Top 5 of the Week of January 8
Heading up our Top 5 this week, from ETF.com Larry Swedroe explains the cause behind many common investing mistakes. A Wealth of Common Sense’s Ben Carlson urges us to always consider both sides of an argument. And Nicolas Rabener from Factor Research looks at the impact of year-end calendar effects on factor returns.
The Reformed Broker Joshua Brown explains how simple it can all be if you block out the noise. And writing for Creative Planning, Jonathan Clements warns us that appearances can be deceiving when it comes to “easy money”…
The Best-Laid Investment Plans
- Recency bias causes us to misrespect the market; buying when valuations are high and selling when they’re low
- Even our best-laid financial plans are thrown out the window thanks to recency bias, increasing our tendency to divert from our investment strategies
- Furthermore, it also causes us to be overconfident and underperform in mutual funds—making recency bias the most common cause of many investing mistakes
Do you fall prey to recency bias? Share your comments in the section below
The Bearish Versus Bullish Market Fight
- It’s always a good idea to look at the alternative side of an argument in the market, otherwise, we’re in danger of being prejudiced to our own perspectives
- This is especially true when it comes to the current bearish versus bullish market fight that we’re facing thanks to ongoing high valuations
- As there are legitimate arguments coming from both corners, everyone’s best bet is to consider all available data and realize that no one else has it figured out either
- The beginning of a new year can have a lot of impact on the stock market due to year-end calendar effects, and factor returns are no exception
- Momentum has a tendency to gain in December but lose in January, while Value and Size factors do well in January in the U.S. market
- The problem with this is it means trading during Christmas and New Year’s Eve, making the concept too challenging in practice to achieve
Block Out the Noise & Respect Price and Trend Instead
- Investors can get all wrapped up in listening to market commentary and overthink the situation—especially given today’s stock market
- When it comes to why the global markets are doing so well, it’s simple; global earnings have been steadily improving since 2016
- There’s nothing complicated about it, and investors would do better to respect valuations and the data in front of them over speculation and noise
Don’t Let Appearances Deceive You
- With stock valuations soaring as they are, outperforming in the stock market has never seemed simpler
- There’s a lot out there in the media about how certain stocks are performing outstandingly, while the mediocre ones are getting no press at all
- This skewed perspective can have investors believing they can achieve things on the stock market that isn’t possible—stay realistic and rein your perceptions in
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 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.