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Complex Investing ≠ Smart Investing

Top 5 of the Week of April 18

This week’s Top 5 includes a look at the debate between Simple versus Complex investing by Joshua Brown from his blog, The Reformed Broker. Science Daily offers an interesting perspective on how hunting for a romantic partner can influence the level of risk we choose when investing. And following the recent release of Star Wars: The Force Awakens on Blu-ray and DVD, Vintage Value Investing teaches us how the Force can be with us in a galaxy of investments.

We also take a look at the difference between good and bad cases of Capital Allocation and Capital Management with Value and Opportunity’s blogger. And John Rekenthaler, of Morningstar, highlights Rayliant Global Advisors’ Jason Hsu’s advice for the premium time to buy into a value fund; when you least expect it to be…


Complex Investing ≠ Smart Investing

  • Even top named leading investors make mistakes and get involved in complex investments for their protective value or the belief that a more elaborate thesis is a likelier winner
  • Complex investing should hold no appeal when simplicity is as successful—but it requires mental strength to avoid the allure of a more ‘sophisticated process’
  • Simple should not be confused with an easy or stupid investment; using this reductive process doesn’t mean you “don’t get it”

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Balancing Love and Risk 

  • If we struggle when looking for our soulmate, we tend to play with fire with our investments; choosing high-risk, high-return stocks
  • It would make sense to mitigate the risk we face in not finding the perfect partner in other areas of our lives, but instead, we opt to increase it putting our “proverbial eggs in one basket”
  • Rather than drawing on investing experience we factor a lack of sexual possibility into our decision-making process and gamble for bigger financial rewards over romance prospects

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Master Jedi/Value Investing Principles

  • Navigate and fly—wait, we mean, invest—inside your circle of competence: with industries and companies you know
  • “Adventure. Excitement. A Jedi craves not these things,” think slow and steady for greater long-term wealth
  • Natural contrarians; a good value investor is patient and stays the course, “remember; your focus determines your reality”

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The Good, the Bad, and the Special Case

  • Good Capital Allocation: Using the money in your account in the smartest possible way
  • Good Capital Management: Use outside capital in your smartest capital allocation to leverage your position and increase your profits
  • Bad instances of both occur when capital is spent on extravagant or unwise asset choices
  • Despite what most investors seem to believe; share buybacks do not always equal great capital allocation—unless the rationale for the repurchase is that the company thinks its stock is undervalued

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From Worst Fund to First

  • Buy value funds that are underperforming instead of following natural instincts to choose ones with better recent performance
  • Strong-performing funds increase their gains as more investors opt into them inflating the price—money makes money—creating an ongoing cycle that strengthens the value stock
  • Buy at the beginning of this cycle, so look for funds that have had a successful run in the past and make the most of buying in at a discount

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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.