Uncharted Market Territory and Political Uncertainty
Top 5 of the Week of October 3
This week, John Hempton, writer of the Bronte Capital blog heads up our Top 5 with his keen investing wisdom on how to create a truly concentrated portfolio. A Wealth of Common Sense’s Ben Carlson discusses how interest rates have an effect on stock market returns. And The Motley Fool staff give us a back to basics Hedge Fund 101 lesson.
Jennifer Wills from Investopedia uncovers the effect of big data and artificial intelligence on the financial market. And Modest Money examines the impact of presidential debates on investor’s investment decisions…
Warren Buffett’s 20 Punch Card Guide to Stock Picking
- Warren Buffet suggested that if you could only build wealth over the course of your lifetime with just 20 investments; you would be far more selective in your choices
- Most investors struggle to follow this investing wisdom because they are incapable of not acting; jumping at inferior stocks rather than waiting
- The biggest advantage of the 20 card punch test is that by avoiding short-term mistakes, you’re in a better position to exploit superior opportunities as they arise
Uncharted Territory for Interest Rate Levels
- Equity risk premium is the expected return on stocks above the risk-free rate e.g. a 10-year treasury bond that has been about 4.5% annually since the 1920s
- You are never guaranteed to receive this high rate though as it fluctuates over time
- And there is no historical precedence that shows a relationship between interest rates and stock market performance; not while they’re at the current record low
- Essentially; anything could happen
Uncover the Mystery Behind Hedge Funds
- Rather than “hedge funds” they should really be called private investment partnerships; where the investors are limited partners and the funds are not publicly traded
- The fund manager (or general partner) collects all the invested money together and directs it towards investments for the limited partners
- The infamous long-short strategy; if you’re long you make money if the price goes up, and if you’re short, when the price goes down
The Rise of Big Data and Artificial Intelligence
- Retail investors are now able to access the same information as institutional investors thanks to the growth in data mining; affecting professional firms’ who will lose their services
- Big data will also improve the financial industry’s ability to tailor their client’s portfolio offering a more personalized service
- AI’s potential to outperform humans by analyzing and collecting data much quicker has lead to more investing strategies relying on them for decision-making
Political Uncertainty = Market Uncertainty
- While presidential debates can affect the stock market short-term, they rarely make any serious long-term impacts
- They can, however, affect the way investors make their decisions as political uncertainty rises
- Strong performances from candidates are likely to boost market volatility more than weak ones but just as influencing is the state of the economy at the time of debate
Have you seen any direct impact on the market following the presidential debate? Share your thoughts in the comments section below
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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