Top 5 of the Week of December 04
Happy Anniversary readers! This week marks the 100th issue of our Top 5 of the Week!
Jack Forehand, co-founder of Validea, reveals where we’re failing to make progress in the investment management industry. Author of Pragmatic Capitalism, Cullen Roche, asks if passive investing is really a “dangerous form of freeloading”? And Collaborative Fund partner, Morgan Housel, reveals what everyone on the planet has in common.
Writing for Windham Labs, Savannah Smith defines asset classes for us. And Tren Griffin of 25iq examines what the 1990s Telecom Bubble can teach us…
- Despite major positive growth in substantial areas of the investment management landscape (fees, technology, honesty in financial advice, etc.), there is still one issue we haven’t mastered
- This is the ability for investors to handle and restrain their emotions, especially when it comes to making decisions
- However much improvement is made in investor behavior and psychology, it is still slow progress when it comes to the “behavior gap”—which continues to negatively impact returns
Do you agree this is the biggest investment management industry failing? Share your comments in the section below
No Bull**** Please
- The investing industry has a tendency towards “useless bull****,” which is a problem for the more naïve investor
- So, in the age-old passive vs. active argument, it is important to know that we are all really active investors—just at varying degrees
- Less active investors (passive) require active ones to set the value of the underlying basket of assets in an index fund
- But, as ‘passive’ investors are also paying to establish the fund in the first place, they can’t really be described as “freeloading”
Seven Billion People on This Planet All Have One Thing in Common
“They’re out of touch with almost everyone else”
- Truly important material must be practically experienced for it to sink in as a lesson learned
- And we all live and grow through such very different experiences—which is also true of investing; our risk levels are dramatically different across generations and cultures
- Markets work as well as they do based on these singular gaps in opinion and experiences between everyone—so, it seems it’s a good thing we’re all so out of touch with each other
The Problem With Being Vague
- Asset allocation is a critical decision for all investors, but there are no clear delineations when it comes to defining asset classes
- But being vague about asset classes can be a problem as it reduces the efficiency of asset allocation by not filling diversification potential and being a waste of resources and analysis
- Define asset classes by its independance to others in a portfolio, the ability to raise expected utility (satisfaction), its homogeneous investments, and “capitalization capacity”
Not Every Startup Company Has the Midas Touch
- It’s estimated that a major $750 billion was lost during the 1990s Telecom Bubble—and while it related to the startup nature of the Internet Bubble, it was also entirely singular
- Telecom companies battled for market supremacy in a 1990s gold rush, only to all too swiftly become major market losers
- Not everything a startup company touches turns to gold; treat everything they do as an experiment—beware companies that are betting big on high risk, high reward projects that threaten the whole business
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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