Learning that drives better investment decisions

A Week of Ups, Downs, and Predicting the Future

Top 5 of the Week of September 26

Ben Carlson, the author of A Wealth of Common Sense, kicks off our Top 5 this week with an argument to keep things simple. A Teachable Moment’s Anthony Isola warns us against trying to predict the future of our investments. And Morgan Housel, a partner at Collaborative Fund, discusses what the history of bubbles tells us.

Sean O’Reilly and Taylor Muckerman of The Motley Fool explain what free flow cash means for a business and how it affects investors. And Jason Zweig, writer of The Intelligent Investor blog, teaches us where to look for extra yield in savings bonds…


“It’s Better to be Roughly Right Than Precisely Wrong”

 

  • Overconfidence and ‘smarts’ can be a dangerous combination for investing
  • Markets evolve, change and adapt; unforeseen events can have huge ramifications so don’t expect the future to always play out like the past
  • Intelligence is understanding that market cycles go up and down, wisdom is the decision not to react to the volatility

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Make Money Instead of Predictions

 

  • Investing by trying to predict the unpredictable is no more than speculation
  • And yet, investors still speculate on stocks despite knowing that past performance is not an indicator of future returns
  • Don’t attempt to predict the market; you’ll make more money by deciding not to take action than by trying to time it

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Learn to Ride the Ups and Downs of Cycles and Bubbles

 

  • Trying to spot bubbles is too difficult for the average investor, as only hindsight allows us to see them accurately
  • There is no way to precisely measure how far markets will go up and if—or when—they might turn
  • Bubbles incur a permanent widespread loss of capital, but if you’re patient and humble with a long-term view for investing, cycles can be ridden out
  • Therefore, if you consider ‘bubbles’ as cycles—the inherent ups and downs of the stock market—”the investing world becomes a lot less scary”

Bubbles or cycles; learn to spot one or ride the other? How do you deal with them? Share your comments in the section below
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What a Company’s Free Cash Flow Can Tell You

 

  • Free cash flow is “basically taking your cash from operations, [and] subtracting capital expenditures”
  • What’s leftover for distribution is often a good indication of potential future growth
  • Investors should always check out a company’s free cash flow situation before they decide to buy in or not

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Savings Bonds; A Powerful Addition to Your Portfolio

 

  • Though there are catches involved, 20 years of investment in Series EE savings bonds guarantees you twice the amount of money you put in at the start
  • This equates to a 3.5% return yearly but be aware that the bonds aren’t liquid or inflation-protected and an investor can only invest $10,000 a year
  • And you run the risk of losing your money if interest rates go up and of not being paid back as they aren’t from the US Treasury

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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.