Money Corrupts Even the Best Intentions
Top 5 of the Week of July 23
In our Top 5 this week, A Wealth of Common Sense’s Ben Carlson explains why holding onto wealth is harder than earning it. Writing for Enterprise Investor, Sloane Ortel and Ashby Monk, Ph.D., explore how technology will change the way we make investment decisions. And from Fortune Financial Advisors, Lawrence Hamtil makes the case for low-volatility in barbell strategies.
Quantitative Trading blogger Ernie Chan argues that loss aversion is not a behavioral bias. And Morgan Housel, a partner at Collaborative Fund, reveals some of his top rules when it comes to money…
Money Corrupts Even the Best Intentions
- Though the Forbe’s 400 list of the world’s richest people looks the same each year, it’s not as steady as it may seem
- 99% of those who reach the lofty heights of the list will find themselves back off it within a decade
- There’s a major difference between how much you make and how much you spend—a rule that is often forgotten by people—staying rich still involves saving to build wealth
Outperform the Algorithm
- Technology and algorithms are changing the way investing decisions will be made in the future
- We imagine though that automation in decision-making adds speed and precision, but that’s not necessarily the case—such automation only means a set of guiding rules
- Organizations should continue to attempt to outperform algorithms because those that work with public pension funds, endowments, and sovereign wealth funds offer risk-aware patience instead—which is equally as valuable as algorithms
Strong Barbell Strategies
- Barbell strategies are called so because they are heavily weighted at both ends with not much in between
- Recent studies have shown the benefits of pairing equal-weighting with low volatility as well as equal-weighting with a momentum strategy
- Even more interesting is the strong performance indicated by a momentum and low-volatility barbell strategy—which didn’t suffer deep or long drawdowns either
Do you use barbell strategies? Share your comments in the section below
Two Sides of the Same Coin
- Loss aversion—when people prefer to avoid losses over acquiring equivalent gains, so they refrain from taking a gamble—has been deemed an irrational behavioral bias
- This irrationality drives the idea that “professional risk takers” would accept the alternative gamble and choose to play the game in the hopes of a possible win
- However, this doesn’t take into account the context of loss aversion in a repeatedly risky game; making it the rational option rather than an irrational one
Financial Principles
- It doesn’t matter how intelligent you are if your emotions take over when making decisions about money
- Trading or investing skills are often overtaken by confidence, especially in young men
- Until you’ve outridden a market disaster, your investing skills remain unproven
- Don’t invest irrationally for the thrill—instead, invest rationally to maximize returns
- Build wealth by improving the gap between your ego and your income
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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