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Cocktail Economics: Discovering Investment Truths from Everyday Conversations

Book Description

What can moonshine, mountain climbers, power plants, salmon, football players, and well-known celebrities teach you about investing? More than you ever imagined!

    Through entertaining, easy-to-understand anecdotes, analogies, and examples, Canto reveals why the most successful investment strategies reflect a balance of active and passive approaches. You’ll learn how to “read” economic cycles, identifying the specific asset classes most likely to outperform in tomorrow’s business environment.

    Construct and optimize your winning investment plan, step-by-step, from start to finish!

MAKE HAY WHILE THE SUN SHINES

The case for predicting, forecasting, and timing

PASSIVE INVESTING? ACTIVE INVESTING? NO. BOTH.

Why you need to take both sides in the never-ending debate

ELASTICITY: CATCH IT IF YOU CAN

Putting industry behavior to work for you

CALIFORNIA, FRANCE, AND THE “LOCATION EFFECT”

Investing internationally in the age of globalization

TURN “SMOKE” INTO “SIGNALS”

Making the most of publicly available price data

YOUR PORTFOLIO VS. THE GOVERNMENT

Anticipating and responding to regulations and taxation

TILT TOWARD SUCCESS, ONE STEP AT A TIME

Build your benchmark portfolio, then optimize it for changing environments

Victor Canto reveals exactly how the economy affects markets and how to “read” business cycles so you can profit from every shift in the business cycle. Among the topics covered: investing internationally in the age of globalization; transforming price data into usable market “signals”; anticipating the impact of regulations and taxation; and more. From start to finish, Canto’s focus is practical, and his focus is simple: outstanding investment results.

Table of Contents

  1. Copyright
    1. Dedication
  2. Financial Times Press
  3. Acknowledgments
  4. About the Author
  5. Foreword
  6. Preface
  7. Introduction
    1. The Above-Average Opportunity
    2. A Predictable Course for Each Asset Class
    3. The Investment Precedent
    4. An Eye on Elasticity
    5. Traveling from the Source to the Tilt
    6. A Timing for Everything
    7. A Strategy of Strategies
    8. Endnotes
  8. 1. The Buy-and-Hold Connection: Investing Fundamentals, Courtesy of the American Homeowner The American Dream—or Reality?
    1. The American Dream: As Real as Ever
    2. The Motivating Force of a Demand-Led Expansion
    3. Buy and Hold, but for How Long?
    4. Transaction Costs (Greatly) Influence Holding Periods
    5. Riding Out the Dips: A California Story
    6. The Returns: Capital Gains
    7. The Returns: Imputed Income
    8. Calculating Your Total Return
      1. The Impact of Leverage on Your Total Return
    9. Onward and Upward to the Stock Market
    10. Endnotes
  9. 2. Leaping the Transaction-Cost Hurdle: Sometimes It’s Easy, Other Times It’s Not
    1. The Long-Run Precedent for Investing in the Stock Market
    2. Hurdles and Holding Periods
    3. Stacking Homes Against Stocks
      1. The Differences: Tax Treatments
      2. The Differences: Transaction Costs
      3. The Differences: Return Differentials
    4. The Passive-to-Active Switch
    5. Endnotes
  10. 3. Dressing Appropriately for the Stock Market: The Potential Payoffs of a Switching Strategy
    1. A Quick Psychological Classification of Investors
    2. Strategy Analysis: Passive vs. Active vs. Intermediate
    3. Figuring Risk into Your Return
    4. Some Random Thoughts about the Availability and Viability of Market Information
    5. What (Strategy) to Wear, and When to Wear It
    6. Endnotes
  11. 4. Catch Elasticity If You Can: An Introduction to Industry Behavior
    1. Shock Terminology: Beta and Elasticity
    2. The Friendlier Skies of Industry Profitability
    3. The Pitfalls of a Beta-Reliant Strategy
    4. The Promise of Beta Plus Elasticity
    5. Fine-Tuning Your Stock Market Indicator Lights
    6. Rethinking Industries That Suddenly Go Elastic
    7. Catching Elasticity: Rules of Engagement
    8. An Outperforming Strategy
    9. Endnotes
  12. 5. Putting High-Beta to Work: Industry-Based Portfolio Strategies
    1. Shock Study: A Federal Case
    2. Industry Selection: The Historical Method
    3. Industry Selection: The Common-Sense Approach
    4. Industry Selection: The Separation Method
    5. High-Beta Portfolio Strategies for the Short and Long Run
      1. Active Industry Selection
      2. Passive Industry Selection
      3. Lifecycle Industry Selection
      4. Beta of 1, for Everyone
    6. The Above-Average Investor Mandate: Think Elastically
    7. Endnotes
  13. 6. California Is a Country: An Introduction to the Location Effect
    1. The Location Lexicon
    2. Shock Study: Rolling Blackouts
    3. Detecting and Dissecting a Location Shock
    4. The Location Effect and Mobility: Perfect Together
    5. Testing and Acting On the Location Effect
    6. A Note on Elasticity (or Flexibility, or Mobility, or...)
    7. Endnotes
  14. 7. ...And France Is a State: How to Invest Internationally in the Age of Globalization
    1. Countries versus States: An Alternative Perspective
    2. Hamburgers and the Power of Prices
    3. The Search for Expensive Big Macs
    4. When to Own International Stocks, Large and Small
    5. Playing Offense on the Pacific Rim
    6. The Rewards of Doing Your Homework
    7. Endnotes
  15. 8. Pipelines to Our Investment Returns: How We Get What We Want, in the Amount We Want, and When We Want It
    1. Our Pragmatic Relationship with the Investment Return
    2. The Case for Diversification
    3. In Search of Your Efficient Frontier
    4. Shock Study: That ’70s Show
    5. The Energy-Return Parallels
    6. “Addicted to Asset Classes?”
    7. Endnotes
  16. 9. Who Are You? Investor Profiles and the Case for Asset Allocation
    1. The Wood-Burning Investor
    2. The Single-Hook-Up Investor
    3. The Multiple-Hook-Up Investor
    4. The Big-Burner Investor
    5. The Electricity-Generation Investor
    6. The Asset-Allocation Starting Point
  17. 10. Your Benchmark Portfolio...and Beyond
    1. The Market-Share Shortcut
    2. Constructing a Winning World Allocation
      1. Step 1: The Stock/Bond Choice
      2. Step 2: The Location Choice
      3. Step 3: The Size Choice
      4. Step 4: The Style Choice
    3. The Global Barnyard Known as Average
    4. Above and Beyond the Benchmark
    5. Putting a Premium on Simplicity
    6. Endnotes
  18. 11. Turning Smoke into Signals: How to Make the Most Out of Price Data
    1. Follow That Apple: Demand Shift
    2. Follow That Apple: Supply Shift
    3. Same Smoke, Different Signal
    4. The Press and Prices: Approach with Caution
    5. Shock Study: The Twenty-First-Century Bears
    6. Is Pricing Power All-Powerful?
    7. Prosperity Measures and Price Movements
    8. Price-Smoke Detectors
    9. A Word on Windows of Opportunity
    10. Endnotes
  19. 12. Making Hay While the Sun Shines: The Case for Predicting, Forecasting, and Timing
    1. The Art of Forecasting: A Farmer’s Perspective
    2. Timing Happens All the Time
    3. Shock Study: Preannounced Tax Policy
    4. Predicting Fixed-Income Cycles
    5. Putting a Value on Stock and Bond Cycles
    6. A Framework for Your Forecast
    7. Reacting to Cycles Is Not an Everyday Event
    8. Endnotes
  20. 13. The Fight Is On: How to Invest Properly Relative to Regulations, Inflation, and Taxation
    1. Getting to Know Your Investing Venues
    2. Classifying Stocks: From Nimble to Brawny
    3. Would You Always Bet on a Fighter Who Wins Two-Thirds of the Time?
    4. Business vs. Uncertainty, Round by Round
      1. 1975–83: Small-Cap Effect
      2. 1984–90: Large-Cap Effect
      3. 1991–94: Small-Cap Effect
      4. 1995–98: Large-Cap Effect
      5. 1999–2005: Small-Cap Effect
    5. Investing across Inflation, Tax, and Regulatory Cycles: The Payoff
    6. An Investor’s Certain Advantage
    7. Endnotes
  21. 14. Ending the Never-Ending Debate: Active vs. Passive Investing and Why You Can Take Both Sides
    1. Meeting or Beating the Market?
    2. The Allure of the Average Argument
    3. The Same People Shop at Costco and Nordstrom
    4. A Chink in the Passive-Only Armor
    5. Size Cycles and the Active Opportunity
    6. Endnotes
  22. 15. A Rational Walk Down Wall Street: Darting Between Passive and Active When the Odds Are in Your Favor
    1. The Broader the Market, the Greater the Active Opportunity
    2. A Rational Game of Darts
    3. An Active/Passive Litmus Test
    4. The Efficiency of a Switching Strategy
    5. Endnotes
  23. 16. Alpha Bets: The Case for Hedge Funds and a Greek Letter You’ll Want in Your Portfolio
    1. Peeking Through the Hedges
    2. Graduating from Beta to Alpha
    3. In Search of an All-Weather Strategy
    4. Alpha Pitfalls, Part I
    5. Alpha Pitfalls, Part II
    6. Every Portfolio Can Have Its Alpha
    7. Endnotes
  24. 17. Tilting Toward Success: A Step-by-Step Guide to Above-Average Asset Allocation
    1. The Above-Average Regimen
    2. Framework Fundamentals: Supply and Demand
    3. Framework Fundamentals: Elasticity
    4. Looking Backward to Invest Forward
    5. The Global Allocation Revisited
    6. From Passive to Intermediate to Active
    7. A Cocktail Construction
    8. Icing Your Glass: The Stock/Bond Split
    9. A Jigger of This: The Location Choice
    10. A Jigger of That: The Size and Style Choices
    11. Shaken or Stirred: The Active/Passive Switch
    12. Alpha Chasers
    13. Cocktail-Economics Hours
    14. Endnotes