Fishing on the Niagara – A Children’s Story

Once upon a time a group of 10 Canadians and 10 Americans chartered a fishing boat on the Niagara River just north of Buffalo. The current was mild and, despite the large number of boats on the river, the fishing was good.

As they drifted past Grand Island the Captain suddenly called out, “Hey, I hear on the radio that there’s a boat in trouble up ahead! It’s drifting dangerously close to the Falls”!

The Importance Of Differentiating Between Historic And Implied Probability

Note: The following is an article I wrote that was originally published by SeekingAlpha.com on February 28, 2012.  I am in the process of converting to Seeking Alpha as my primary publisher of articles.  I encourage all readers of The Reasoned Investor to register at SeekingAlpha.com and to ’follow’ the articles I publish.  To find me at Seeking Alpha, simply select this link.  Then select the ‘Follow’ button below my photo on the left side. 

Last week I came across an article on Seeking Alpha with the intriguing title “How To Choose Your Own Probability Of Success.”

Because it was published just one day after an article I had written that suggested a very different probability (~34% vs. 20.77%) for the same stock on the same option expiration date, I felt I should both comment on the article and clarify my own views on the concept of “probability.”

What do you expect from your {select one} ?

It happens to me all the time.  Even some of my clients do it.  It’s not intentional on their part, and it’s even understandable considering the plethora of titles, designations, and certifications that exist in the financial services industry.

Someone will refer to me as a “financial planner” or a ”financial adviser” or perhaps even a “broker.”  I refer to myself as an “investment portfolio manager.”

What’s the difference and why is it important?

Worried about the markets? Consider “travel insurance.”

The “Roundtable” portion of yesterday’s This Week with Christian Amanpour was so troubling that I feel compelled to bring it to the attention of those I care about. (Note: if you want to skip 20-minutes of McConnell and Clyburn providing their ideology and non-answers to Amanpour’s questions, scroll down to the “Roundtable: Debt Divide” video on the left side of the page).

“Honey, I think you should Sell in May and Go Away”

I must be getting pretty good at investing — a couple of weeks ago I suggested to my wife that she move the equity portion of her 401k into cash, at least for the rest of the summer. … And she actually followed my advice!

In my view, if the old Wall Street adage “Sell in May and Go Away” isn’t true this year, then it will never be (assuming it ever was in the first place).

“Japan” is Why Put Options Were Invented

With so many things to be frightened of today, it’s hard to remember the things we were so frightened of in our past.  Now I’m not advocating that we dwell on past fears; the only reason I’m mentioning this is that (to paraphrase Mark Twain) most of the things we worried about in the past never actually happened.

There are certainly a lot of global economic concerns that might cause investors to get out of the equity markets.  So many, in fact, that it is hard to determine just where to place one’s investment capital if he or she does decide to exit the market.

Put options can provide a means by which downside investment losses can be limited while still being able to participate in upside gains.  Let’s consider an investment in the Japanese market to illustrate why put options could be of benefit to investors while they participate financially in the rebuilding of the Japanese economy.

John Doe’s (remember him???) Portfolio Dashboard 2010

One of the (perhaps too many) regrets I have is that “The Reasoned Investor” has lapsed into silence over the past 4 months.  But investment performance is critical to the Johnson Harper LLC business model, and for reasons that will soon be obvious I’ve had to spend a lot of time at the drawing board lately trying to reconcile theory with practice.

I’m now ready to emerge from this self-imposed isolation to begin sharing with you over the coming year all that I have learned, and more, since my last post.