The Permanent Portfolio, Investing, Finance and Random Thoughts.
Economics
Economics
Analysis of the Icelandic Economic Collapse of 2008
1 year ago
The Mises Institute just released an e-book analyzing the root causes of the economic collapse in Iceland in 2008. I have just started reading it, but the authors are building a case of the usual suspects (Central Banks, fiat currency and economic planners) behind the debacle:
Deep Freeze: Iceland’s Economic Collapse
Failure analysis is an important part of learning. And, it’s cheaper to learn from other’s mistakes than to repeat them yourself. I like reading about these kinds of extreme events and what measures did and didn’t work to protect investment capital. As it were, Marc DeMesel did an analysis of how the Permanent Portfolio would have performed for Icelandic investors in 2008 here:
Permanent Portfolio in Iceland
Also there is an interesting book from FerFal that details what happened in his home country of Argentina. I reviewed it here and it contains some very interesting first-hand accounts of what happens when a currency does a swan dive:
Surviving the Economic Collapse
I’m not a doom and gloomer, but I do think that all portfolios should have some protection in place for sudden currency problems. It is often way too late to respond once the markets for a currency begin to go sour. You need protection in place well before and you must hold it at all times no matter what the market sentiment may be. This is why the 25% gold allocation in the Permanent Portfolio is so critical to have at all times in the allocation.
H/T to Lew Rockwell’s Mises Institute for this.
Your Money and Your Brain – Interview with Jason Zweig
1 year ago
H/T to Tao6 for sending in this video link on human behavior as it relates to investing:
Behavioral economics is a very interesting field. It explores how humans make decisions about money and how their decision making (and emotions) can affect their investing performance. Since I’ve been talking about simplicity in portfolios lately, I’ll just add that having a simple portfolio makes it easier to keep emotions in check. It requires fewer decisions to manage a simpler portfolio and provides less opportunity to make big mistakes.
I have not read Jason Zweig’s book Your Money and Your Brain, but plan to after seeing this interview. Another book on the subject that I did read was Why Smart People Make Big Money Mistakes and How to Correct Them by Gary Belsky & Thomas Gilovich. This book covered many of the same areas and was an excellent primer on recognizing how your behavior and emotions affect your investing decisions. Knowing how humans react to issues surrounding money can better prepare you to deal with your own investing hang-ups and avoid making blunders.
Another book I recommend on seeing how emotions can make very smart people do questionable things with their money is A Mathematician Plays the Stock Market. I wrote about this book in a previous post.
Understanding behavioral economics can really help control investor emotions. I recommend picking up a couple books and reading about it. I certainly have used the knowledge to keep my own investing emotions in check.
