The Fifth Beatle of Bull Markets
Top 5 of the Week of February 12
John Kingham heads up our Top 5 this week maintaining that there are issues with one-year investment performance metrics for UK Value Investor. Eddy Elfenbein examines the U.S. stock market’s least-known bull market on his blog, Crossing Wall Street. From Bps and Pieces, Philip Huber looks at the broken record pundits from the bond market are playing.
Jesse Felder, author of The Felder Report, uncovers a problem with passive investing. And Larry Swedroe, writing for Alpha Architect, examines the balance of risk and behavior in value stocks….
The Problem with Reviewing One-Year Investment Performance
- Reviewing short-term performance is one of the most unhealthy and pointless habits an investor can undertake
- The market is way too noisy, and equity returns for short time periods are majorly impacted by random volatility instead of any particular company decisions or investment approach
- Instead, consider multiple one-year returns over a larger duration or returns for longer periods than one-year to get a great cross-section of metrics
The Fifth Beatle of Bull Markets
- Between June 1949 and September 1955 the U.S. stock market experienced what is the least well-known of the bull markets in history
- The Dow tripled in this time to 487.45 from 161.60, and the market started during one recession before continuing on through another
- It is probably the most forgotten in history because there was no major crash to mark its end, no bubbles we can draw connections with, and stocks remained at the high plateau—it was actually different that time
Spin That Record
- Market gurus and pundits play the same broken record for the bond market annually; asking just when the bubble will burst
- For everyone in the bond market for the last ten years, this noise is regular, for new unsuspecting investors all this can be counterproductive leading to bad decisions
- So, any bond market speculation for low duration and high-yield should simply encourage listeners to stop listening and change the record
How do you avoid bond market speculation? Share your comments in the section below
Passive Investing’s Switch-and-Bait Trick
- While some passive investors will be aware of the systemic issue of buying high and selling low that is inherent to passive investing, many may not know of another problem
- Which is that it’s not market cap which outlines weightings in index funds, but float-adjusted market cap—dependant on the size of insider ownership of companies within the fund
- Meaning that passive investors seeking to capture the performance of the market are unwittingly only occupying an inferior version of it
Which Way Do the Scales Tip?
- Research demonstrates that value stocks tend to provide higher returns than growth stocks
- But this has led to questions as to whether this premium is risk-based or due to behavioral errors and subsequent persistent mispricings?
- Evidence suggests that there is both a logical risk-based explanation to value premium and support for behavioral explanations
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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