Highway to the Danger Zone
Top 5 of the Week of August 7
In our Top 5 this week, The Intelligent Investor Jason Zweig explains why stock picking is dying. L2 Inc’s Scott Galloway teaches us how to identify the bubble danger zone. And the writer of Investing Caffeine, Wade Slome, reveals the necessary ingredients for an investment disaster.
Ehren Stanhope, the Factor Investor, delves into the “curious world of microcaps.” And Barry Ritholtz, Chairman & CIO of Ritholtz Wealth Management, helps us find the active in low-cost passive investing…
A Dying Art Form
- The number of publically traded companies has dwindled dramatically to 3,600 this year from the recorded 7,355 in 1997
- This ongoing shrinking number of stocks has resulted in a limited breadth of choice for stock pickers, and as such, the art form has become increasingly competitive
- For fund managers, given the considerable lack of stocks to choose from, they could end up spending more money blindly buying shares irrespective of their value—so, beware
Do you believe stock picking is dying? Or already dead? Share your comments in the section below
Highway to the Danger Zone
- It has been 8 years since the last recession, and if a financial crisis is “something that happens every five to seven years” we’re fast approaching the next one
- Or are we? How can you tell if we’re heading into a bubble danger zone? Well, asset prices will soar way beyond levels that are merited, resulting in a crash
- What to do? Be humble and live within your means, stay in the market, and take solace that it isn’t just your fault
How Not to Invest
- Find overpriced investments which are undertaking major money-losing operations or declining financials
- Don’t use an objective, quantative framework and avoid cheaply valued stocks with high-quality growth potential
- Think short-term rather than long, panic about the rising price of stocks, and worry about the next bubble
Pick a Category
- As opposed to big businesses with billion-dollar valuations, micro caps are stocks with lower overall market values; up to $500 million
- Companies in this category range from successful tech startups to businesses that are flailing: the “New Ventures,” “Fallen Angels,” and “Steady State” firms
- The defining attribute of a micro cap company is that it is in some form of transition; be it positive or negative—as investors, you need to cut through the data noise to work out which
Passive Investing Is Just Active in Disguise
- Nowadays, it’s very hard for an investor to truly draw the line between active and truly passive investing
- While this may seem controversial, an index fund is created by decisions having been made in the past about its asset allocation
- Meaning that even though today’s investors default to that initial selection, all the stocks involved were actively picked by someone at the start—making the process not entirely passive
Top 5 of the Week is a summarized collection of financial investment articles that we like and think you might like too. Having written thousands of pages of equity strategy and company research between us, we understand the allure of the ever-changing world of finance. Investing is an art form—and like everything, something you can work on and improve at. There are some excellent writers out there on the finance web, some offer a running commentary on today’s market, some are doing research, some have tips on how to Become a Better Investor, and some just lift the cloud of fog behind a lot of financial jargon. Each week we will keep you up to date with the top 5 articles worthy of your attention.
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DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article. The Become a Better Investor Team doesn’t necessarily endorse any stocks or shares mentioned in the articles or the author of such articles linked to and summarized in Top 5 of the Week and cannot guarantee the accuracy of its information.