The Slippery Slope of Investment Advice
Top 5 of the Week of November 5
From Pension Partners, Charlie Bilello heads up our Top 5 this week with a forecast for the end of easy money. Jack Forehand, from Validea, discusses the problem with following the advice of market legends. And Morgan Housel, a partner at Collaborative Fund, examines the issue of haste.
John Lim, writing for Humble Dollar, reveals the market’s great financial gifts. And A Wealth of Common Sense’s Ben Carlson discusses the recent stock fall…
The End of Easy Money
- September saw the 8th Federal Reserve interest rate hike to a record high of 2.18%, a level it hasn’t reached before since a decade ago
- Which means that for the first time in 124 months the Fed Funds Rate now stands above U.S. core inflation (2.17%)
- There’s no precedent in history for what may happen next, but it definitely marks the end of the longest period for “easy money” that the markets have ever seen
The Slippery Slope of Investment Advice
- Market legends don’t reach their heights of success by accident, which is why investors follow their investment advice in the hopes of replicating the same results
- This can be a dangerous path to follow if you don’t apply the advice to the context of your own personal situation—for example, Howard Marks’ new book is prompting many to make portfolio revisions
- Changing your portfolio because of market cycles is an impossible challenge to master though—so, this advice is perhaps better avoided
Go Big or Go Home
- Just as in biology, forced growth in companies can cause more problems than predicted, watering down the end-user experience of the business
- At the risk of losing funds or due to other pressures, startups are doing the same thing—taking more money than necessary to get bigger faster—even though running a startup is now cheaper
- Startups often fail because the idea doesn’t work enough to scale—but is the future going to see more startups flounder because of early force-fed competitive growth?
Which force-fed startups do you know? Share your comments in the section below
What to Do with Market Gifts
- Following the last ten years of rising stock prices, it’s now the point to look towards the next bear market and what a decline has to offer everyone
- While it may not look like it, a market decline is a gift if you only stay resolute and continue to invest and save, thanks to its lower prices
- While it may seem counter-intuitive to continue buying stocks during bear markets rather than selling as instinct drives you to do, you’re more likely to retire with a large nest egg in the long run
So, So Close
- The end of October saw a stock fall of 9.4%—a hair’s breadth away from 10%—making everyone ask just how much further will the downturn go
- History shows us that, on average, 60% of the time a 10% correction didn’t mean another bear market, while 40% of the time it did
- While this historical data gives us some perspective, it doesn’t necessarily mean we’re gonna sleep any easier or change the way we react to corrections
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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