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Academics Not Playing with the Same Portfolios They Teach

Top 5 of the Week of March 7

We kick off this week’s Top 5 with a look at a performance chart of different asset classes over the past 10 years from Ben Carlson, blogger for A Wealth of Common Sense. John Rekenthaler, of Morningstar, lets us in on a secret; that our foremost finance academics do not reap the benefits of the passive index investing they sow around us.

Morgan Housel, a writer for The Motley Fool, fills us in on the four building blocks of progress and success, and Carmine Pirone, from The Street, teaches us to factor risk into our portfolios to improve investment growth.

With International Women’s Day behind us, we thought we’d close with an article for our female readers by Shreyash Devalkar, Fund Manager of BNP Paribas Equity. While the saying seems true that both sexes are from different planets, even those from Venus can use good investment advice!

Check Out the Past 10 Years’ Asset Performance

  • The chart compares the returns of 10 asset classes (using ETFs/funds as proxy)—from different stock categories to commodities, bonds, and cash—over the past 10 years
  • Commodities set to be last player picked on anyone’s team or portfolio as the worst performer over the past 10 years
  • Small and mid caps outperform consistently in the past 10-15 years

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Academics Not Playing with the Same Portfolios They Teach

  • Eugene Fama, Richard Thaler, and Roger Ibbotson—amongst others—are all guilty of not practicing the indexing they preach to the crowds, instead, they all handle actively managed portfolios
  • Despite their warnings to us on the dangers of overconfidence amongst investors, they certainly seem to think of themselves as smarter than the average guy
  • While they will continue advising others to invest in passive index funds/ETFs, conflictingly—and based on their performance—they can get away with not following their own advice

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4 Building Blocks to Success

  • For nearly 2000 years man’s growth and development were stagnant, until the 19th c. and we harnessed electricity, boomed during the Industrial Revolution, and took off with innovations in technology
  • William J. Bernstein, investment guru, believes the four factors behind this progress were holding property rights, thinking more scientifically, widening our economic markets, and improving communication and transportation
  • Finance and economy will always fluctuate, but we only fail in business and investment when we miss one of these factors from the formula
  • Core-customer ethics, long-term ambitions, and thriving creativity are the values behind every successful company—companies that make up the economy

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Risk; Play the Game Properly to Win

  • We need to be sure we know what risk is before we can balance it properly in our portfolios, else we ‘risk’ not improving our investment returns
  • Many investors judge risk based on valuations and price-to-earnings ratio (P/E), this by itself is not enough; both low P/E and high P/E can disguise important factors we should take into account
  • Not all risk is unhealthy, do your homework and look for hidden worth; just because a stock is expensive doesn’t necessarily mean it’s high risk

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Mars vs. Venus In the Finance World

  • Men and women think and invest differently; women tend towards investments that are lower risk
  • By outlining clearly, and giving proper consideration to various personal and business factors, women can take the next step to build-up their investment aspirations
  • Plan ahead for the future—whether you are single or married—and balance those long-term and risk averse investment ambitions with a dip in the “equity markets through a systematic investment plan”
  • P.S. Actually, we take back what we said in the introduction of this post—men should also listen up to this sound advice

Do you think men and women invest differently? How and why?

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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.


Anything you would like to discuss about this week’s top 5? Do you have another favorite that isn’t mentioned here? Feel free to add it below. Let’s start a discussion in the comments section!

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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 Babinow 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.