Why investing is like having a barbeque/boarding a boat/playing rock-paper-scissors

Analogy of the week.

Financial advice abounds with analogies, but here's a particularly digestable one from Matt King at Citi via Ft Alphaville:

Its a nice contrast with the more laboured contributions we usually get. Here's Morning Star's stock course taking a nautical approach:

The main thing you can control is what ship to board. Think of the seaworthiness of a ship as the competitive positioning of a business, and the horsepower of the engine as its cash flow. Some ships have thick, reinforced metal hulls, while others have rotting wood. Clearly, you would pick the ships that are the most seaworthy (with the best competitive positioning) and have the most horsepower (cash flow).

Though the ship’s captain (company management) certainly matters, the quality of the ship is more important. On a solid vessel, as long as the captain does not mess up, there is not much difference between a good and a great captain. Meanwhile, there is nothing the best skipper can do if the boat’s engine is broken and the boat is constantly taking on water (poor business). To relate this to stocks, business economics trump management skill.

And here's the Wall Street Journal explaining a heavily annotated rock-paper-scissors analogy from LPL Financial:

The comparison is meant to illustrate the factors to consider – and their relative importance – when evaluating an investment:   Rock (valuations-the current worth of an asset or a company) beats scissors (fundamentals-the relevant data that influence value, such as a company’s balance sheet and income statement). Scissors beats paper (technicals-an analysis of statistics generated by market activity, such as past prices and volume.)

Paper, of course, beats rock — so there is no one best solution for all circumstances.

It's all so much clearer now.

Sausages. Photograph: Getty Images
Getty
Show Hide image

Jeremy Corbyn has defied the odds and embarrassed his critics

The pundits were wrong, writes Liam Young. 

On Tuesday I said that Labour would need time to show any drastic improvement in nation-wide elections. With the results now clear I still hold to that premise. After a scary result in Scotland, a ‘holding on’ in Wales and a rather better than expected showing in England it is clear that the public has produced a mixed bag of results. But for Labour, something very interesting has happened.

Before the results were announced pundits were predicting roughly 200 seat losses for the Labour party across local councils. Some of Jeremy Corbyn’s strongest opponents suggested that Labour would lose councils in the South owing to the anti-austerity message being viewed as irrelevant. There was also the suggestion that Labour would gain votes in the heartland of the North where it already controlled a great number of seats. It seemed that the pundits were wrong on both counts.

One thing is clear and undeniable. Jeremy Corbyn’s Labour has defied the odds at this election. It looks like the party will lose no more than 30 council seats and that its vote share on 2015 will be up by roughly 4 per cent at the expense of the Tories. People will rightly say that this is depending on the standard the results are measured by.

But I think that John McDonnell made a convincing argument last night on exactly how to judge this performance. Given that many simply want to spend time speculating about Jeremy Corbyn’s leadership it seems entirely reasonable to measure Labour’s success based on the party’s movement since he became leader. As mentioned above if this is taken as the standard Labour has increased its share of the vote and has beat the Tories after being some 14 points behind in the polls just a few months ago.

Commentators were arguing even at the point of polls closing that Labour would lose control of key councils such as Southampton, Harlow, Carlisle and Nuneaton. Yes – everybody remembers Nuneaton. But these predictions proved false. Labour did not just hold on to these areas but in a great deal of them the party increased its share of the vote and indeed its share of council seats. Labour has truly defied the odds across England.

The information that was shared in the weeks before the election on Thursday suggested that with Labour’s current position in the polls it would lose 170 seats. Some went as far as to suggest we would lose towards the 300 mark given the crisis Labour found itself enveloped in during the run up to voting. Opponents were kind enough to note that if we achieved parity with the Tory vote we would only lose 120 council seats.

While any loss is regrettable I have made my view clear on why Labour faced an uphill climb in these elections. Despite the rhetoric we have lost just over 20 seats. I agree with John McDonnell’s call this morning that it is time for the ‘begrudgers’ to ‘put up or shut up’. No wonder they are being so quiet.

Liam Young is a commentator for the IndependentNew Statesman, Mirror and others.