Top 5 of the Week of August 27
Abnormal Returns Tadas Viskanta kicks off this week’s Top 5 with a look at the nature of investing. Real Investment Advice’s Lance Roberts discusses timing according to current valuation warnings. And Scott Bell, the writer of I heart Wall Street, reveals how we’re part of “the greatest heist in American history.”
Brent Leadbetter, John West, and Amie Ko of Research Affiliates examine the impact of systematic rebalancing. And Barry Ritholtz, Chairman & CIO of Ritholtz Wealth Management, writing for Bloomberg, explains how the there’s still life in the theory of loss aversion…
Finding Your Way in the Dark
- Investing is much like attempting to navigate through a pitch black room without bumping into anything along the way that may cause injury (in the form of loss)
- We all know the oft-repeated adage that past performance is no indicator of the future but the trick to successful investing lies in working out how much it is going to differ
- At it’s core, quantitive or factor investing resolves that the future will mimic the past pretty closely, the next challenge will be in determining when that changes
Timing It Just Right
- It doesn’t matter what measure you use, the current message implies the same thing at the moment, “the expected rate of return for investors over the next decade will be low”
- The issue with valuation measures is that there can be an extended period of time between a valuation warning and the follow-up market correction
- Technical analysis can provide useful information for investors to heed the warnings and make the right move accordingly at the right time—just don’t leave the party too early
Which valuation measures do you adhere to? Share your comments in the section below
- The top 5 US banks hold $8.6 trillion dollars between them and—despite malfeasance activities in 2008—they continue to grow bigger and sell the most profitable products possible
- These banks work hard to continue selling products to customers which are in their “best interests”—except they probably aren’t
- Seek out an advisor who will be a fiduciary 100% of the time, otherwise, you are just continuing to pay into banking history’s “greatest heist”
The Rebalancing Trick
- Taking a methodical approach to rebalancing is a worthy endeavor for investors to pick up over the traditional “wait-and-see what happens first” path
- The advantages are that such systematic rebalancing can result in better long-term risk-adjusted investment outcomes
- Advisors can help investors overcome any behavioral hurdles that may arise with what is effectively a contrarian investment stance
There’s Still Life in the Old Theory Yet
- There’s been much importance placed on the theory of loss aversion in behavioral finance, yet some researchers argue that it’s a “fallacy”
- However, it’s an extraordinary claim to make that the impact of losses and gains are uneven—one that is not necessarily backed up by any extraordinary evidence
- Just because we display gain-seeking behavior doesnt mean loss aversion is cancelled out as a theory—because psychologically, if we were truly loss averse, then casinos wouldn’t exist—and yet, they thrive
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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