Active Management: A Dead Industry Walking
Top 5 of the Week of September 10
Mark Rzepczynski, on his blog, shares Steve Einhorn‘s bear market checklist to begin our Top 5 this week. A Teachable Moment’s Anthony Isola examines data over dogma. And 25iq’s Tren Griffin explains how subscription business models are changing business and investing.
Guest posting on Humble Dollar, Adam Grossman discusses investing heroes. From ETF.com, Larry Swedroe investigates if active investing still has a heartbeat…
Bear Market Turn Indicators
- Problematic Inflation: At the moment it’s above the 2% target, but not an issue
- Hostile Fed: Slow to negative real money growth with more Fed hikes expected
- Prospects of Recession: Continued growth is on the horizon with no indicators to suggest another recession in the near future
- Investor Sentiment: No signals to imply that bullish sentiments are extreme
- Valuation: P/E ratios are not yet severe, but earnings have been unusually high
Investing Thought Leadership
- Great investing wisdom often comes from thought leaders who aren’t discussing money
- The Dalai Lama, Tibetan spiritual leader, believes, “No one religion can ever hope to satisfy everyone”—the same can be applied to investing strategies
- Just as, “Patience is a powerful antidote to the destructive emotions of anger and frustration,” is good advice for a long-term approach
- “Our true enemies are our own destructive tendencies,” is an apt way to describe investor self-sabotage—he has other worthy wisdom too
Whose alternative investing wisdom do you take note of? Share your comments in the section below
“The Microeconomics of Subscriptions”
- The subscription business model is growing increasingly popular thanks to the likes of Netflix, etc., growing at a rate of “200% annually since 2011”
- And there are now over 2,000 subscription-based businesses on the US market which are customer-focused
- However, despite the fact that business is booming, it’s also extremely volatile because dollar revenue must come from the “value per customer” and not all customers reliably add value
How Can They Both Be Right?
- In 2013, two academics were awarded the Nobel Prize by the Royal Swedish Academy of Science—yet, the two beneficiaries couldn’t have more opposing theories
- Eugene Fama ideals that bubbles don’t exist and stock prices are rational, while Robert Shiller theorizes that bubbles happen and stock prices are irrational
- If you’re looking for an investing hero to listen to, forget Nobel Prizes, you’re better off looking up to Graham, Buffett, Swensen, Bogle, Odean, Klarman, Marks, and Taleb instead
Active Management: A Dead Industry Walking
- Despite the overwhelming evidence that active management is a “dead man walking” in terms of performance, active funds still manage $16.4 trillion
- In comparison, ETFs and passive funds still only collectively manage $6 trillion in the markets
- No other industry with above 90% failure rates would survive as active management has—given that in 20 years, the statistics for significant alpha generated has dropped from 20% to 2%
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!
Do you like Top 5 of the Week? Feel free to share it with your friends.
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.