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One Portfolio Does Not Fit All

Top 5 of the Week of January 2nd

Kicking off our first Top 5 of 2017 is the author of Basis Pointing who teaches us that winning funds aren’t always what they seem. A Wealth of Common Sense’s Ben Carson discusses fitting portfolios to investors—not the other way round. And Joachim Klement from Enterprising Investor cautions us against certain tactical investment techniques.

Larry Swedroe of calls us to change our behavior as investors for better financial success. And Micheal Batnick, writer of The Irrelevant Investor blog discusses the ongoing worry investors have if interest rates continue to rise…

Winning Funds Are Often Actually The Losers


  • Of the best performing percentage, out of 680 unique funds with twenty-year excess gains, their performance lags within “one of every three rolling three-year periods”
  • During these periods, investors would have spent a third of two decades watching a significant shortfall
  • On average, the winning funds underperformed against the losing funds by 9 percentage points—not great results

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One Portfolio Does Not Fit All


  • When advising on the correct fund for your clients, tailor them to meet their individual specifications—one they are likely to commit to with relative ease
  • Take in the academic research available but ensure that you aren’t involving your client with a fund they don’t understand and will exit promptly
  • As an investor, steering away from conventional investing strategies is all to the good but have more than an offhand insight of what you’re getting yourself into

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The Shortcomings of Being Overly Tactical


  • Tactical asset allocation is a strategy that involves careful monitoring of potential short-term market opportunities to optimize returns and lower risk in your portfolio
  • Also known as timing the market…
  • The underrated threat of this practice is that when moving away from a stock or trade, you create a subliminal aversion to comparable investments in the future
  • Reinforcing our tendency to form biases—the closer you are to something (the market) the less neutral you can remain

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Improve Your Investing Behavior


  • The study of financial behavior has grown in the last 15 years as an increasing number of pricing anomalies have been identified according to investing traits
  • One of the anomalies is that investors show bias towards gambling when they pick singular stocks with higher risk, as a result they also have a tendency to trade more often
  • This behavior leads to stock mispricing and overvaluation, poor average gain, and has a negative affect on risk-adjusted returns

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The Rise and Rise of Interest Rates


  • Despite not being an unprecedented event—January 1941 and September 1981 previously experienced similar highs—investors are anxious about current rising interest rates
  • Between that period though, nominal returns on ten-year bonds only experienced losses ten times, with the worst loss occurring in 1969 of 5%
  • In terms of real return (= nominal return – inflation) 10% drawdowns happen way more often, demonstrating that inflation, not rising interest rates, are the true catalyst for bond returns

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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.


Anything you would like to discuss about this week’s top 5? Do you have another favorite that isn’t mentioned here? Feel free to add it below. Let’s start a discussion in the comments section!

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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.