Learning that drives better investment decisions

Building the Right “Regret Minimization Framework”

Top 5 of the Week of December 17th

In our Top 5 this week, Mikael Syding writes from his own blog about how everything in finance happens for a reason. For Enterprising Investor, Michael Falk, CFA, considers the difference between great and good. And The Evidence-Based Investor Robin Powell discusses investors’ biggest flaws.

Morgan Housel, a partner at Collaborative Fund, examines risk management. And Michael Harris, from Price Action Lab, interviews reputed investor Investor Felix Grandluckmeister about his inside secrets to success…


We Have the Power

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  • When things go wrong in investing, many of us are quick to blame a higher power for all that befalls us
  • However, it’s critical to take another perspective on—that of the view that you are responsible for everything that does or doesn’t happen
  • Any financial hurdle that you may face, even external events, can be tackled by addressing the core issue which is your overall portfolio risk management

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“The Enemy of Great is Good”

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  • Many investment companies are fine with a “good enough” performance, but with the rise of ETFs and index funds it’s critical to go the extra mile
  • With the New Year ahead, firms should reflect on how to make such improvements
  • There are typically five areas which can all stand to be evaluated and improved on in most investment management businesses
  • These include cognitive team diversity, decision governance, buying disciplines and investment philosophies, size-and-sell systems, and ongoing assessments

How do you make continual improvements to your business? Share your comments in the section below

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What Not to Be

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  • Overconfidence and overoptimism are the biggest personality flaws most investors suffer from
  • We buy into the stories the media tells us about and make decisions about our wealth in the market based on those rather than data
  • Investors should act and decide about investments that sit within their circle of competence rather than lying on the margin

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Building the Right “Regret Minimization Framework”

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  • By the time you get to the end of your days, hopefully in your 80s and 90s, you want to be able to look back at a life full of minimal regrets
  • Jeff Bezos’ regret minimization framework is about working out what risk you can deal with and won’t even consider regreting tomorrow
  • Risk in that way is a many varied entity for everyone, though some risks/regrets remain universal—such as decisions that can’t be reversed and those with a downside so severe there is no recovery

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The Secret Sauce

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  • According to investor Felix Grandluckmeister—who’s fund has only see six down quarters over three decades—his performance is down to “pure luck”
  • Though luck is just a variant on having an ‘edge’, some people are statistically lucky
  • Investors are fooled by randomness in the markets and those who survive it often assign their success to talent—typically though, they were just lucky outliers of a random process

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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.