Fantasy Investing and Why You Shouldn’t Poke a Sleeping Bear
Top 5 of the Week of September 5
Richard Turnill, BlackRock Global Chief Investment Strategist, heads up this week’s top 5 with a discussion on how our perception about emerging markets is upgrading. Tim Maurer, a writer for Forbes, shares his gripes about fantasy ruining football and investing. And Jason Zweig of The Wall Street Journal warns us of the danger of becoming bored as investors.
Meredith Jones, the author of Alternative Investment Research, clears up some common misconceptions regarding hedge funders. And Dr. Jack Vogel examines when academics disagree about momentum investment findings…
Growing Enthusiasm For Emerging Markets
- With the growth of emerging markets (EM) maintaining steadily, investors are finding them increasingly attractive
- One draw is the “lower-for-longer” interest rate environment, and investors are extending their risk appetite to get involved
- $26 billion has been invested in EM equity exchange-traded and mutual funds since February this year showing a marked interest in the assets globally
Fantasy Investing; “Betting on a Future That is Not Likely to Happen”
- There are financial consequences of subjecting to fantasy as it’s completely removed from the reality of circumstances
- Like how historically the market has made 10% a year on average, so I should expect to make 10% each year; uncertainty is the only certainty in the stock market
- Gold is a good investment when all else is failing; historically, people buy gold when stocks are falling, but that does not make it a good hedge investment
- And that money is everything—it only has what value we give it
Don’t Poke A Sleeping Bear
- Just because the stock market is “sluggish” don’t be tempted to play around with your portfolio to make life more exciting
- In the last month, the fastest growing assets were exchange-traded funds with over $900 million coming into play by funds betting speculators probably seeking a thrill
- Be self-aware and drive back any boredom itches you’re feeling; don’t be tempted out to play by these highly volatile funds
Hedge Funds: Fact Vs. Fiction
- People’s vision of hedge-funders activity is often very far-fetched from the reality, and much more debauched
- More accurately, hedge funds have actually been underperforming in contradiction to what they’re supposed to do through financial market turbulence
- Hedge funding is arguably “more PowerPoint than power suit, power tie, and power steering”
New Momentum Findings to Revolutionize Momentum Investing? Not Really…
- In testing momentum, portfolios are often formed on stocks’ past 12-month performance minus the most recent month
- Novy-Marx (2012) wrote that portfolios formed from sorting on returns from 12 to 7 months before the current month created higher returns
- But before you decide in favor of 12_7 momentum, Goyal and Wahal (2015) did out-of-sample tests to trial Novy-Marx’s theory finding no evidence to support it outside the US
- Conclusively, just as investors disagree on the works of momentum, so do the academics
Which side of the fence do you sit on? Share your comments in the 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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