Top 5 of the Week of April 2
Heading up our Top 5 this week is the Monevator, who asks if there is money to be found in gold as an asset class. Jack Forehand, from Validia, explains why both sides of the ongoing active vs. passive debate are right. And from Pragmatic Capitalism, Cullen Roche questions why money managers are paid so well?
Morgan Housel, a partner at Collaborative Fund, debates the ironies of luck and risk. And Abnormal Returns Tadas Viskanta helps us keep our focus…
As Good as Gold
- Currencies, companies—even countries—come and go on the stock market, but gold has been around since time immemorial
- But many investors hate the very thought of investing in gold—despite its glitter it hasn’t always delivered on the goods, though it continues to be coveted
- If you do want to invest in the asset to achieve some semblance of a future gold rush—and would rather avoid owning fool’s gold—your best approach is to buy it, hold it, and forget about it
Active Vs. Passive: The Debate Rages On
- The debate on the superiority of passive over active investing continues due to unsubstantive evidence for high fees and underperformance on a net basis
- Yet, long-term factor-based portfolios that include Value, Momentum or Shareholder Yield can provide 2% and 4% above market returns per year
- Returns like this are not to be sniffed at, but it’s also true that most investors should stick with index funds—it takes a strong stomach to hold out through long periods of underperformance to see these returns
Which side of the debate are you on? Share your comments in the section below
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Is a Fat Cat Comeuppance on the Horizon?
- Advisors earn 1.6% per year for the average index equity mutual fund, and 1.09% for managing index funds, which can be an “ungodly” portion of your investment money
- The reason behind these high fees is salesmanship; money managers take advantage of investors seeking out ‘guaranteed’ high returns
- All these investors actually get is low returns but guaranteed high fees instead—hopefully, the coming years will change all that thanks to the availability of low-cost alternatives
“Luck Is the Flip Side of Risk”
- To understand risk, you need to appreciate luck—and the same is true vice versa
- Luck results in great outcomes from mediocre—or even bad—decisions, while experiencing risk is what happens when good choices lead to adverse outcomes
- Risk, though, helps you accurately realize that stuff is beyond your control, luck can be deceptive in that it encourages the opposite in false feelings of power which should be ignored when it comes to investing
Driven to Distraction
- When it comes to our cognitive functions, humans are actually pretty lazy; we’re always looking for cognitive shortcuts
- Many of these shortcuts that allow us to use as little brain energy as possible become entrenched into behavioral biases that mean we don’t need to think too long or hard over something
- Be mindful of where you spend your limited attention; practice attention management to avoid being distracted and letting bad habits and cognitive biases control you
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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