Being a Successful Investor Requires a Specific Set of Characteristics
Top 5 of the Week of July 17
In our Top 5 this week, Corey Hoffstein on Flirting with Models teaches us how to time our bond duration exposure. What Works on Wall Street writer Jim O’Shaughnessy reveals the traits you need to succeed at active stock investing. And Jason Zweig shares the outcome of his long chat with Peter Bernstein on his Safe Haven blog.
Walter Jones, guest posting on Alpha Architect, asks if the day of the month matters for trading. And Resolve Asset Management explores universe selection for Part 1 of their exploration of adaptive asset allocation…
Evaluating Your Duration Exposure
- As the ongoing fear of rising rates continues to affect investors, it makes sense to shorten duration in bond portfolios—taking the chance to improve returns or mitigate risk
- By attempting to time the Bond Risk Premium (BRP), investors are trying to capitalize on the extra yield to be gained from holding long-term bonds over short-term ones
- Value, momentum, carry, and measuring the BRP itself are all capable of realizing “strong absolute and risk-adjusted returns” when timing duration
Being a Successful Investor Requires a Specific Set of Characteristics
- Maintain a long-term perspective on all your investments and put as much stock in the process you’re undertaking as on the outcomes you want to achieve
- Ignore forecasts and predictions, and instead, embody patience and persistence in all your investment decisions
- Constant study, discipline and the creation of solid habits are the foundations of long-term success, and focus your concentration on knowing the probability, not possibility, of certain outcomes
Peter Bernstein Opens Up
- Bernstein, “economist, historian, investment thinker wisdom personified,” believed that investors’ most common mistake lies in extrapolation; making assumptions based on current trends
- Investors should accept that even in a hundred years no single person can figure out the key to how the stock market works
- Survival is the only road to riches, not maximizing returns, but by being conscious of risk management and diversifying your portfolio aggressively as part of your strategy
Have a favorite Peter Bernstein quote? Share your comments in the section below
When Should We Be Trading?
- When testing a strategy, the chosen day for executing one’s trades affects the outcome notably
- Research shows that tactical asset allocation strategies tend to perform better at the beginning and end of the month, yielding historical higher returns
- This beginning and end of month outperformance can be the result of the “turn of the month” effect or overfitting of the model to historical data: in the first outperformance is a feature, in the second it becomes a symptom
Part 1: Exploring Adaptive Asset Allocation
- When testing adaptive asset allocation, the chosen universe of assets has a major effect on the outcome, so we must cover the global spectrum of asset classes to remain unbiased
- A “poorly-designed investment universe” can cause uncertainty in results—was the asset class simply lucky or was the strategy itself the success?
- Testing then requires a framework that identifies a broad range of parameters to yield the best range of historical accuracy—to gain a view of the true nature of a strategy
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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