Is There Such a Thing as an Investing Edge?
Top 5 of the Week of February 13
Will Ortel heads up our Top 5 this week by examining the underlying banking fees affecting America’s unbanked. Daniel Egan, in his self-titled blog, urges us to use the power of behavioral economics as a force for good. And A Wealth of Common Sense’s Ben Carlson emphasizes the importance of reason following Trump’s inauguration.
The Irrelevant Investor Michael Batnick reveals that market participants might do better by learning to properly manage their wealth. And Wesley Gray of Alpha Architect examines the art and science of factor investing…
The Cost of Banking
- Between 1.5 and 2.5% of our yearly “discretionary” income that we bank, goes to the annual cost of holding a bank account
- Or we might choose a check-cashing service, expecting to pay a set 2.01% of the check, which (if you’re paid a check monthly) still adds up to a significant percentage of our money every year
- It’s no wonder that 57.4% of Americans aren’t banking because they don’t have “enough money” to afford it
The Alternative Use of Behavioral Economics
- During times of stability and market efficiency, investors are—on average—fairly rational, but at other times we can act illogically
- By helping people make sound investment decisions, you can build wealth long-term rather than just making a quick buck from a short-term profit by taking advantage of them
- As well as driving sustainable profitability, it is a much more fulfilling endeavour to “nudge for the good”
The Trump Effect
- It hasn’t been a long time since Trump’s presidential inauguration, but he sure has made his mark
- Emotions and speculation are running high about the future, but you have to level this irrationality with reason because no one knows what will happen next
- To gain a higher chance of investing success in the upcoming volatility of Trump’s presidency, have a well thought-out process in place for when everyone else is reacting emotionally
Is There Such a Thing as an Investing Edge?
- Ed Thorp proposes that the best way to generate wealth is by only making investments where you “have an edge”
- Wealthy people want funds to work for them above average, and so they will pay for strategies to achieve steadier returns to indexes
- Investors should not just diversify across their asset classes but reassess strategies consistently
What investing edge do you use? Share your comments in the section below
Just What Is a Factor-Based Model Approach?
- Factor investing is rooted in the Arbitrage Pricing Theory (APT) approach; a model of asset pricing which looks at the relationship between expected risk and its return
- By identifying and mitigating potential risk factors, investors can create a truly diversified portfolio
- But factors act deceptively, so it’s hard to explain why stocks respond as they do, so then the model must adapt and change
- Making it difficult to use in practice; artful, therefore, but not necessarily scientific
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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