When to Rely on Heuristics
Top 5 of the Week of July 2
Market Fox Daniel Grioli kicks off our Top 5 this week with the view that we shouldn’t dismiss heuristics. From Of Dollars and Data, Nick Maggiulli reveals how investment windfalls can be life-changing—and not always in a good way. And Sean Iddings, co-founder of Intelligent Fanatics, explains that there’s more to life than compounding money.
The Irrelevant Investor Michael Batnick asks what clients want. And The Evidence-Based Investor Robin Powell examines Vanguard’s active funds…
When to Rely on Heuristics
- Often, decision-making based on heuristics is dismissed as lazy and biased because they don’t fit probability theories
- However, there is evidence to suggest that these simple rules-of-thumb have their place in helping to be swift, decisive, and accurate
- There’s a time and a place for heuristics—and investing is one of them according to Professor Gerd Gigerenzer’s three-variable framework over more complex models
Time After Time
- History tells us the story time and again of investors who didn’t know when to quit while they are ahead and lose it all
- From names no one would recognize to men successful in their own rights (Isaac Newton and Mark Twain)—which demonstrates that the same can happen to anyone from any background
- You may believe you’re different, but history says otherwise—if you’re lucky enough to succeed with an investment windfall, try to remember your humanity
There’s Gotta Be More to Life
- Being a successful investor is a common goal for many of us—however, the past is littered with misers who amassed vast fortunes by the time of their deaths but never enjoyed it with the people in their lives
- It is possible to be consumed by an ever-present need to reach financial goals so much that you lose yourself in stocks, bonds, and frugality
- There’s little point in compounding money till the end of your days if you’re never going to enjoy it—so, keep in mind, there is definitely more to life
Are you set to be consumed by your financial goals? Share your comments in the section below
Close the Gap Between Expectations and Reality
- It’s important for financial advisors to keep in mind how their clients’ needs will change over the years
- What is true for their priorities and goals during their mid-years will no doubt change considerably by the time they reach their twilight years
- To maintain a healthy relationship with clients, financial advisors should be straightforward without embellishing their truth and seek to close the gap between clients’ expectations and reality
It’s Still a Zero-Sum Game
- Vanguard’s founder Jack Bogle was the mastermind behind index funds in the 1970s, so it’s unusual for the company to be known for having actively managed funds
- But it’s not about whether a fund is active or passive, it’s all about the cost to the investor—as that’s the “single most accurate predictor of future fund returns”
- Whether the costs are lower than elsewhere though, the numbers show that Vanguard’s funds outperformed no more than any other companies from random chance, not skill
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!
Do you like Top 5 of the Week? Feel free to share it with your friends.
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.