Learning that drives better investment decisions

Leicester City and Life Insurance

Top 5 of the Week of May 9

We head up this week’s top 5 articles with The Motley Fool’s Morgan Housel opening with the question: just what is ‘risk’? J. Brendan Ryan, from Cincinnati.com, cautions that savings and investing are two very different things, and so is a life insurance policy! And we look at how investing in the stock market is like a premiership football team with John Hughman, of the Investors Chronicle.

Tim Melvin from Real Money leads us down the garden path to growing a better stockpile than we’ve seen in the last thirty years. And we all know that diversification in our portfolio is important to level out risk, but Trevir Nath, of Nasdaq, advises us that factor investing can complement any diversification shortfalls; if we think like the tortoise…


Risky Business

 

  • Risk of changing goals: We think too much in the present, not realizing we will change our goals later in life—don’t get to a point where you regret not investing today for tomorrow
  • Risk of inadequate return: Young investors hoard cash as an asset strategy over investing in the stock market—this is risky short-term-thinking; invest in stocks for long-term benefits
  • Risk of your own behavior and ignorance: Markets run with or without our involvement, and reacting emotionally to market volatility leads us to reactive decisions which impact the market—understanding and awareness is key to mitigating this risk

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Life, oh Life…Insurance 

 

  • Savings: money for a rainy day, short-term purchases, or emergency funds—for these: use savings accounts, a certificate of deposit, or a money-market fund
  • Investing: long-term goals for wealth accumulation, college funds or retirement—for these: invest in real estate or the stock market depending on your preferred risk tolerance
  • Life Insurance: neither of the above, this a safeguard to protect your family and business in the eventuality of your death—the need for one will never disappear, just adjust as you age

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Leicester City Vs. The Stock Market

 

  • We all dream about finding the next stock unicorn to make us a small fortune—the rarity of this, like the underdog winning a 38 game season, is the definition of a bad investment strategy
  • Behind Leicester’s rise to glory; momentum; their enduring consistency—winning 7 of 9 games since April to avoid relegation, and value; investing in key players disregarded by other premiership teams
  • Proper asset allocation and steadfastness, rather than purchasing over-priced shares and “tinkering” with your portfolio, are more successful approaches to wealth accumulation

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Don’t Be a Slave to Your Emotions When Investing

 

  • Beating the market in the long-run is an achievable goal but a successful investor removes emotion and overthinking from the equation
  • Weigh in the psychological and economic reasons behind any stock anomalies and understand they’re influenced by either value or momentum factors for a market-beating approach
  • Stay the course; all market strategies will fluctuate in performance over time, be committed and it will pay off in the end

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Slow and Steady

 

  • Factor investing: a strategy that constructs a portfolio around risk factors (analyzed from over the past 50 years) that lead to higher returns which MSCI lists as Value, Size, Volatility, Yield, Quality, and Momentum
  • The rationale behind the strategy is that these factors balance each other out during the ups and downs of the market
  • It is this golden mean: the perfect balance between losses and return over time that’s the reason the tortoise investors will always win the race by thinking long-term over the hare investors with their risky get-rich-quick investment schemes

When it comes to investing are you a tortoise investor making many wins over a long time? Or the hare? Share your experiences with us in the comments section below

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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.