Top 5 of the Week of December 5
Heading up our Top 5 this week, The Intelligent Investor Jason Zweig shares his insights on the neuroscience of financial decision-making. Johnny Hopkins writes why Mohnish Pabrai is one of his favorite investors for The Acquirer’s Multiple. And David Merkel looks at the GDP impact on stocks following Donald Trump’s election in his Aleph Blog.
James Rickards, author of the recently released The Road to Ruin, writes for City A.M. about the potential crisis we face under Trump’s presidency. And Ben Carlson of A Wealth of Common Sense shares why being diversified is no fun, but that doesn’t mean we shouldn’t…
There Are No Patterns Only Chance
- As humans, we endlessly search for patterns where there aren’t necessarily any, in investing and life
- Our left-brain hemisphere drives us to search for correlation and patterns in the belief that we can “figure this out”
- We make stock predictions by looking for order where there isn’t any—stocks are far too random and unpredictable for this to work though
Short Selling Stocks Is A Limiting Maneuver
- Investing guru Mohnish Pabrai believes strongly that short selling stocks has an unlimited downside and little benefit
- You short sell a stock you don’t ‘own’ in anticipation of the price decreasing—you ‘borrow’ the stock from a broker then buy it back at a lower price (if the price goes down) and profit on the difference
- The maximum return you can ever make is 2:1 when you short sell, but the risk for loss is “uncapped and infinite,” making it a fool’s bet
Short sell or not to short sell? That is the question. Share your comments in the section below
Investing Reality Versus Expectations
- In the wake of the election and its agitated aftermath, many are expecting Trump and potential new presidential policies to impact the GDP, and also, stocks
- Though in the long-term, stocks should see positive influence from a growing economy, there is no certainty that a growing GDP will mean a rising stock market so good investors will stoically keep their expectations separate from reality
- Make any necessary minor adjustments as the situation pans out but remain faithful to your investment plan
Are We Sailing Straight for the Next Financial Crisis?
- Donald Trump is set to inherit a financial system headed straight for another global panic if the trends from history are any indicator
- To avoid this future; the whole financial system would need to be scaled down, but this would mean breaking up big banks, an unlikely outcome
- Crises in the past (1994, 1998, and 2008) have each required more drastic intervention to overcome them—the world will watch Trump’s administration with interest to see how it survives the next one
“U.S. Stocks Have Slaughtered International Markets…
- …throughout this cycle.” Making it hard to stay diversified in foreign stocks when seeing these type of returns
- Short-term it’s difficult to see the benefits, but long term, over 15 years, the fund returns are comparable; U.S. +7.8% to International at +6.3%
- It’s necessary to remember that there is no rationale to cycles, they can turn at any moment, so while diversification may not be fun, it’s the intelligent investment strategy to take
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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