Pragmatic Capitalism

Capital for Living a More Practical Life

‘Myth Busting’

What If Everyone Indexed?

I see this question more and more as indexing grows in popularity.  People generally think that more indexing will make the markets  function less efficiently .  I don’t think this is true at all.  Unfortunately, the question and its answers are usually shrouded in misunderstandings about how assets are priced and myths about what it… Read More

Tobin’s Q Is Not a Valid Market Timing Metric

Over the course of the last seven years many market pundits have relied on Tobin’s Q to argue that the stock market is overvalued and I’ve argued that the indicator is misleading (see here for a sampling of the many predictions made with this metric).  And then today I noticed this piece on MarketWatch arguing… Read More

The MV=Py Myth

I’m pulling this one out of the AMA section because it’s a common question I see. Reader Oshe asked about the Equation of Exchange otherwise known as MV=Py, where M is the quantity of money, P is the price level, Y is total output and V is velocity, or the number of times that a dollar is used… Read More

Myths About the USA’s Fiscal Union

The FT ran a piece about the fiscal union in the USA and why this system couldn’t be replicated in Europe to help resolve the Euro crisis. I wanted to touch on the author’s main points to highlight some of the errors in the thinking there. Myth # 1 – “So let’s state three facts… Read More

Where Does Money Come From?

“The process by which money is created is so simple the mind is repelled.” – JK Galbraith There’s a reason why myth # 1 in my “biggest myths in economics” is “the government prints money”. It is, by far, the most pernicious and misleading of the economic myths that exists. I was reminded of this today… Read More

Why The Efficient Market Hypothesis is Useless

I noticed Noah Smith and John Authers on Twitter discussing how great the Efficient Market Hypothesis is because it explains why indexing works. I responded saying that the EMH really has nothing to do with why indexing works. They didn’t seem to see my point of view so let’s try this again and see if we… Read More

Beware the Macro Value Trap

I’ve discussed my general disdain for the idea of “value investing” at some length (see here and here), but it’s worth reiterating at times because it’s such a common theme in the investment world. “Value investing” is generally an approach that is applied to stock picking, but has garnered increasing attention in the macro world… Read More