Wednesday, 4 March 2009

The future of finance (for the next 10-15 years)

- Mathematical models should not be relied on without a proper understanding of the economic conditions and behaviour that fed them.
- It is foolish to put blind faith in credit rating agencies. Do not invest in what you cannot understand.
- Shun arbitrage strategies that assume permanent access to liquidity.
- Avoid investment vehicles that inflict swingeing charges in exchange for what in most cases will amount to market performance or worse.
- Treat leverage with due care. Recognise that the conventional wisdom of the consulting fraternity is not conducive to contrarian behaviour, one of the keys to successful investing.
- Above all, beware what Charles Mackay, the 19th-century historian, called the madness of crowds.

From here. HT Alea.

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