Learning that drives better investment decisions

No, The World Isn’t Flatter

Top 5 of the Week of September 4

Todd Wenning ‏opens up our Top 5 this week with a look at “economic moats.” Barry Ritholtz, Chairman & CIO of Ritholtz Wealth Management, shares what he learned at Camp Kotok—otherwise known as the Shadow Federal Reserve Committee. And A Wealth of Common Sense’s Ben Carlson helps us manage the sequence of return risk, i.e. the risk involved with the timing of withdrawals on your retirement returns.

Writing for CFA Institute, Managing Partner & Founder of Fiduciary Wealth Partners Preston McSwain explains how “ignoring fees doesn’t beat the market.” And ETF.com’s Larry Swedroe reveals that the world is not flat…


Figure out the Competitive Advantage

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  • Prosperous companies—those who win year after year—no doubt accord their success to a popular product and high-profit margins
  • Another explanation though is that these companies have a sound “economic moat” (a firm’s competitive advantages) in place—be it in the form of intangible assets, network effects, low-cost production or switching costs
  • When competing against a successful company, ask yourself, “Aside from the money, what’s the biggest competitive advantage preventing me from beating them?”

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Takeaways from Camp Kotok

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  • You’re not the only one that doesn’t know what is going on in this market; no one else does either
  • While stock pickers are struggling at the moment, spare a thought for bond managers too: with no inflation, raising Fed rates or any sign of upward movement in Treasuries, their jobs seem even harder
  • The power of pure luck should not be underestimated; for every investing and strategy you test and examine, recognize the truly serendipitous moments too

Any other Camp Kotok lessons we should all know? Share your comments in the section below

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Going Beyond Our Control

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  • While we may wish we did, investors have no control over the sequence of return risk—but there are ways to manage it at least
  • Set yourself realistic—and conservative—return expectations and be flexible in your response to how the bull or bear market treat you
  • When stocks go down, don’t become a forced seller else your sequence of return risk becomes twice as painful
  • To determine your risk profile, don’t forget to appreciate where you are in your investing cycle

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Marketing Games

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  • Firms can make highly misleading claims about their performance, all in the name of marketing
  • There’s nothing necessarily illegal about this behavior, but no investor can receive the expected returns these firms advertise without paying through the nose
  • Be aware of this behavior, it would be nice to believe that the industry can and will do better, but don’t rely on this ever happening—instead, be sure you read all the advertising small-print

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No, The World Isn’t Flatter

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  • Rumour is flying that with rising risky asset correlations the world is getting flatter and international diversification benefits are a thing of the past
  • And while market integration may have reduced the perks of global equity diversification, they haven’t gone for good—so it’s still a wise move
  • Begin with global market capitalization and allocate accordingly, roughly “one-half U.S. stocks, three-eighths non-U.S. developed markets, and one-eighth emerging markets”

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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.