Fat Cats and How to Make Bank in Banks
Top 5 of the Week of May 23
In this week’s Top 5, we here at Become A Better Investor would like to congratulate Bob Seawright from Above the Market on his 1,000th blog post, about gaslighting in the financial world. Arjun Jayaraman and Ryan Myers ask the question in Financial Advisor Magazine; will value investing revive itself for a comeback tour of previous historical outperformance? And Andrew Hunt of Value Walk advises us that creative thinking and professional investing should walk hand-in-hand.
Jay Jenkins from The Motley Fool has created a helpful guide to analyzing and investing in bank stocks. And Tee Leng Goh of Value Edge shares his thoughts on luck and investing—are we all the skilled investors we thought…or not?
Money Manager Fat Cats
- Gaslighting in finance: money managers collecting assets and revenues with their own self-interest at heart before that of their investors, don’t trust investment management ‘truths’
- No matter how you look at it, most findings will show that hedge funds haven’t delivered what they’re supposed to by now—Warren Buffett’s ongoing wager is to showcase the same thing
- Once assets, strategies or an investment approach gains popularity, its performance will inherently suffer—compare early 1990s hedge funds performance to now for a prime example
“The Long And Winding Road”
- Value investing’s a journey akin to the above Beatle’s song lyrics here, hence its unpopularity; it requires patience, stamina, and resolution to outlast the “perceived uncertainty around future earnings”
- Though the journey will go through market periods of sporadic underperformance, don’t forget to keep sight on your destination; ultimately value works by outperforming in the long run
- Historically from the past 25 years, value stocks were more expensive than their peers today, but there’s indication of recovery in the future, value is indeed making a comeback
Creativity Drives Improvement
- Adaptation and innovation should be inherent thinking on the path to successful long-term investing
- Create a relaxed environment, no one is creative if they’re stressed, and seek out diverse investment opinions from a wider range of people
- Accept that you will make mistakes, as we all do, be on the lookout for new ideas, and don’t be afraid of uncertainty; experimental thinking has no set outcome—embrace this
How to Make Bank in Banks
- Factor in risk management; analyze the bank’s performance through past periods of market volatility—do they demonstrate discipline through the highs and foresight during the lows?
- Examine earnings; is their growth resilient enough to deliver returns on investors capital?
- Check out the bank’s economic environment and its valuation; by assessing the price-to-book value ratio
- Finally, discover how the bank treats its shareholders; begin by looking at dividends but conclude by examining dilution
A Stroke of Luck…?
- Luck: something out of our control, or skill: a way of governing luck—consider professional poker player Phil Hellmuth who’s been at the final table for the WSOP events a record 54 times, unachievable without both at least
- “Stocks reverting back to fair value? Analyst coverage? Market rally? Investors realizing the value in the stock?” All are dependent on luck
- Luck is an intrinsic part of investing; understand this and treat it with humility rather than arrogance
Are you lucky or skilled in investing? 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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