Burton Malkiel on random walks and indexing.

We're working on portfolio theory in class this month, and we've talked about index funds a little.

Here is a must watch video interview of Burton Malkiel talking random price movements and the business of actively managed funds.

http://finance.yahoo.com/tech-ticker/article/535789/Burton-Malkiel:-Markets-Arent-100%25-Efficient-But-You-Still-Cant-Beat-Em

Adventures in market reporting

Felix Salmon talks about how journalists try to interpret up and down movements in the market.

He sums it up.

They all basically follow the same rubric: first you say what the market did, then you mention some piece of news which happened that day, and then, depending on how bold you are, you either assert or else you try to back away from the necessary implication that there’s a causal relationship between the two.

50 Cent manipulates stock prices with Twitter.

From the excellent Stephen Colbert.
http://www.colbertnation.com/the-colbert-report-videos/370860/january-12-2011/50-cent-makes-money-on-twitter

Note: some possibly inappropriate language.

Perceptions about inflation

Before you read any further - what do you think the current inflation rate is?

OK now continue...

The Pew Research Center for People and the Press periodically does surveys to test political and economic knowledge.  On a survey done last November, one result really surprised me.

Here are the responses on the inflation question.  The percentage chosen is in the left column.


PEW.18  Do you happen to know if the national inflation rate reported by the government is closer 
to…
   
 14    1% (Correct)
 15    5% 
 15   10%   
 7     20% 
 49   Don’t know/Refused (VOL.)



Basically 85% of those surveyed either had no remote idea of the inflation rate, or thought it was significantly higher.   That 35% thought it was 10% or higher is amazing.

Here's a graph of the annual inflation rate.  Inflation over 10% is very rare.

VIX for individual stocks

Another one from my colleague Craig Newmark's excellent blog, Newmark's Door.  This time it's on the plans of the CBOE to create stock specific volatility measures.  Basically a VIX for individual stocks.

Sounds cool although it seems a little like a tool in search of an application.   While overall market volatility is quite important because we can't diversify away market risk, individual stock volatility is less important in the context of a diversified portfolio.

Big stocks in the S&P 500

From my colleague, Craig Newmark, 10 stocks account for 1/5 of the S&P 500's market cap. This is actually the reason why the Dow 30 (30 stocks) does a pretty good job of tracking the much broader S&P 500.  Of course, in recent weeks, the Dow hasn't done so well.

Algorithmic trading

Here is a recent article in Wired Magazine about the increased use of algorithmic trading of stocks.

My conclusion: If you were looking for yet another reason to index, this would be it.