Don't Give Up on US Housing Just Yet

It's not often that a company beats estimates and raises guidance only for the stock to be promptly sold-off by investors. Clearly, in the case of Home Depot (NYSE: HD  ) , the market is pricing in some future macroeconomic uncertainty.

The company's recent earnings were excellent, and gave no cause for the sell-off. The most likely explanation is that investors are starting to fear the future impact of rising rates on the housing market. So is this a buying opportunity in the stock, or is the market right to be concerned?

Home Depot hits a home run

In the second quarter, Home Depot recorded its first double-digit sales increase in over 13 years, and raised full-year earnings and revenue guidance. Indeed, the latter event is becoming a pretty good benchmark for improving conditions within the US housing market.

source: company reports

Clearly the US housing market is doing well this year, but recent rate rises and a fall in new home sales data for July has highlighted the potential dangers in housing. Conditions may well be fine now, but if this turns out to be the peak then buying into home-improvement stores could prove to be a mistake.

Moreover, the valuations on Home Depot and Lowe's (NYSE: LOW  ) suggest that both companies need an ongoing housing recovery in order to move higher from here.

Home Depot P/E Ratio trailing-12 months data by YCharts

If you put these arguments together, it is easy to start beginning the case that Home Depot's prospects have peaked and the stock could fall from here.  Is it really that simple?

Why it's not time to panic

There are four main reasons why investors shouldn't give up just yet.

Firstly, while rising rates will affect housing affordability, according to historical data, buying a house via a mortgage is still affordable. For example, here is the NAHB and Wells Fargo (NYSE: WFC  ) housing-opportunity index.

Source: national association of home builders

It is an index that Wells Fargo investors should follow closely, since the bank runs over 20% of the US mortgage market. The index may well have peaked, but continued job gains and increases in average household wealth will help to mitigate the effects of rising rates on the index.

Indeed, Wells Fargo needs an improvement in new mortgage origination because higher rates are slowing refinancing activity. In response, the bank is taking measures to boost lending, but the ultimate guide to its fortunes will be how the housing market fares in future.

Secondly, homeowner vacancy rates remain low and close to historical norms.

Source: united states census of the bureau

This is a pretty good indication that the housing recovery has legs, because it implies that there isn't an oversupply of properties on the market. The figures are nowhere near the kind of vacancy rates reached from 2006 through 2011.

The third reason is that the economy doesn't just turn on a dime. The US economy is growing (albeit moderately), and investment in housing isn't just a function of interest rates. In fact, rates tend to rise when the economy is getting better, and banks tend to start loosening credit standards when the economy improves. Moreover, job gains will add new potential home buyers to the marketplace; all of which are good for the housing market.

The final reason is that the Federal Reserve is watching! For all the talk of tapering quantitative easing, the truth is that Ben Bernanke always outlines that tapering is contingent upon the economy improving. Since housing is a key part of the economy, it is reasonable to expect that the Federal Reserve will do what it takes to keep mortgage rates low.

The bottom line

The market is right to fear some affect from interest rate rises, but the housing market has too much momentum behind it to fall away anytime soon. Investors in Home Depot and Lowe's should look forward to ongoing improvements in end- market demand.

While Home-Depot is more of a pure-play on housing, Lowe's also has upside from its internal restructuring. The latter is trying to reset its sales lines with a view to increasing inventory turnover. Lowe's is executing well on its plans, but its usually easier to do such things when end-markets remain favorable. In other words, both companies are still likely to see their prospects dictated by the housing market.

With the market seemingly determined (in the short term) to price in some future weakness in Home Depot, it looks like a good opportunity to pick up some stock.

It's Time to Worry About China

There are two ways of looking at developments on the macro-economic front.

The first is to take a top down approach and analyze as much economic data as you can get your hands on. The second is to build up a macro view by aggregating knowledge from looking at a large number of micro sources such as company earnings.

In this article I want to do the latter and look at what a few companies have been saying about current conditions in China. The issue is highly significant because the global economy is reliant on China to generate growth this year.

Government changing or is it a deeper issue?

The key question about current conditions in China is whether the slowdown is a temporary one brought about by the change in Government (as businesses/consumers wait to see the policy changes) or whether it is a deeper problem relating to structural problems in the economy. It is true that the Government has the resources to ‘buy’ its way to GDP growth closer to 8% but will it do so? Moreover will it chase 7.5%-8% growth even if it involves pumping investment into corrupt or non-competitive channels? Even at the expense of inflating a bubble in housing?

The big fear with China’s real estate market is that it is being inflated by liquidity being pumped into the economy (partly from its foreign currency reserves) which has few other mature investment vehicles with which to attract investors. This puts the government in a difficult situation. Should it buy growth at the expense of inflating a property bubble or stand and watch as the economy possibly gets weaker?

What the companies are saying

The most interesting thing about Oracle’s (NASDAQ: ORCL) recent results was the diversity in its geographic results. Its Americas results were pretty much in line with expectations while EMEA was actually slightly above its expectations'. Oracle came in with new license growth at 4% and 5% respectively in these regions.

The big surprise geographically speaking was that the Asia region was down 7% in terms of new licenses. China was cited as being weaker and, interestingly, Australia was particularly weak too. Moreover Brazil was stated as having pulled down growth in the Americas. These two countries are significant because they are commodity-heavy economies which rely on exports to China in order to grow. Since Oracle spoke to continuing ‘to see pressure in China’, I think it is more than a short term issue. The good news from Oracle's perspective is that China is not a huge part of its current sales.

Turning away from technology, I thought industrial filtration company Pall Corp (NYSE: PLL) had some interesting things to say in its recent results. I have looked at them in more depth here. Again, its big weakness in the quarter was from-you guessed it-China. It described many of the markets that it had historically sold into as being ‘down year-over-year’. Indeed its Asian sales were down 11% with China being particularly weak.

Pall’s challenges relate perfectly to the changing nature of growth in the regime. The Chinese stimulus packages will not be about pumping money into heavy industrial and infrastructural projects designed to develop its export laden manufacturing facilities and more about stimulating internal demand. Ultimately this means disruption to companies like Pall who got used to selling to the exporters.

On a broader perspective I think FedEx Corp (NYSE: FDX) gave some fascinating color on the changes in the global economy. Just a few years ago it used to generate the bulk of its profits from its express services but now the big income generator is its ground services.

Going back to 2997, its express services generated nearly 61% of operating income but that fell to around 22% in the last year. Meanwhile its ground services contributed 25% of income in 2007 but it has now risen to 70% now. This perfectly represents the changes in the global economy whereby slow growth has led customers to shift to lower priced (and slower) ground services in the face of a world with $100 oil prices.

In addition, management never fails to point out that global trade growth has been lower than global growth over the last few years. This reflects the structural changes in consumer demand from the Western consumer world which ultimately will lead to slower export growth in China.

Such issues have created operational issues at FedEx as it was geared up for international growth in its international express services. It was a growth that never came and over the last couple of years it has been restructuring and taking impairment charges as it retires unnecessary aircraft and routes. Indeed its big upside opportunity is to generate cost savings in express going forward.

The bottom line

Putting these results and commentary together paints a picture of some short term weakness plus some structural issues in China. Investing in the types of heavy industrial plays on China that worked so well in the past isn’t going to be the best option anymore and there are question marks over the viability of China’s plans to shift to a more consumer orientated economy.

It’s time to be a little cautious over China.

To QE or not to QE

tread carefully in writing this article because whenever anyone discusses the pseudo-religious issue of investing fundamentals and/or why markets move, he is usually met with a gale of fundamentalist abuse. In this case I’m talking about the recent falls in various asset classes, which were caused by Ben Bernanke’s recent statement . I want to look at why the market reacted the way that it did. What does this say about how readers might evaluate investing? In which stocks can we see the repercussions of these changes?

To QE or not to QE, that is the question

In short, the Federal Reserve is expected to reduce bond buying this year because the economy is in better shape. It also expects to end it in 2014, but these expectations are entirely contingent upon the economy getting better. Furthermore Bernanke stressed that he was willing to add whatever support was necessary if the economy didn’t improve. The optimistic among us would conclude that this is actually good news because it confirms that the Federal Reserve believes the economy is getting better. So why did the market sell off so aggressively?

I think the answer is that a new generation of investors is now conditioned to think that asset classes move in tandem with liquidity provision by central banks. ‘Oh look the Federal Reserve is doing more quantitative easing! buy, buy, buy!’ or ‘the latest PMI numbers were crumby but hang on, that means the Federal Reserve will be forced to do more QE!! Buy!’

And lest anyone think this is only a national game, consider the European Central Bank (ECB): ‘What’s that? The Europeans are now writing off hundreds of billions of debt from countries like Greece and also buying their debt in order to keep them solvent? Sounds like QE to me! Buy, Buy, buy!’

How it started and why it has gone on

In truth this all started in 2008 when we all realized (bar some Austrian School enthusiasts) that the global economy would have been toast without massive injections of liquidity from central banks. In a sense we have all lost a certain amount of confidence in the global economy and are more focused on the immediacy of QE as a catalyst for positive equity market returns.

The pattern has been set, and the die has been cast. I guarantee you that after the speech made by Bernanke (and the market falls) the only topic of discussion among young ‘hot-shot’ investors will be over liquidity injections in the marketplace because that is what has guided the returns that they are judged on.

Will it always be like this?

The tricky bit now will be to ascertain whether investors can rid themselves of the notion that markets only move based on QE injections.  If so then good old fashion notions like evaluations and maybe even the equity risk premium could make a comeback. You may say Warren Buffett is a discounted cash flow dreamer, but he’s not the only one. Frankly I have no idea if this will be the case or not but I observe that this type of investment conditioning can go on a lot longer than people think.

What are the stocks to look for?

The key thing in the short to mid-term is to look at the sector/company results for those that are the key markers of the effects of QE.  Within housing, the idea is that as QE is scaled back, the stimulus behind the housing recovery will be reduced.  A key beneficiary of housing would be something like Home Depot (NYSE: HD).

It recently said that it was seeing a broad based recovery in the housing market and since last summer has noted that its growth prospects were diverging from correlation with GDP. The key thing to look for here is whether Home Depot starts to report any deterioration in its market conditions. My view is that it will not because scaling back QE is unlikely to have an immediate effect on housing sentiment.

Another key area will be banking, namely Wells Fargo (NYSE: WFC) and Capital One
Financial (NYSE: COF). The interesting thing about Wells Fargo is that its net interest margin has been falling partly thanks to low interest rates.

So surely rising rates would potentially be a good thing? The answer lies in whether you think the economy is improving and whether loan demand will improve or not. If so then Wells Fargo should be able to make more money anyway. This line of argument highlights the fact that the quality of its loan book and its future prospects are tied to the direction of the economy. If Bernanke is right then Wells Fargo will see increased loan demand. Again it’s something to look out for.

It’s a similar situation with Capital One. It is regarded as a more conservative type of lender and, so far, it has not reported strong loan growth. Indeed, it expects $12 billion of run-off in 2013 and a further $8.5 billion in 2014, and despite a decent automotive market in the U.S. it recently reported a $500 million drop in auto loan origination. As Capital tends to be more conservative, it is useful to follow its commentary closely because it is unlikely to adjust its lending criteria in order to chase business.

Another area worth following closely is the utilities sector, which could be represented by an ETF like the Utilities Select Spider (NYSEMKT: XLU). I think this ETF will be a very useful gauge of interest rate sentiment and/or whether the economy is going to slow down or not. Utilities do tend to be interest rate sensitive (thanks to their tendency to carry debt and pay high dividend yields), and the sector has sold off sharply in recent weeks as the market anticipated Bernanke’s statement.

^TNX data by YCharts

Again it is worth watching this ETF’s movement in order to see what sentiment is over interest rates.

The bottom line

In conclusion, I think the investing fixation with QE will continue for a while yet, and we can expect the Federal Reserve to carry on doing exactly what it has been doing before. If the economy gets weaker (and you will see it in the stocks discussed above) then the rhetoric will turn back into more liquidity provision but, if the economy continues to do well then, and only then, will the QE fixation abate. However we might be headed for some more volatility as this QE obsession continues.

Recent Data Weak But The Economy is Still On Track

The markets have been concerned over the state of the economy recently. The double whammy of a set of weaker Institute for Supply Management (ISM) reports and disappointing payrolls numbers have had the the bears coming out. Although the direction of the market is not really my concern – I’m market neutral -- the direction of the economy is of great interest. There is more reason to be bullish than bearish on the economy. If you are one of those investors that thinks stocks go up with the economy, then now is not the time to lose your nerve.

Now payrolls?

It doesn’t take much to get television journalists shouting, and the last decade has given them more than their fair share of things to worry about. The fact that this fragile psyche also exists in the corporate world shouldn’t really surprise anyone. Discerning investors need to adopt a calmer perspective.

I’m going to start with non-farm payrolls. The key point to understand is just how volatile these numbers are. Moreover, they are subject to significant revisions. In fact, it is rather bizarre that the most followed dataset in the US economy is also one of the most unreliable. I blame Alan Greenspan because he would always refer to it as being the best indicator. This article expresses some of the general underlying issues. The truth is that the payrolls data is usually unreliable from point to point. It is much more useful to take a longer term view.

For example, here are three month averages for the total non-farm payrolls taken from the Bureau of Labor Studies.

There is nothing really unusual about mini troughs and peaks, but overall job growth is still strong. It hasn’t been strong enough to fully gain back the jobs lost in 2008-2009, but that is another matter. We are discussing the direction of the economy.

Furthermore, a quick look at the American Staffing Association Index shows that the index is currently stronger than it has been for over five years.

On a micro level, Robert Half International (NYSE: RHI) always gives good color on conditions. In the company's latest set of earnings, Europe was declared as remaining weak, but its US staffing branches were reported as seeing good demand, particularly in technology and accounting. However, it also stated that the share of temporary jobs (as opposed to permanent) in this cycle was double that of previous recoveries. This may be great news for Robert Half, but it also goes a long way to explaining the sense of ease that is reported over employment conditions in the US.

ISM-ism

The tendency is to look at the ISM data on a monthly basis and then put it out of context. The recent numbers were superficially disappointing, but I think they represented more of a natural correction than any kind of trend change.

Here is the manufacturing data from the Institute of Supply Management for new orders, employment and the headline PMI data.

Note how periods of political uncertainty cause a temporary slowing of orders, which then snaps back as the pipeline build-up gets cleared, following which there is a natural mini correction. I would argue that we are in a period like that now (which has been exacerbated by the sequester), but history suggests that the economy will keep growing -- albeit at the slow pace it has been in recent years.

Investors also need to appreciate that any number above 50 for the index indicates growth. Furthermore, the employment index (it is much harder to turn off employment plans than it is to go slow on new orders or inventory) is still rising well in 2013.

On the micro level, the short-term weakness in the ISM data in December was picked up in the reporting of something like MSC Industrial Direct (NYSE: MSM). Its end demand lacks visibility and is subject to sudden short term changes. Indeed, it reported that its markets were in near ‘paralysis’ in December, and this mirrors the temporary weakness in the ISM data. Furthermore its commentary in its recent results revealed a bifurcation within the metalworking sector. Aerospace and autos are doing fine but general industrial engineering is still soft, with customers delaying activity. Nevertheless if the stock sells off aggressively I think it could be worth a look. Its sales are subject to short lead teams, and if you think the ISM data will improve then this will eventually feed through into MSC's numbers.

Moreover, if we look at General Electric’s (NYSE: GE) recent set of earnings, the surprise was on the upside. Of course, its revenues are a lot more internationally focused than MSC’s will be and its strength in the quarter is an indication that the temporary weakness was really about the US and political considerations, rather than any kind of global drop off in manufacturing. The interesting thing about GE is that--although we know there is pressure on global public spending--it is exposed to areas of government spending (emerging market health care, utilities, transportation etc) that are still being invested in. If the recent results confirm this then the stock is worth a look.

The bottom line

I don’t think the recent data is any cause for significant concern unless it is confirmed by another few months weakness. Short term thinking never did anyone any favors in investing, and the underlying trends for the US economy remain positive. Looking out for stocks that might get beat up with undue short term pessimism seems a good approach to me.

Investing in the Spending Trends of the Wealthy

I have a quick trivia question. What share of US net worth does the bottom 60% of the US hold? Stop for a second and think about the answer. The correct answer is just 4.2% while the top 5% of the US owns nearly 62%.  Now consider an average superstore in an average mall (such a thing doesn’t actually exist but assume it does) and accept that spending correlates strongly with net worth (it does) this would mean that just 5 out of a 100 shoppers is doing the bulk of spending. Meanwhile 6 out of the 10 are doing just 4% of the buying. Now hold that thought.

A Realistic Way to Think About Spending

The reason I am engaging the reader in this kind of thought framing is because it is the reality whereas it is so easy for us to fall into the delusion of misattributing spending trends thanks to the language we use. Analysts and commentators use words like ‘mass’ and ‘luxury’ to describe the retail market. They are useful concepts and I am not in any way arguing that the top 5% only buys luxury goods! However the point is that we should think about retail trends in terms of who is doing the spending rather than just assuming that the conditions of the majority (80% of the US only holds 15.1% of net worth) dictate overall spending.

In order to graphically demonstrate income distribution I’ve broken out the numbers graphically below. All numbers in this article come from research carried about Edward Wolff.

 

I’ve put the bottom 40% but even then it is hard to see! The top 5% is broken out and as you can see comprises almost 62% by 2007.

 

A Bifurcated America?

Indeed the trends appear to be slowly getting worse and I’m sure the economy of recent years has accelerated them. For a host of reasons –most of which I can’t go into here- I think that this will continue. My central point is that there appears to be a growing bifurcation in America and it is just not about money. Lifestyles are also bifurcating and at the heart of the reasons for it lie two ideas which I think are mistaken but widely accepted as truth by the constituent groups that holds them. On the one hand one group seem to think that the US lives in a pure meritocracy and taxes and government expenditure are a disdainful burden on them that is intended to punish their success. On the other, another group seems to believe that all men are born with equal attributes and abilities and the purpose of Government policy is to rectify any ‘unnatural’ imbalances via redistribution of resources. This is part of the reason why the US has such large public debt. You can’t reduce a debt by paying less and spend more, yet that is the ‘happy’ consensus that US has been living in for years.

The result of this mess is that the wealthy are getting distrustful of the merits of the public sector while the poorer segments are developing a dependency culture. Moreover the cultural ties that bind America are splitting.

What Does This Mean For Stocks?

Of course many of these observations have been made by Citigroup in its investment research on plutonomy stocks, however the stocks I want to discuss are subtly different. Whilst those stocks were primarily about luxury stocks, I want to focus on stocks that are emblematic of the cultural shifts and that are dependent upon them continuing. For example the wealthy bought Louis Vuitton bags in the 60’s and they do so today but, what about other differentiating trends in wealthy peoples spending habits?

Let’s focus on lifestyle. Take Lululemon Athletica (Nasdaq: LULU) and Whole Foods Market (Nasdaq: WFM). The former appears to be a business without any significant moat and therefore susceptible to margin erosion as rivals threaten to introduce cooler yoga gear. Indeed a quick look at the figures from Yahoo finance indicates that there is a 27% short interest in the stock. While I sympathize with such an approach and find some of the company’s pronouncements over the cultural importance of its yoga pants to be comedic, I would caution against being too negative. It is not pitching itself into the mass market but rather at the kind of wealthy health conscious lady with significant spending power. Her spending priorities are not governed by the same kind of economics as the rest of the athletics gear market.

As for WFM a relatively small number of its customers make up a huge amount (around 20/80) of its revenues. Moreover as long as the trend towards healthy living and differentiation from the eating habits of the rest of the nation continues then I think WFM can convert shoppers to its offering. WFM doesn’t just offer a healthy option, it offers a tangible differentiated lifestyle choice and wealthy people in the US appear willing to pay for this in itself.

Similarly take something like the Boston Beer Co (NYSE: SAM). Beer is as far from a ‘luxury’ stock as you will ever get but SAM does offer premium craft beers and this market is growing significantly in excess of the mass market beers. All it requires is a notable shift in purchasing behavior from the top 10% of the US and there will be a notable marginal shift in demand. Given that SAM has such a small market share it is not hard to see the company continuing to generate double digit revenue growth.

Another area in which we can expect the wealthy to continue to spend is in personalized health care and cosmetic surgery. Stocks like Myriad Genetics (Nasdaq: MYGN) and Allergan (NYSE: AGN) are worth a look. The former develops diagnostic tests for people who want to assess the risk of developing certain diseases (typically hereditary). Admittedly it needs to develop revenues outside of its Bracanaysis (breast and ovarian cancer) test but if the trend towards the wealthy spending money on personalized and pre-emptive medicine then its chances will improve. As for Allergan, as long as the trend towards cosmetic surgery increases among the wealthy then it can expect good sales of its market leading Botox product.

How to Be a Better Investor

It’s Christmas shopping time: No doubt us obsessive investors will be thinking about gifts and contemplating buying the latest book designed to convince us that a certain investor or other has the panacea to investment or management problems. Whether it is a book on ‘master investors,’ the latest Buffett biography, ‘Business Secrets of the Pharaohs,’  ‘Why Mayan Civilization Collapsed: A Technical Analysis’ or other such nonsense, you can be sure they will be out in book shops near you. Well, in the spirit of Christmas, it’s time to throw my opinions over for free.

Fooled by Topiary

Any discourse on this subject can’t avoid a reference to Nassim Taleb. In truth, most investors owe a debt to him for his popularization of the idea that most of these tomes are merely selling observations of ‘certainty’ on events which are in fact random in nature. I’m greatly sympathetic to this view. For example, if you want to analyze what makes great investors do you only analyze the traits of ‘the greats’ or do you analyze a huge cross sample and see which traits appear to lead to some of them being great?

Let me put it this way. Assume Buffett, Soros and Chanos love doing topiary on the weekends. Conclusion: doing topiary makes you a great investor! However, you can analyze 1,000 investors (including plenty of losing investors) and discover that doing topiary on the weekends actually causes negative overall performance.

In other words, I don’t think a narrow analysis of a few great investors’ traits is a legitimate pursuit.  It’s a bit like looking at say Exxon Mobil or Chevron and the huge run up they both had from 2003 to 2008 and then concluding that the management was fantastic because they may have all favored topiary when in fact it was largely due to the price of oil. If you buy these stocks, you are de facto taking a position in oil.

And don’t get me started on hindsight or survivorship bias!

Stop Analyzing the Pro’s

The other problem that private investors (and authors for that matter) have is that most of the track record is in the professional arena.  This is an issue because professional investors are necessarily solely focused on generating risk adjusted returns.  I’ll explain.

Private investors can take no solace in the track record of professionals.  Essentially the investment industry works on a couple of working principles which it has learned empirically over the years. It took the work of behavioral psychologists Kahneman & Tversky to rationally express these principles or heuristics, but the investment industry has always lived by them.

• A loss is psychologically weighted double that of a gain
• Investors overweight near term performance

The first point plays out because asset managers are terrified to deviate from industry benchmarks on the downside because they will lose their blessed assets under management (AUM), and there is little benefit to be gained in trying to beat their peers because upside is not as strongly rewarded.

The second point is that investors tend to overweight short term performance, and the industry knows this so there is nothing wrong (for the industry) in chasing myriad risky strategies which produce short term outperformance but then blow up when conditions change. After all, the important thing is to get AUM and tie it up.  This is why asset managers tend to have a stable of different types of funds. When one is hot they market it more and then investors duly reward them with AUM. Of course the problem is that that manager may have taken on excess risk to get the numbers. But who cares? Asset managers make money by managing assets after all.

In this sense it is exactly the same principle with what went wrong with the financials. Risk went out the window in many cases and if it wasn’t for the largess of the Government and taxpayers money, the likes of Goldman Sachs (NYSE: GS), JP Morgan (NYSE: JPM) and AIG (NYSE: AIG) wouldn’t be around today. It’s tough to blame them for the whole crisis because so few saw it coming, but then again if conditions collapse for a topiary supply company then they go bust.  Who ever heard of a bank going, errr, bankrupt?  My point here is that these organizations don’t appear to be run with a cognizance that they might fail, therefore the only game in town is (still) to go for profits irrespective of the risk.

I would urge great caution in following professional investors too closely unless they have demonstrable track records of making money over the long term. I would also suggest investors avoid tomes in technical analysis which in fact turn out to be capturing some facet of market conditions that worked for a while only to then fall apart as they changed.

So What to Do?

My only suggestion if you want to be a better investor is to look at your internal thought processes. You will find no end of information, views and data on stocks. In my humble opinion what makes a good investor is the ability to disseminate this mass of information into something coherent and then pick out the salient drivers that are going to guide the stock price. In the end all you want is the stock price to go up while not taking on too much risk. The latter stipulation usually requires a level of humility (diversifying to accept that fact that you might be wrong) that is often missing in professional investors touting for AUM.

No matter, it shouldn’t detract private investors from trying to define clearly what they think is the key driver of the stock price and then analyzing whether they are good at doing this or not over the long term.

As for the Christmas book shopping, I would advise Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay. Any lingering doubt that investing requires humility and the need to avoid selective reasoning should be eradicated after reading that marvelous book.