Check Yourself Before You Wreck Yourself
Top 5 of the Week of April 23
Corey Hoffstein heads up our Top 5 this week with an in-depth dive into momentum. The Irrelevant Investor Michael Batnick examines the optimal investing strategy. And Behavioral Investment Joe Wiggins reveals what fund managers should say more.
For Bloomberg, Ben Carlson writes how we should be careful about market timing signals. Carl Richards, the writer of the Behavior Gap blog, explains what’s between investors and stupid investing mistakes…
Momentum’s Deep and Rich History
- Basing your investing approach on momentum seems at odds to many investors who listen to the adages about not timing the market and chasing performance
- But as a systemized strategy, there are around 25 years of positive evidence to support it and nearly four times as many years in “successful empirical results”
- While counterintuitive to much investing philosophy, momentum results demonstrate how the process systemically takes advantage of other investor’s irrational behavior
Finding an Optimal Investing Strategy
- The buy and hold strategy is not as perfect as everyone suggests, it doesn’t always work out for investors because it depends entirely on the period of time you’re investing through
- The other option is trading, but again, trying to time the market accurately to yield positive returns is as much luck as skill
- There’s no such thing as a win-win approach to investing, whichever strategy you choose is going to have its ups and downs, essentially “sometimes this sucks”
Which side of the fence are you on? Share your comments in the section below
It’s All Talk
- Fund investors can get distracted by the wrong things when in discussion with active managers
- Managers tend to focus on appearing overconfident to investors rather than circumspect and humble because this behavior is more appealing to investors
- Discussions make it difficult, therefore, to help determine the level of skill involved as they act at odds with the volatile nature of the market
Check Yourself Before You Wreck Yourself
- For the first time in nearly two years, the S&P 500 dropped under its 200-day moving average at the beginning of April; it’s been floating round there since
- Many experienced investors and market traders watch this and take it as a market timing signal to move out of equity before the “onset of a large downturn”
- We should be wary of using such “signals” though, they are not accurate every time, and we’re not necessarily headed for the bear market everyone is predicting
The Stupid Blockader
- When it comes to financial planners, it helps to be clear about their purpose if you’re going to pay them for their services
- A good financial planner will help you clarify your goals and set you on the right path to realizing them—and provide some unbiased arbitration for you and your partner on decisions
- As well as being able to hold you accountable for your actions, a good financial planner is the blockage between you and the stupid investing mistakes everyone is capable of
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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