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Cash Cows and Cognitive Bias

Top 5 of the Week of February 6

In our Top 5 of the week, Meb Faber writes up his innovative dividend investing method for our portfolios in his self-titled blog. Vintage Value Investing’s John Szramiak reveals the complete guide to all our cognitive biases as investors. And Market Fox Daniel Grioli looks into the religious fervor of active investing.

A Teachable Moment’s Anthony Isola explains to us just how compound interest doesn’t always work in our favor. Ben Carlson, writing for Bloomberg this time, agrees that markets are crazy, so trying to predict them is even crazier…

“Cash Cows Of The Dow”


  • Made popular by O’Higgins, an old investing strategy was to invest in the top 10 Dow stocks of the year with the highest dividend yield to beat the market, known as the “Old Dogs of the Dow”
  • If you update the strategy to include shareholder yield instead, as that does even better historically, you create a better approach to dividend investing
  • This “Cash Cows” method also has the cheapest valuations “across all variables except P/E ratio”—which it only narrowly escapes

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Our Brain’s Shortcuts Are Not Infallible


  • Our brains produce shortcuts to help us think and make decisions quickly, these are known as heuristics, and they’re not always reliable which results in our cognitive biases
  • Our main weaknesses are to try to filter large amounts of information, understand everything at once, attempt to act quickly, and make cut-throat decisions on the most important things to remember
  • If we can learn to recognize when we’re being controlled by them, we can act adjust our behavior accordingly

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Active Investing Addiction


  • Despite consistent, incontrovertible research that you cannot outperform the market, investors are still drawn to active investing
  • The outcome of which has been the creation of “closet indexes,” which look and smell like active funds to attract investors, while mimicking the fund’s benchmark for the manager—minimizing their own risk to underperform
  • The market is made up of smart investors and investors who can’t handle the patience of a long-term strategy, and sometimes, they’re one and the same person

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The Horror of Reverse Compound Interest


  • The power of compound interest can become a nightmare if it works in reverse for you as credit card debt, it can spiral quickly beyond our control
  • By making only the minimum payment on a $10,000 credit card with a 20% interest, it can take 20 years to pay the bill
  • In addition, you’ll spend much more than the original amount you spent on the card—these are the lessons we should be instilling in the next generation about to enter adulthood

What other investing lessons are you teaching the younger generation? Share your comments in the section below

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The Inefficiency of Markets


  • There is no way to predict the irrationality of markets because humans/investors are behind all the trades, and we’re renowned for being senseless at times
  • Many investors go one step further and attempt to work out when the market irrationality is going to begin or end
  • Markets are crazy and inefficient, but trying to grasp and understand them is even crazier

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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.