Top 5 of the Week of October 23
In our Top 5 this week, Michael Harris at Price Action Lab argues against the “market is technically overbought” narrative. Yet Another Value Blog’s writer Andrew Walker shares his learned ‘advice’ from 22 months of running a fund. And Collaborative Fund partner Morgan Housel warns us about getting trapped on the hedonic treadmill.
Abnormal Returns Tadas Viskanta weighs up intellect over critical thinking for investing success. And Ben Carlson from A Wealth of Common Sense explains the difference between good and effective advice…
Don’t Believe Every Market Narrative
- Popular indicators suggest that recently the S&P 500 has been overbought—this is when there is a high demand for a certain asset (in this case the S&P 500)
- Untested technical analysis claims by market professionals push this “market is technically overbought” narrative forward for their own benefit
- The narrative fails though when considering stock market indexes because it doesn’t take into account other factors, just simply serves to line professionals’ pockets “at the expense of naïve traders”
Oh, the Irony!
- “Bet the jockey, not the horse” It’s not the company, but the genius behind the company that you’re ultimately buying into
- “If a write up is long, you know it’s good” If a company analysis is extra long, you know the person writing is an expert—don’t read the whole thing, just buy the stock
- “M&A are always transformative, and synergies are always easily achievable” Companies never experience problems with mergers and acquisitions, and, what’s more, they always create shareholder value
The Hedonic Treadmill
- The act of building wealth is cursed by the hedonic treadmill; the more you strive to gain more money, the more it moves your financial goals ever out of reach
- We work hard and worry about getting rich, at the same time as worrying about losing what we’ve worked hard to get
- The counter solution to all this anxiety is to actively seek contentment with what you have, but this will involve stopping the cycle of saving, striving, and sacrificing—which is why we’re all still on the treadmill
How do you handle your hedonic treadmill? Share your comments in the section below
Investing Skills to Cultivate
- You need more than intelligence to be a successful investor—instead, humility and critical thinking skills, rather than intellect, will help you deal with market volatility
- It is far better to have a lower IQ and be calm and rational about your decisions than have a high IQ and be overconfident about your abilities
- The good thing is, if you’re not naturally humble and inclined to deal with your cognitive bias with critical thinking, you can actively cultivate these skills for the future
Weighing Up Good Advice vs. Effective Advice
- For many people, good financial advice is not enough, there is always plenty around, but it does not necessarily inspire action
- Even when the risks are high, being informed and motivated does not lend itself to active change in behavior
- Therefore, financial advisors need to redefine the advice-giving business and go beyond “good” to make all the advice they dispense “effective” instead
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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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.