch regularly (at least 5 minutes a month, but 2 minutes a day is better)
    • If you only do one mobility exercise, just hit the psoas regularly
      • You'll walk more youthfully and with power, balance and confidence
      • You'll preempt slouching and even hernias and possibly reduce any Restless Legs syndrome you might have

and as an added bonus (too small and easy for a resolution; just try it anyway):

Let bacteria take over your face
Did you read my post about research on rubbing armpit bacteria in the face and not using anything other than water to wash your face? It's alright, you can do it after this.

I stopped washing my face on October 1, 2014. Since then I've only used water instead of various gels, scrubs and soap (!). I got the idea here and decided to try it. Actually, sometimes I even grab some armpit bacteria (as in the clinical trial) and rub them in my face, before rinsing with water.

Three months later I couldn't be happier with my decision. My skin looks and feel healthy and resilient. I don't get outbreaks from binge drinking and junk food. I feel safe in not having to always splash water on the after getting up and before going to bed (pre-October I washed and scrubbed thoroughly twice a day [three times daily on gym days]). And if I'm to believe the scientists my skin looks much better in a microscope than before (the face equivalent of having a body that looks good naked)


My strongest memories from 2014 might make you remember to forward the address to this post, or talk a friend (or enemy) into subscribing

Adopting a 7 year old stressed out and neglected German Shepherd-Doberman-Grand Danois dog (the trial started 9 days ago)

Snowboarding naked (a.k.a. cock in a sock gate) down Sweden's most visited black ski slope in Åre

I think it's the embodiment of sprezzatura,
but my friend and mentor Ludvig at SGM wishes I would stop posting pics like this

Making national TV news with a rhubarb umbrella at the year's largest political summit (the headline below with a picture of me says "Record number of visitors")

Yes, that's a bottle of Italian sparkling wine
in my hand around lunch time

I retired from managing money as a hedge fund manager

I also stopped eating land living meat after being a super consumer of beef

Stuff that didn't make the list of things I'll remember forever:

Selling my Lamborghini

Dressing as Pussy Riot

fredag 26 december 2014

10 questions on Batman. Have you made your choice yet; Costanza or Batman?

Who will you be in 2015?

Costanza - the eponymous procrastinator and fat slacking artist from the Seinfeldt show


Bruce Wayne, a.k.a. Batman - multi faceted, focused and serious doer, who takes athleticism to a new level

George Costanza once barricaded himself in his employer's basement office to avoid being fired. When he was locked out, he broke himself into the office through the ventilation system (he risked being fired if he wasn't present to answer his phone). Costanza has given indulgence and shame an obese and neurotic personification.

George Costanza - or you?
George Costanza Offers Advice on Middle East Conflict

Costanza always acts in his own very short term interest, with no regard to the consequences. He is a lying, lazy, self-absorbed glutton; he is over-confident, a general disgrace to humanity and of course very, very funny.

Will Costanza be your guiding light for 2015?

Will you ask yourself what Costanza would do (as if he would ever stop for one second to give a matter a second thought - except maybe how to avoid actual productive work) when making decisions regarding, e.g:
  • What to eat, how much and when
  • Whether to go to the gym or postpone it (forever)
  • If you should add an extra rep and/or 5 pounds to all sets compared to last workout or just take it easy today; give yourself a break - at least you are at the gym
  • Whether to watch just one more episode of Modern Family or do something productive (Batman wouldn't even watch the one episode, let alone "just one more")
  • Study something useful or go to great lengths to trick yourself into food coupons or a student loan

Or will you in all situations ask yourself what Batman would do?
  • Would Batman have dessert? Bread?
  • Would Batman eat real vegetables or cheap vitamin pills?
  • Would Batman skip gym?
  • Would Batman Study until he understood for real, or just try to cram some facts short term?
  • Would Batman read "50 shades of grey" or "Gödel Escher Bach"?
  • Would Batman speculate on the stock exchange? Would he buy penny stocks?
  • Would Batman get a mortgage just because the interest is low right now?
  • Would Batman skip one more rep?
  • Would Batman go for the beautiful and sexy blonde bimbo or the accomplished woman
  • Would Batman skip mobility exercises?

What would Batman do?

I know which choice will get you ahead in life and which will hold you back and make you miserable and intolerable. The sooner you decide to Choose Batman, the earlier you can indulge without shame later in life (that is... if you still want to kick back by then)

And finally..., would Batman do this(Alright, he wouldn't, but no harm, no foul. Maybe he should try to live laterally and sometimes be more than just a dark voice and über-serious vigilante)

onsdag 24 december 2014

One investment thought to consider ahead of 2015

“I am a long term, fundamental value, investor.  So these rules don’t really apply to me.”
No you’re not. Yes, they do.

söndag 21 december 2014

Why you should keep an open mind about everything - and how to exploit intuition, auras and pros/cons lists

A is A, evidence is evidence and intuition is real and important

Intuition, that illusive sixth sense that women are said to possess, is really nothing more than your subconscious drawing conclusions from a million little things that your conscious self is incapable of handling. You could call it s a kind of informed prejudice or snap judgement.

The brain deals with a hundred megabits per second of input data from the environment (nerve cells in the skin, eardrum, nose, tongue, eyes handle a million times more information than the conscious self would ever have time to handle). Your conscious self can barely judge 7 different items of information simultaneously.

Certain combinations of the deluge of information stimuli appear right before, e.g., an attack or a storm or a mating possibility. That "spider sense" made sure our ancestors lived to be, well... our ancestors. Most modern people, however, have become so civilized that this combinatory sixth sense, intuition, has faded away. We don't pay attention to intuition, we don't heed its signals, and we even actively dismiss it.

Some people, who first have become very proficient in their field, later learn to trust their intuition instead of mechanically trying to make calculated decisions. Once they realize intuition usually works better than formal decision processes, they trust their intuition more and more. Successful business leaders, portfolio managers, writers and even scientists claim to use their "gut feeling" for important decisions (but before starting a nuclear war or going all-in on something else, make a Sanity Check first, and cross off items from a check list to refrain from really stupid decisions).

People with synesthesia can hear color, smell music and even see personalities and moods

Even very intuitive people still can't see "auras" though.

But some people can.

There is a rare condition called synesthesiawhere different senses have crossed wires and enable smelling colors, seeing sound and experiencing music as colors etc. Some of these people have crossed wires between sight and the combinatory sense of intuition and actually see "auras". They still need to work on understanding what they are seeing; the auras don't come with tags. However, they do see auras, that can be interpreted as the combination of signals that your subconscious detects.

Fun fact: Lexical Gustatory Synesthesia means words can stimulate taste, e.g., the word "basketball" may taste like waffles. Imagine reading a word that tastes like your favorite snack over and over again

Fan fact 2: Nikola Tesla and Richard Feynman were synesthetes

Auras for the future, but intuition for today

In the future, when we start merging our brains with implanted AI, I am sure we all can learn to experience auras, not to mention higher order sensations (see bullet 4.e. here) that today make as much sense as thinking about a fourth or fifth dimension.

Until then, you can train your simple intuition, try making snap judgements on the small things in life. Then pause and double check with yourself to see if you really agree. It's a bit similar to playing rorscach on your own. Or being the dice man. What do you want for dinner, what movie do you want to see, which client should you call first, should you ask for a raise today? Is that person angry/happy/sad/introverted/mean/kind/extroverted/...? How much does this apple weigh, how many marbles are there in that jar?

In middle school, I won several guessing competitions where I simply let my intuition completely loose and "not even tried" an intelligent guess. I simply glanced once at the mountain of small objects, said the first ridiculous number that popped up, such as 1462 or 175, and usually won. Since then I have tried honing this "power" and learning when to use it and when not to, when it can be trusted alone and when it needs help by the structured, conscious self.

Making decisions is about finding the one, single, important factor

I sometimes make lists of pros/cons ahead of important decisions.

I don't, however, weigh the variables or count them, I only use the listing process to clear my mind of all variables, until I see the only one that matters or realize which one it is.

It's almost always just one single variable that stands out and dwarfs all other (more about that here). It might not even be a tangible variable but something as vague as "because I feel like it". I have yet to regret a decision, and I think I owe it to being both structured and precise as well as letting intuition be the final arbiter.

1. Trust yourself
2. Keep an open mind. Some things that may seem supernatural are just ...natural

lördag 20 december 2014

Avoid gym slogans: 15 quotes that actually mean something

Why are we attracted to quotes? What's good about quotes?

They are distilled wisdom from entire lives of deep thought and hard-won experiences. Imagine just taking one single quote from your entire life. That's what we do with historical philosophers, writers, leaders. Imagine the wisdom collected in that person's best quote.

Why should you collect quotes?

To benefit from other people's endeavors, errors and success. To be inspired to improve. And, maybe just a little, to make yourself look a little better, wiser, more interesting.

What quotes should you avoid?

The ones that are mass manufactured, lack meaning, are contradictory, made only to fit today's media landscape of maximum 140 characters. Almost all gym slogans, thinspiration instas and exercise tweets belong to this category, even if many gym rats actually seem to draw energy from them. Avoid quotes that just sound good (in particular if it's in another language). Avoid quotes where you're really only interested in the person behind them rather than the actual wisdom.

Which quotes should you collect?

Quotes that get you through the day, quotes that inspire you to be better, quotes that speak to your innermost and actually alter your behavior positively.

15 quotes that actually mean something
(without reference, since I don't care who said what; I care about the meaning)
  • Try pouring a ton of steel without rigid principles
    • whenever accused or ridiculed for being precise or "too logical". Or when you are being too eager; take a step back and establish the principles first.
  • When a man tells you that he knows the exact truth about anything, you are safe in inferring that he is an inexact man
    • trust no one, question all truths, be prepared to re-learn, accept the evidence of reality, not the confidence of other men
  • Never attribute to malice that which is adequately explained by stupidity
    • few people are truly evil, try to understand how they think they are being good, and then change their ways
  • The further a society drifts from truth, the more it will hate those who speak it
    • remember that those in power will do anything to keep it; that's how they got there in the first place, to powerfully administer their variety of good: "I'm from the government and I am here to help you"
  • When you come to a fork in the road, take it
    • be open minded, take a chance, don't fret, equally weighted decisions are easy, not hard
  • If you do not change direction you may end up where you are heading
    • be strategic, think long-term, 100 million small steps add up over the years; you will end up where you are heading
  • Forecasting is difficult, especially about the future
    • forecasts are guesses; some are more informed than others but something else might still happen. Here be black swans.
  • If the world was perfect it wouldn't be
    • life isn't exact, life isn't comfortable and predictable, life is change, surprises, volatility, highs and lows. Don't shy away from life, embrace it, warts and all
  • Be yourself, everyone else is already taken
    • live in a way that you always without hesitation can answer "me" when asked who you would be if you could choose
  • Don't postpone until yesterday that which can wait until the day after yesterday
    • Don't rush, don't force, live now, if something can be put off without consequence, do it!
  • Arguing with morons is like playing chess with pigeons, no matter who wins, they will shit all over the board and strut around like winners
    • Some fights aren't worth taking, no matter how right you are
  • Every man is an island
    • Take responsibility. Every person can only live for himself; by accepting this truth instead of altruistic paradoxes and lies, the world becomes a better and more fair place to live
  • Character shines through with power not adversity
    • Never judge a poor man's character; wait until he becomes rich and powerful. Absolute power corrupts absolutely (Old Testament God - check!)
  • Know yourself
    • does this count as a quote? No matter, it's still the best there is. It guides every aspect of my life and is the root of all good things. Knowing yourself is necessary for achieving true success and happiness
  • Just one more
    • Works everywhere; as a journalist, in the gym, in the bar. It stops you from quitting too soon, while tricking others and yourself that you really will stop after just this one

söndag 14 december 2014

How to protect yourself from politicians' machinations for rising house and oil prices

Do you remember the good old days when low prices were good for you? That was fun.

Cheap oil and cheap houses are good for you. Simple as that. Period.

- but for some reason politicians want higher oil prices, house prices, food prices, bond prices... higher anything, really, except for gold prices.

Since politicians can't permanently affect the real world, they create (exacerbate) cycles of rising and falling prices to get at least half the time with rising prices, often more since the corrections tend to be more abrupt than the upward moves.

How can you protect yourself against these cycles, and against the nonsensical propaganda that falling prices is bad and that politicians are needed to create booms and protect you?

Lower prices are better than higher prices. Duh..
(does anybody but Janet Yellen really believe differently)

1. Cheap oil is good for you, just as cheap food, cheap furniture and cheap housing. The cheaper things you need or want are, the better for you. You'll have more money over for other things after taking care of the basics. It really is that simple, a child can understand it.
2. Problems arise if you have borrowed to buy a house you can't afford, or speculated in oil futures or oil related stocks (in particular with borrowed money or on margin) before too high prices correct
3. Newcomers and outsiders benefit (and smart investors too) from falls in oil prices and house prices (and all other prices as well, such as computers or mobile phones)
4. If markets are manipulated, making prices rise above their intrinsic value, and people speculate in further increasing prices, losses arise for both speculators and lenders when prices normalize or undershoot. The process is inherently sound, as well as beneficial for all (smart) outsiders who managed to withstand the siren calls from politicians, friends, neighbors and brokers. The correction and normalization is what is good, the overspeculation and leverage-financed boom is what is bad. Not the other way around. Everybody can understand that intuitively, even if they currently want their loan financed assets to appreciate (no matter how bad it will prove in the long run)
5. Yes, even lower stock prices are good for you - you can buy more of your favorite stock; you'll get the same dividends per share and thus more total income. However, if you want to quit the stock market or make a trade you would want temporarily higher prices - but that's egotistical and short term thinking. Ceteris paribus, lower prices are always better.
6. Worried about a crash? The sooner a bubble bursts the less violent the correction. Hope for a correction as soon as possible, before leverage and malinvestment have time to build up and fester. Unfortunately the world is already deep in debt, and extremely far out on the branch that is about to be sawed off. However, it won't get better by venturing even further out before it snaps.

Just a note for clarification: in a free market, low prices signal more efficient production of the good in relation to the level of demand. Higher prices signal less efficient production, scarcity or high demand.

The best for you is of course, if things you need or want are in low demand and abundant while production is efficient. The cheaper the better. Just imagine a world where a house costs a dollar, a car a dollar, food for a month a dollar etc. That would be heaven. If on the other hand a house cost a billion dollars, an ordinary car a million dollars and food 1000 dollars per day...

Politicians live in Bizarro land, where expensive is good
-not too surprising since they don't have to worry about petty things like income, costs etc.

In Bizarro world some smarty-pants academics who sniffed one too many tubes of glue, think that falling prices make people postpone their purchases - and that that would be bad in some way.

First, postponing a purchase means more savings, more room for investment, less consumption of goods (and thus less consumption of resources).

Second, people don't postpone purchases of things they need. They might, however, postpone speculative buying of assets they don't need. Quite the contrary to postponing, people can be lured into "investments" or too early purchases, based on unsound momentum (that was produced by cheerleading, too low interest rates or other kinds of subsidies).

Politicians love volatility, malinvestments and trouble

Governments love business cycles, since the leaders look good when things race toward the peak, thanks to government intervention, and leaders look needed in downturns since people think it was politicians that created growth to start with and are the only ones capable of doing it again. hence, politicians want as low interest rates as possible, as much speculative buying as possible, no postponed consumption, no savings etc.

Politicians want maximum speed ahead at all times, and after the inevitable crash "that noone could predict...no-oh-ohhh" they are ready to wield their mighty weapons of budget deficits, food coupons, student and car loans, zero interest rates and money printing to pander to voters.

It's politicians who want higher house prices to sustain lending, borrowing and consumption (and inflation that leads to higher tax income). It is also they who want higher oil prices, to sustain the shale gas industry, to sustain oil based borrowing (>500bn USD oil bonds in the last few years e.g.).

Politicians love wasted resources and malinvestments, because it makes them look useful and important while pumping up the boom ("oh, how good it is to have leaders that know which industries to pamper"), and eventually appear benevolent, when they pretend to mop up after the bust of which they were the primary culprits. According to Hanlon's Razor (or Goethe's Principle) perhaps some of them actually aren't evil, just stupid... The damage is still real though.

Inoculate yourself from the inflationist propaganda and authority-induced cycles

Think for yourself - you know lower prices are better prices
Be honest (maybe you speculated on a house, a car or studies (loans), but don't let that affect your thinking. If you ever want a bigger house, you'd still want lower prices rather than higher)
Game the cycle (take a step back from the daily grind and observe the recurring cyclical patterns. Then take advantage of others' ignorance. Study. Wait. Pounce)
Vote for less government intervention (it won't change anything now, but maybe in a hundred years)
Invest outside the box. Investing is not only about the stock market. There are lots of other asset classes. Not least there are lots of other regions (countries), not to mention actually investing, i.e. starting a business. The worst choices you can do in investing is: a) be home-centric for no reason, b) invest in stocks only for no reason, c) use leverage for no reason, d) always be buying unless you are prepared for and count on major corrections
Wait, wait, wait - Waiting truly is the hardest part. Dare to look stupid now to avoid looking stupid afterward. Nobody needs to speculate to get by, or speculate to get rich. And not everybody can speculate to get rich. Learning skills and doing productive work on the other hand is always useful. Focus on building value and then go for it when an opportunity manifests itself.
Low prices, low valuations are the foundations for all good investments (One of the ten legendary investors I mentioned the other day, Jeremy Grantham at GMO, famously said: "You don’t get rewarded for taking risk; you get rewarded for buying cheap assets", and James Montier at the same firm: "Buy when an asset is cheap, and sell when an asset gets expensive.... Valuation is the primary determinant of long-term returns". John Hussman keeps reiterating the same message, week after week. Some of the best investors of all time repeat time and time again "cheap is good" so perhaps you should heed their advice. However, it's not easy and you have to a) understand what 'cheap' is as well as b) be patient)

Game the system, but be aware of the risks

By all means, game the system, game the politicians. Predict their irresponsible moves and try to take advantage of them. You can't change their ways, you can't raise them, teach them or punish them and you shouldn't try. But you don't have to drink their proffered beverage either. Always try to look outside the current half cycle and be prepared for the next one, the mirror image.

Sure, be my guest, run with the herd if you want. It's easy, comfortable, feels safe and might well be right for quite a while, but at least try to be the first one to panic. Watch out for cliffs, for predators, for extreme sentiment and valuations - and sometimes dare to stand aside for a while.

You never have to rush to get rich




fredag 12 december 2014

What do they know? Investment advice from 10 legendary investors

"May you live in interesting times"

Less ominous words could shake a man to the core

We do indeed live in interesting times, whether we like it or not: Central banks are doing their best to destroy the fabric of modern society, the war on terror begets more terror, South America is crashing, Russia is scrambling for respect, China is hoarding (oil, gold, dollars), the world economy is stalling, bond yields and oil prices are crashing while stock markets rally. Computers already dominate stock markets, and Elon Musk, Stephen Hawking and others are warning about AIs taking over...

Yet, all you and I care about is what education to get, which industry to work in and how to get the most returns from the financial markets. There is nothing we can do about the state of affairs, we must simply play the ball as it lies. The question is "where does it lie, and how should we play it?". Perhaps the greatest investors of all time (and I) could provide an answer.

Investment lessons for life

I am currently writing a book containing my 25 most important lessons from stock market battles during 15 years at Futuris, The Hedge Fund Of The Decade.

A lot of my investment related advice is general enough to be applied to life in general, e.g.:

  • Sometimes a crazy risk is your best bet
  • Investigate reality, don't lecture it
  • A "streak" is no reason to change style, whether lucky or unlucky
  • Manage risk when you can, not when you have to
  • Dare to go against the grain (but not just for the sake of being contrarian)

I will never make it onto a list of Legendary Investors, nor will my advice be. On the other hand, you can interact directly with me and get more than just the sound bytes. I plan to release the book by the turn of the year or shortly after, free for all e-mail subscribers. Then the floor will be open for discussions about strategies for both investing and life in general. I see the topics as completely intertwined and consider life in general as one big risk/return investment to be optimized.

What do they know?

Back to the topic of investments:

ZeroHedge recently listed advice from 10* of the best investors of all time. The sum of it all is that markets move in cycles, as do investor psychology and valuations. Buy when assets are cheap and when others aren't buying.

CYCLES: 3-year average of annual inflation-adjusted returns of the S&P 500

The chart above demonstrates the market's cyclicality clearly. Beware when the three-year average annual return exceeds 10%, and remember that the 3-yr avg sometimes will hit zero or even -10% or worse.

Cycles, schmycles... Identify where you are in the cycle and invest accordingly

In terms of stocks, everybody is buying and have been buying for some time. The focus is momentum instead of value. That is typically not a good time to buy stocks. It might be but probably isn't in general. Investing in single stocks that are out of favor and exhibit low valuation multiples and high sustainable dividend yields could very well be, but not the market in general.

In terms of life, the focus is to ride the momentum in apps, games, media and entertainment. Everybody seeks instant gratification. Hence you should focus on investing in true skills for the long term. Learn the hard stuff, skate to where the puck will be, not where it is.

Useful skills?

As a quick and dirty guide to where that might be, I re-post a comment I wrote one of my recent articles:

1. focus on the big problems that need solving: energy, water, pollution, food, to longevity/health, (rare metals/asteroid mining)
2. focus on what makes people tick: being social, getting laid, feeling important or successful or at least entertained
3. what might go wrong that will need fixing? debt clean-up, cheap living quarters, refugees
4. what's already working? List the largest, most valuable, most successful, fastest growing companies and figure out how to be valuable for any of them - as an employee or a subcontractor. But be critical - some of the largest ones might be dinosaurs overdue for extinction
5. what skills are hard to acquire? what skills are today's youth lacking and not willing to make the effort to get?
6. remember to scratch anything off the list that is easily digitized. But keep things where the combination of a person and a computer system would have a sustainable edge
7. the Singularity enablers: nanotech, AI, biotech, robotics, additive manufacturing (3D-printing, including living cell-printing)

Specific skills:

Creating a list from the above is material for a long article in itself, but certain skills stand out to me:

  • programming for entertainment, robotics, space exploration, data mining, healthcare applications
  • statistics for intelligent data mining and information organization
  • mathematics (foundation for programming, physics and statistics)
  • healthcare (formal education mandatory)
  • law (formal education mandatory)
  • psychology (for humans lost in the brave new world of technological acceleration, for war veterans and refugees, for programming/evaluating robots and AIs, and not least psychology for marketing [combined with statistics and data mining of course])
  • Design (might need talent, might be a question of formulas, I don't know)
  • Marketing (things always need selling, marketing... - remember to combine marketing skills with psychology and statistics)

Robotics - my preferred choice of skills and industry

If I were to restart a new career it would be in the field of ROBOTICS, which I think have the potential of becoming for this century what the AUTO industry has been for the last century.

At present we have a lot of stupid single-purpose robots everywhere - some are status symbols, some are not anymore. They are called cars, washing machines, dishwashers, vacuum cleaners etc. Soon, more general-purpose robots will take over more and more household chores, caretaking of sick and old, companionship, telepresence/socializing. I also think robots have the potential to become the new status symbol that has been reserved for cars (but probably 10 years out)

Forecasting, futurenews: there already are some attempts at this. I'm not sure how or who should get into this field. Perhaps Kurzweil gets it for himself, but somehow I think strategic predictions of technology, weather, demographics etc will be in demand, if you can make your models or predictions trustworthy.

Mind the gap - rounding off on investing and cycles

  • Identify what cycles there are in your chosen field (education, work, investments, life).
  • Identify what phase the cycle is in and how others are behaving.
  • Mind the gap between your assessment of the cycle phase and other people's behaviour, and take advantage of the difference.

*/10 legends according to ZeroHedge
  1. Jeffrey Gundlach, DoubleLine
  2. Ray Dalio, Bridgewater Associates
  3. Seth Klarman, Baupost
  4. Jeremy Grantham, GMO
  5. Jesse Livermore, Speculator
  6. Howard Marks, Oaktree Capital Management
  7. James Montier, GMO
  8. George Soros, Soros Capital Management
  9. Jason Zweig, Wall Street Journal
  10. Benjamin Graham
Yes, I know a lot of other investors cold have fit the list. Blame ZH and 25iq, not me.

torsdag 11 december 2014

How aspiring for mediocrity can make you a happy millionaire - or a whore

At what point did you realize you had the potential and ambition to break out of mediocrity and live a special life? How did you go about it and what advice can you give a young person?

Oh, I'm sorry, I didn't know you hadn't realized that yet...

Anyway, that's cool, I haven't either. Or, maybe I have... today, in that case.

Role models and aspiration are new phenomena

For most of humanity we have been ruled by a supreme primate, God, a king, a class or a guild system. There was no way of breaking out of anything, just the daily drudgery of doing the same thing your father or mother did.

The last 500 years or so, a few geniuses managed to climb socially, by excelling within art or science, and the last few hundred years some entrepreneurs and speculators struck gold, figuratively or literally.

In general, however, there wasn't much aspiring going on. Partly because it was futile, partly because there were so few relevant role models around. The last 100 years the backdrop has changed completely - during which you might actually have a relative or a friend that has been alive the entire time (!). My own father is over 70, covering more than 2/3 of the period.

Movies and TV made all the difference: moving life-like pictures of talented people created many more role models than before and made it much easier to aspire to be one of them. They were (moderately) rich, beautiful, spoke with scripted intelligence, still felt somewhat accessible and everybody knew who they were.

Andy Warhol got it right: Everybody will get their 15 minutes of fame, he said. And now everybody does. Everybody has a blog, a Facebook account, Instagram, Twitter etc. Everybody is trying to be famous and everybody is following more or less well-known people that inspire them.

Apart from the obvious waste of time watching thinspiration pics and painful fails, it creates a lot of aspiration. Everybody wants to be somebody, and being somebody is defined as being known or at least rich. And if you are rich you want two things: to become even richer and to be known, a celebrity (hopefully respected, but just known is good enough).

Beware of the false proximity trap

OK, all role models aren't bad, and everybody doesn't aspire to be on Jersey Shore (I hope!). A lot of people actually want to be the new Bill Gates, or Zuckerman or Elon Musk. That's a good thing.

What's not good, however, is that you can follow them in social media, come so close you almost think you are friends. That false proximity can divert your attention from doing what needs to be done, step by step: absorbing knowledge, creating value, growing, living in the process (not only for the target), in the now, and fool yourself into thinking you just need one big break to become like your "friend" Mr Musk. The accessibility of perfect role models feeds the focus on one big break and the end station, instead of gradually building skills and providing value doing something stimulating.

Today's media landscape makes it easy to think everybody actually can be rich celebrities, as if everybody could become millionaires on the lottery... (which many actually think they can)

Sweden, the land of institutionalized mediocrity - perfect for me

I never aspired. I almost still don't - at least not until very recently, let's say December 2014.

When the first question during today's interview was "When did you realize you could lead a life of non-mediocrity?" I was dumbfounded, since I simply had never come to that conclusion. The more we talked, the more I realized that even if I had always felt special (odd and contrarian in a "come here bullies, pick on me" kind of way), I never considered a life outside the very middle of the land of institutionalized mediocrity, Sweden.

When I was 4-7 years old I didn't realize I was years ahead my peers in terms of math, reading and writing. Other kids simply didn't concern me. I happily did 3rd grade math in 1st grade at school, and rode down slides on my bicycle blindfolded during breaks and weekends (I have had 8 concussions), without a thought of what other kids were doing.

Being told by grown-ups to stop being different

I turned 10 (in 1982) before I realized I was different (in a good way, I thought, but it still landed me a lot of trouble). I finally understood that I was much better at math, programming, reading, writing and English than the other kids my age.

The trigger was that my teachers stopped giving me any more math material from higher classes/grades. I was "deviating from the plan". They also told me to stop coming to school wearing just a t-shirt and no jacket in winter. (Well, who's the grown up now?! It's december 11th and I'm walking around wearing just a t-shirt).

In addition, I had decided for myself to only focus on real learning, like math and English, whereas geography ("maps"), history ("in the past") and other "useless text-based" topics were of no interest. As if I weren't in enough trouble already... I had to be threatened with taking 5th grade a second time before I realized I had to game the teachers and pretend to care about geography, history etc. The law says you have to complete school, so I simply had to whore out.

Street smart nerd

In grades 7-9, I always made my homework one week in advance. It provided me with a buffer in case I got ill, I got the opportunity to repeat what I had learned one more time, and It made me look superior. In addition, if anything was hard to understand, I knew what to focus on beforehand.

So, a lot of advantages and no disadvantages; I studied in exactly the same pace as everybody else, just one week ahead all the time. At this point, I couldn't help thinking I actually was different and superior, not more intelligent, just more street smart.

The study habits that formed then had an even greater impact in secondary school (grades 10-12) and landed me awards in chemistry, math, physics, a large scholarship directly from the hands of Sweden's king in front of a crowd of 10 000 (a tenth of the city's entire population) on Sweden's national day on June 6 (our 4th of July), as well as the honor of being the school's bearer of the national flag.

That day too kind of hinted I was special, but still didn't sway me from aiming for a life of mediocrity - of "making just enough money to afford meat on the plate every day" (my exact thought when I was 18, and just had been accepted as a student at Stockholm School of Economics (SSE), the most prominent higher education there is in Sweden, to study business administration and financial economics).

Becoming a hacienda jefe and shoe king in Argentina

I was just about to turn 24 (after 4 years at SSE and two years at my first job), when a girl I met in Argentina after climbing the summit of Aconcagua (Christmas 1995) asked me to stay and live with her there. That was the first time I considered another life than the typical school-work-retire model.

Oh, did I mention her family was the 20th richest in Argentina, with shoe stores all over south America, Portugal and Spain - and I got to sleep in my own 5-bedroom wing in one of their three large houses in that city (Mendoza)? It was very tempting to just leave everything to be with her...

Around the same time (1995-1996), my boss said "that's real Goldman Sachs level work, there" after an IT conference and an all-nighter, writing a summary of the conclusions and sending it to print shortly before sunrise. Perhaps, just perhaps I was destined for more than marrying rich, count shoes and make my own wine...?

Between 1996 and 2011, I reached various levels of success and gradually worked myself to mental and economic independence:
  • 1996 headhunted to another firm to be their head of IT research
  • 1998 ranked nr 1 analyst in Investment Companies (and nr 2-3 in IT)
  • 1999 By now I had had enough, enough of the industry, enough of crazy valuations, of client presentations, not to mention enough money for an upper-middle class life. I dreamt about mediocrity, about not working 70 hours/week, about becoming a bank clerk in a small town instead, having quality leisure time and getting enough sleep...
  • ...but got lured to a hedge fund right at the peak of the IT-bubble in March 2000, not even fully understanding what a hedge fund was. I just thought perhaps I could make a lot of money before quitting, as well as reducing my work week somewhat.
  • That happened, at least regarding face-time at the office (even if there was a lot of work done from home, meaning I still clocked 15 hours of work per day on weekdays). Already after 5 years I was thinking about leaving the industry again, this time with a little more money. "Within a year or two I'll probably have enough to retire", I thought. "It might even work right now (2005) but you never know...". I wanted a buffer.
  • ...and I got it in 2007-2011, when my net worth increased 10-fold. I suddenly didn't have just 1m USD but 10m USD.

Once I had enough money, I wanted out

After that, after 2011, I knew I wanted out of the industry. I had enough to live a comfortable life without ever working again. The question was what I wanted to do. I figured reading books and eventually writing one would be enough.

I eventually retired as portfolio manager in January 2014, but stayed on as the managing director for the rest of the year. Hence, as of January 1, 2015 I am a completely free retiree, aged 42 (the answer to everything by the way - Hitchhiker's guide to the galaxy).

The last few months, I have realized I want to spread my word, be a role model, lend perspective to education, career, technology, philosophy etc. Hence, this year, this fall, I finally broke out of mediocrity and actually want to do more than just get by, get enough sleep and eat meat everyday. (ironically, I stopped eating land-living meat this fall).

The answer to the question, WHEN I realized I was destined for more, or had the potential and opportunity do lead a special life is today.

Even if my focus was whoring out, for enough money to be able to relax afterward with a book, a good night's sleep and a pork chop, I made it through most of my life by ignoring both the past and the future and just focused on the now, the process, the task at hand. I didn't want things or glory and wasn't burdened by ambition, I just did things - one small step at a time. I think that is why I have been a happy whore in the finance industry (well, that, and the fact I did quite well for myself)

I was expecting and aiming for mediocrity

I was expecting mediocrity, and inasmuch as I thought about it I was aiming for mediocrity as well; wanting an 8-hour work day, instead of 15, without having to think (instead of always being hyper alert), hoping for a future with 8 hours of sleep per night (instead of 4-6), and some nice Swedish binge drinking on Fridays and Saturdays, followed by a sleep-in, to top off the week.

Since I didn't want more than that, I could take 100-hour work weeks at the only job I got (third tier broker firm) with minimum pay (20-25k USD/year before taxes, Swedish taxes).

Somehow, not aspiring, not looking around too much, not caring about role models or strategic plans for world domination, made me simply do the work, made me absorb enough knowledge to solve the specific problem at hand and deliver value to my teacher/boss the next day, and the next and the next.

Eventually, I had done so for 16 years in school and 20 years at work and found myself accomplished and wealthy. Part of it might be luck, but most of all it's hard work, every week for my entire life. It didn't feel too bad, in part since it was done in small increments, one day at a time, one obstacle after another, and in part since it all went well.

Can you copy my formula? I think you can, but be careful and think closely about what it is that you actually want, and when. Slaving as a prostitute to buy a fancy tourbillion-featured watch is not a way to spend your life. Setting up camp by the sea, living on grilled lobster however is a whole different pancake...

Decide how much of a whore you want to be, and know your own pleasure buttons
  • Decide exactly how much you are willing to whore out to achieve a future liberty
  • Start projects (business, education...) and then forget the project and just do the tasks and solve the problems minute by minute, hour by hour. The mental burden of the entire project is unnecessary
  • Don't compare yourself to your social media friends, whether it is your friend, neighbor or an entrepreneur billionaire. Sure, take hints, try to learn their secrets, but don't try to copy them or their lifestyle. First just learn and do, then if you are successful do what you like
  • Focus on skills and value - become good, become valuable to yourself and to others. Do not waste your years on useless formal education or meaningless work
  • Have fun, be happy, be meaningful and mindful, learn and teach. Buy a sports car (I've had my Porsche, Ferrari and Lamborghini convertibles) for fun after your business has made it, but don't covet a ridiculously expensive car just because you have seen it in a rap video. And definitely don't buy it before you can afford it. Most of all, never buy anything to show off to others.
  • Know yourself, your actual drivers and play to them. If you are happy you are happy, and if you are rich, you are just that; rich.

tisdag 9 december 2014

This timeline has become unstable

This chart tells me our timeline has split into two. The question remains: "which future do you live in?"

remember that bond prices are supposed to be based
on the grade of certainty that the economy (stocks)
can serve bond coupons and capital

One reason you should think hard before getting an education instead of a skill

1. Education doesn't get you a job

source: zerohedge

I keep saying my generation was the last one where getting an education was obviously the right way to go - and I was cutting it close.

The ramifications of breaking the Berlin wall, and the new wave of globalization and digitalization that followed, mean that skills are much more important than a formal education and the paper that proves it.

At worst, an education cuts you off from the real world for several years, as well as puts you in debt. At best, you get some new friends that may or may not help you earn a wage or pull a business in the future.

What you should do instead is:

1. Take a look at the world and identify something that needs to be done and that you think enough people would pay to get done
2. Match that to your own semi-interests and half-honed skills or aptness and choose a couple of areas where you could: a) get good and b) enjoy yourself at least moderately, and maybe even c) feel proud (my choice would be something in programming or marketing)
3. Develop the skill-set(s) in point 2, using the internet, e.g. this 144-item resource list

måndag 8 december 2014

Stocks are ridiculously expensive - so what? 4 OTHER things to do with your money than gamble in a loser's game

Who cares about your "multiples" and valuation measures grandpa?

OK, so we can all agree that stocks are more than 100% more expensive than typically (that is if we use historically relevant, and price margin neutral, measures such as MarketCap/GDP [150% above] or Price/Sales).

So what? They were 50% above the historical average a while back, and stocks have gone up since then. What's to keep valuations to go to 150% of the historical norm? Yellen will keep printing money, won't she?

Some valuation measures from Hussman
vs. the historical average

So, what do you suggest I do? Just sit on it?

And what else can you do with your money? You're not getting more pay and most things you need are becoming more expensive. You can't retire on zero interest, right?

Wake up! It's a new paradigm, old-timer

There are soooo many arguments sloshing around for why this time is different. And if not that, you just "don't fight the Fed" and of course remember that "the trend is your friend".

That's how most people view the stock market these days: money printing rules all, there are no alternatives anyway and follow the trend - as if fundamentals and value creation really have nothing to do with stocks. Besides, everybody else is buying... I mean, what better argument can there be than that everybody else is doing something? (sic)

Know the odds before you gamble. Do it for fun if you like

I'm not saying you should short this market. I'm actually not saying you should do anything at all. I'm just saying you should choose your investments carefully. Either you know what you are doing, know the risks, have adjusted your exposure accordingly, or you are just gambling. If it is the latter, you at least should know against what odds you are gambling:

  1. Stocks are the most expensive they have ever been (on some measures; other have valuations at 15% below the all time peak in year 2000). Just check out a couple of Hussman's weekly letters if you want more details.
  2. Trend uniformity has imploded (e.g., fewer stocks lead the market to all time highs)
  3. Junk spreads are widening
  4. Micro internals show mini flash crashes every day
  5. There is hardly any real stock market turnover left - it's all robots trading with robots, picking pennies
  6. Other assets are signaling distress or manipulation: oil, gold, currencies
  7. Average returns after all time highs are rarely good even if stocks keep sett ing new all time highs for a while. If you have lived to see a new all time high and then an additional 10-20% upside from there, history tells you to sell.

Oh, I almost forgot, then there are the fundamentals too

And that's before even looking at fundamentals (or the Fed). The above is part and parcel of "the trend is your friend" arguments and the pattern above is not a trend you want to rely on (a disciplined and informed trading strategy or single stock investment strategy might still work - if you know exactly what you are doing)

Just don't forget fundamentals such as: growth has not improved (it has worsened) since 2000 or 2007, debts are higher since then, interest rates are lower (can't be lower than zero - the effect of money printing vs negative rates is unclear though), the catching up that the BRIC countries did in 2000-2007 (and in 2007-2014) has progressed much further and there is not much more juice left in that engine. Actually the infrastructure boom in China that helped both Brazil and Russia was debt financed and is mostly over. The general growth boom that fueled oil prices and the Russian bonanza also seems to be a thing of the past.

Over time, the stock market has done a good job valuing profits and cash flows. On average, or rather like a stopped clock, showing a benchmark around which the stock market swings like a drunken lunatic. Anyway, unless you really think this time and for the foreseeable future we really live in a new paradigm, rest assured that fundamentals will assert themselves again.

House prices can never fall, yeah right!

Average house prices will never fall, they said. IT stocks are to Buy and Hold forever, they said. Are you going to trust them again when they say Money printing will make stocks rise forever?

Debts feel like a free lunch, until they make you lunch

In addition to the above, spending and profits are much higher compared to income and sales vs. historical averages. The reason is everybody is relying on debt and more debt. However those are debts that will never be repaid but will have to be restructured at some point. When debts go into reverse markets typically crash (a debtor fails to pay, and the next person in line fails too, market interests rise to compensate for risk and losses, more people fail and more institutions make losses. In the end even some banks fail. The higher the debt and the lower the interest rates are, the closer the Minsky Moment of a depressionary deleveraging is.

Money printing in itself doesn't cause markets to rise - it's the belief they do that does

The only thing that is holding this house of cards up is the belief that money printing will work to push up asset prices, no matter what it does to the economy.

Some hope for higher inflation to either kick-start the economy, deflate debts or simply make real assets more worth in terms of money. Others think that low interest rates will prevail for so long, that even just 1% return per annum from stocks over a decade or two is better than any alternatives. Nota bene that these are diametrically contradictory arguments.

Sure, there has been a leakage from bond investors and cash holders into the stock market but there is no mechanistic relationship between Quantitative Easing and rising stock markets. Also, don't forget that the Fed lowered rates frantically throughout the TWO 50% falls that ocurred in just the last decade.

Even if money printing worked, it also means stocks will yield sub-par returns for a quarter century

A 5%-points lower interest rate than normal for one year only means stocks or other assets could be reprised upward by 5% in that year. Stocks however are 100-150% overpriced, meaning they discount interest rates that are 5% below norm for 25-30 years going forward. It also means that stock market returns will be 5%-points lower per year than usual for those 25-30 years. That's what discounting means.

OK, so what's new here? Really? In one short word: Internals. Markets are breaking apart internally, despite making new highs every week. Industries, non market cap weighted indicies, smal caps, oil, gold, volume, bond spreads... Everything is screaming "get out!" but the trend and the inclination to buy the dip has become so strong that markets keep going up, despite already having lost their foothold.

So what can you do?

You can always wait.

You can always choose to look like an idiot now rather than afterward.

You never have to get rich on stocks (and you certainly don't have to or need to get poor on them either). You can always focus on your work on your house on your skills. Focus on what you can control and constantly build on instead of gamble in a loser's game. Remember, if you don't know who is losing at the poker table, it is you.

  1. Either just sit on the money (bonds or bank account - if you trust the bank or the government) or... 
  2. invest in your own business or something else than the average stock - something you understand
  3. Even a little gold or bitcoins might be better, or...
  4. if you can find cheap but potentially productive land somewhere you actually want to be (just don't buy unproductive and unattractive land or overspeculated real estate)

onsdag 3 december 2014

The obvious answer to why stocks keep going up both with weaker and stronger economic data

There is a convincing theoretical base for rising stock markets
  • Weaker data means more QE* or QE and ZIRP* for longer
    • The economy is not affected by QE (wealth is created by production, not by coloring pieces of paper or adding zeros to digital ledgers)
    • The economy moves through cycles and will repair itself sooner or later, no matter what the central banks do
    • Once the economy improves again, presumably on the same date as it would anyway, without QE and ZIRP, there will be more money sloshing around to pay for goods and assets. Consequently, future asset prices will be higher than they would have been without QE
  • Stronger data means the recovery could be here already, i.e., sooner than expected, and stock prices rise due to the positive surprise

-Sounds good, right?

-However, what's missing from the above is:

Destroying the value of money ruins the economy

  • Money printing does affect the real economy..., unfortunately negatively:
    • MP exacerbates risk taking and moral hazard, encourages speculation, leads to search for yield and malinvestment, investor disillusion, crowding out of sound investments. MP thus reduces potential and actual growth and postpones the economic recovery
    • MP sets the stage for inflation once the economy improves
  • In short, MP pushes the economy toward stagflation, with higher inflation and lower growth than without MP
  • During stagflation, both profits and valuation multiples are lower. Stocks should fall when the risk of future stagflation rise, even if it's 5 or 10 years out, since the de facto duration of stocks is around 50 years currently.

To conclude, there are no free lunches in money printing either

*QE=Quantitative Easing = money printing
*ZIRP=Zero Interest Rate Policy
*MP=Money Printing
*malinvestment=investment in unproductive or unwanted/unwarranted capital, due to temporarily low interest rates making all investments seem better than just sitting on the money

tisdag 2 december 2014

7 reasons why you shouldn't trust broker research. Buy Apple?

Apple still is fairly priced

Apple's share opened around 113 USD today. Right now, however it has climbed to 115 USD. When I last looked at the stock and wrote a few lines here (previously also here and here) it was at 109 USD, and I thought it was more or less fairly priced. I still think so, but perhaps slightly on the expensive side, considering how competition is heating up in phones, tablets and watches.

Reviewing ML's update on Apple

Earlier in the day, Bank of America Merrill Lynch released a new research report on the company (just 15 pages). In it Merrill's analyst upgraded his price objective to 130 USD per share from 120, based mainly on his increased estimate for iPhone unit sales estimate in Fiscal Year 2015 from 195 million to 200 million, i.e., by 2.5%.

The forecast for the following year, 2016, is lower; just 187m units, whereas my Quick and Dirty forecast for 2016 is 201m units so nobody can accuse me of being pessimistic...)

EPS estimate raised by 0.1%, price target by over 8%

The FY 2016 EPS estimate is raised by one full cent from 8.26 to 8.27. Since the analyst bases his price objective on forward P/E, he has thus suddenly increased his main valuation objective by almost 10 per cent from 14.5 to 15.7. Why? No reason is put forward for why the more representative year of 2016 is ignored and the "iPhone 6-year" of 2015 is chosen instead.

He (of course) has a Buy rating, which is perfectly OK with a price objective 13-15% higher than the current trading price. However, it is still a bit optimistic considering the average forecast among other analysts is an EPS of 8.56 for 2016 compared to BofA's 8.27.

This headline is quite misleading, telling the reader that estimates will rise... but that's for 2015. They try to hide the situation in 2016 where consensus estimates need to fall to approach BofA's estimate:

1. No explanation for why the key metric (iPhones) is increased by 2.5% and EPS next year only by 0.1% (the reason is that the iPhone 6 is expected to only have short term effects and thus shouldn't affect EPS, valuation or target price)
2. No explanation for why the valuation target is increased by more than 8%, i.e, the target price is increased by 8.3% despite basically no change to the earnings forecast
3. Misleading headline on likely forecast changes (the ones that matter)

Complicated and unnecessary tables for no reason 

The sell side loves making tables like this one; it looks serious but it adds nothing in terms of understanding the company or its valuation:

4. Trying to build credibility via unnecessary charts

Using wholly unrepresentative year as base for valuation of 50 years' cash flow stream

It's bad enough, albeit pragmatic in today's environment, to base price objectives and recommendations on P/E ratios. What's worse is that the target price is based on the 12 month forward (Calendar 2015) EPS which is extremely heavily affected by the launch of the iPhone 6. In addition the reader only gets to see forecasts up until FY 2016 and is supposed to for an investment strategy on 2 years of forecasts in a market with a duration of 50 years:

5. Deceptively detailed forecasts on geography, phone models, business areas etc:

6. Forecasts only range to 2016

History of price targets tell a familiar story of permabullishness and lack of independence

The following chart is a great laugh; the Price Objective is constantly changed to make sure there is always a 15-20% upside in the stock price.

7. It's good they are forced to present that final chart. It's bad they don't analyze it and explain it to the reader.

Please note that I have no quarrel with ML or its analyst. Rather I think BofAML is among the better research houses, not least their IT and technology analysts. Also note that I don't really disagree with the forecasts or the conclusion - although my QaD analysis has a lower target price. Apple is an interesting case, since it is so big, so well researched and is trading close to fair value given what we know today (albeit not given the risk of black swans, recessions, competition or rising interest rates).