Philosophy, God and Mr. Market All Walk into a Bar…
Top 5 of the Week of May 16
This week we begin our top 5 with a little philosophy; more specifically what 17th Century French philosopher Blaise Pascal can teach us about financial risk, according to Jonathan Clements from Financial Planning. Gavin DiStasi, blogger at NerdWallet, advises us that we should get our financial situations on the straight and narrow before we begin investing; until then we’re just gambling. And Dr. Daniel Crosby, of Nocturne Capital, strongly urges us to not trust everything you read or hear in financial media.
Joshua Brown, writer of The Reformed Broker blog shares with us the true worth of a savvy financial advisor. And Newfound Research has us considering the impact of outperformance; and realising that it has to come from somewhere…
Philosophy, God and Mr. Market All Walk into a Bar…
- Pascal’s Wager: the risk involved in believing in God is moderate—believe and live ethically for a couple of hours weekly worship over disbelief and the potential of burning in hell
- How that relates when investing and making financial decisions; pay attention to small risk especially if the potential loss is extreme
- A greater philosophical point: amassing money for greed’s sake is a bigger risk than merely investing money to live comfortably, insurance is a small payment to make to mitigate large risks
Get Your Financial House In Order
- Before you consider buying stocks; build up cash reserves and pay off personal debt, until then it’s risky gambling not investing for wealth accumulation
- Emergency funds will help you survive any unexpected financial crises: having at least a stash of approximately six months salary is a good place to start
- Though it doesn’t make the best asset for returns, cash as a reserve is the best safeguard if you’re disciplined with it; as a back up “Cash is King”
Sort the Signal From the Noise
- Do a background check on your source, sift through any amateur dramatics in the writing, and be aware of the tone
- Any loaded language will also give you an indicator whether the writer has a hidden agenda or is being straight with you
- Do your own due diligence and double check; are these facts or opinions being expressed?
A Financial Advisor’s True Value?
- Good financial advisors are here to save us, as investors, from ourselves; safeguarding us—their clients—from making misguided emotional decisions that may risk millions
- As we get older, though our confidence remains, we all suffer from cognitive decline but recent studies have directly extended a link with that decline to financial understanding
- Overconfidence is the worst factor to fall victim too, irrespective of training or success in other areas we should acknowledge our inexperience in finance and seek professional advice
“For one investor to outperform…
- …another must underperform.” Many investors don’t realize they succumb to a few irrational behavioral biases following market events which can be exploited by investors aware of these biases
- Many investors have an aversion to risk but will overweigh small chances for big payoffs; they prefer a bet with a 0.1% chance to win $5,000 than to receive $5 with 100% certainty
- To make the most of outperforming stocks; follow these two paths, exploit others’ behavioral inefficiencies and take more risk for those greater returns
0.1% chance to win $5,000 or $5 with 100% certainty: which would you choose? Share your answers 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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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 Babinow 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.