Sky-High Valuations
Top 5 of the Week of June 25
The Integrating Investor, Seth Levine heads up our Top 5 this week with a Writing for Fortune Financial Advisors, Lawrence Hamtil dives deeper into Warren Buffett’s saying that, “Price is what you pay; value is what you get.” And Nicolas Rabener from Factor Research looks at when volatility is a good thing for Mr. Market.
From Advisor Perspectives, Maneesh Shanbhag examines why factor investing in the future will look quite different. And writing for Enterprising Investor, Gaurang Trivedi, CFA, explains how difficult it is to invest without an understanding of accounting and finance…
It’s Not Entirely Their Fault
- We’re pretty quick to lay the blame for changing market conditions at the feet of central bankers—and it’s not necessarily all their fault
- Research shows that instead what we’re seeing is most likely the result of the normal evolutionary process in motion
- Investment markets are, after all, animated—though not necessarily a sentient being, they are ‘alive’—in as much as they express human behavior and so must evolve
Sky-High Valuations
- While investors will bet heavily on the price of a stock, its high price does not always correlate with the quality of the returns
- No matter how disruptive or innovative the business, high valuations will always come back down to earth/reasonable levels
- Sadly, this often comes at the price of having to deal with inferior intermediate-term performance
When Volatility Can Come in Handy
- Global stock markets took a volatile turn at the beginning of 2018 in response to worry about interest rates rising and new U.S. trade tariffs
- The interest rates will continue to impact the global economy due to the degree of debt across the world in all areas; public, corporate, and consumer
- The increased negative impact this state of affairs continues to create could be a worry for investors with traditional equity-bond portfolios, approaches like mean reversion can work well with volatility in the market
How are you responding to volatility in 2018? Share your comments in the section below
The Future of Factor Investing Looks… Different
- Factor-based investment strategies are affected quite significantly by data mining—it’s used to show certain effects and draw particular correlations in investors’ minds
- Apply logical principles to cut through the randomness and noise of data, as factor strategies are at risk of being ineffective in the future
- Don’t be tricked by backtesting—remember that trying to beat the market never works due to the fact that trading is a zero-sum game
Investing With a Handicap
- Being able to analyze financial statements provides an approximate guess of the current economic reality, investors must then determine the future sustainable growth of a company
- Without an understanding of accounting or finance investors are playing a difficult fast-moving game crippled by this lack of knowledge
- If considering overweighting equities, it’s best to focus on ROE (affected by the EPS), rather than P/E ratio which most investors concentrate on
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.