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The Benefits of Thinking for Yourself

Top 5 of the Week of January 30

Heading up our Top 5 this week, Institutional Investor Angelo Calvello asks just what the analyst’s role is in seeking alpha. Chairman & CIO of Ritholtz Wealth Management, Barry Ritholtz, explains why listening to experts can, sometimes, be dangerous for your investments. And Gogi Grewal, author of Sharpe Returns, delves into the strength of momentum as a trading strategy.

Larry Swedroe from ETF.com teaches us the lessons we can learn from 2016. And Jason Zweig’s article, from his Safe Haven for Investors blog, urges us to be aware of the influence of others…


Rise Above to Gain an Information Edge

 

  • It is very hard for analysts to achieve a competitive advantage using the same quantitative research and increasingly similar methodologies as the next investor
  • The truly great analysts are those who rise above and look at the bigger picture offered by all the information, and they utilize any investigative methods possible
  • Just as the best advice for an investor is to be contrarian from the crowd, the same goes for analysts—be transcendent, break from the status quo

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The Problem with Expert Opinions Is…

 

  • …that experts aren’t always in touch with their audience and able to see things from their point of view
  • Making any prediction about the future is estimation at best, there is nothing “factual” involved—opinions are just that, a perception only
  • Experts aren’t “marked-to-market” (a way to value assets at current market price), so there is no real financial accountability or consequence to their expressed views

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Just How Robust is Momentum?

 

  • When tested for robustness during different market regimes, momentum performs well; adapting fast to market changes, shorter rebalancing, and lookback periods
  • When assessing the last 80 years, momentum has returned positive alpha during every decade
  • Momentum survives many checks to its robustness, demonstrating that it isn’t overly sensitive to adjustments in its model parameters

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What 2016 Can Teach Us

 

  • Despite consistent evidence that passive investing will help investors reach their financial goals, many are still invested in active funds
  • Investors lose more money trying to prepare for corrections than during the event themselves, yet they still try to time the market
  • Things happen—Brexit and Trump, for example—that we can’t predict and affect the market in ways we can’t imagine

What particular investing lessons did you learn from 2016? Share your comments in the section below

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Confidence Is Dangerously Contagious

 

  • Positivity from others about their decisions can be risky inspiration for your own investment choices
  • Sadly, we’re biologically inclined to be impressionable to confident investors; despite them being a poor predictor of how markets will perform
  • Rather than allowing others to influence you, be sure to undertake your own rigorous analysis before making an investment decision

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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.