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The Divisive Returns Gap

Top 5 of the Week of August 13

Andrew Thrasher, the writer of his self-named blog, heads up our Top 5 this week with a look at what makes a great investor. The Irrelevant Investor Michael Batnick helps us ride out “giant winner” volatility. And Carl Richards of the Behavior Gap helps us outperform our neighbors.

Contrarian Edge blog-writer Vitaliy Katsenelson examines socially responsible investing. And The Evidence-Based Investor Robin Powell delves into recent scare claims about passive investing…


Hone Your Investing Edge

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  • Everyone reads and everyone can educate themselves about investing and/or earn an investment credential—this isn’t necessarily going to give you an advantage over others though
  • Great investors share certain traits as a mark of success—these include remaining calm in the face of market panic, being obsessive, and learning from past mistakes
  • Also, make risk decisions with common sense, be confident, engage both sides of your brain, and hold out through periods of volatility—this list is your edge

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Everybody Hurts

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  • In July, Facebook’s market capitalization dropped from $602 to $500 billion in that space of a day—bear in mind though the stock is still up 500% from five years ago
  • While a 20% decline can be painful in just 24 hours, this type of action is not uncommon in strong-performing stocks occasionally
  • Brace yourself, riding a potentially ‘giant winner’ will involve double-digit declines—you just have to hold out for the long haul and pray that you didn’t hit the top

Have you struggled through volatility with a giant winner? Share your comments in the section below

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The Divisive Returns Gap

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  • Many people are yet to grasp the basic concept that investment returns and investor returns are two different things
  • The first is about the industry seeking above-average returns (alpha), but investor returns are about measuring real-life gains
  • Unfortunately, studies show that there is a significantly large discrepancy between these two figures, “the average real-life person underperforming the S&P 500 by over 7%”

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The Practical Complexity of Socially Responsible Investing (SRI)

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  • The utopian concept of SRI idealizes that those businesses who harm society would receive higher capital costs and eventually they’d die off
  • But that’s not necessarily how it works in practice—to begin with, outside of agreed immoral crimes (slavery, trafficking, and others), what is “socially responsible” is not always black and white
  • When hiring someone to invest in socially responsible funds for you, it’s not easy to find someone with the same values so just be straight about your own views

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Index Fund Scare Stories

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  • Recent claims around index funds assert that they impede capital allocation and can be detrimental to price discovery
  • Financial media has a tendency to showcase negative scare stories around indexing like these rather than the positive ones
  • When you hear any noise about passive investing ‘issues’, it’s always worth looking at who is making the claim—the likelihood is that the positive elements of the story are being hidden

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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 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.