The 411 on Financial Scams and Trendy Investment Bubbles
Top 5 of the Week of June 20
In this week’s week Top 5 we open with Ben Carlson, author of A Wealth of Common Sense, sharing a memo sent to President Bush in April of 2001—6 months before 9/11—that tries to predict the future regarding geopolitical events; so he encompasses market history in a similar way. Joshua M. Brown, of The Reformed Broker, warns us of the danger of making ‘deadly’ assumptions in wealth management. And Walter Updegrave from Money warns us to stay away from offbeat ETFs.
With the whole world watching the UK at the moment following the ‘Leave’ verdict of the EU Referendum, it’s hard not to speculate what will happen next? Cullen Roche from Pragmatic Capitalism shows us that we’re all forecasters and asks us each; which kind? And finally, Robert Powell of Market Watch writes that he believes Brexit is not all we, as investors, have to worry about…
The Market in Retrospect
- The 1940’s was a striking era in market history; people were just rallying after the Great Depression only to be hit by two enormous crashes in the stock market—marking “the worst economic decade”
- The 2000’s—or Noughties—seeming golden in comparison, minting out Internet millionaires left, right and center
- Through to today, an age of secular stagnation, interest rates and inflation that “will never rise in the future”, and a lack of innovation, a grim outlook; but as the memo for Bush teaches us, the future is not set in stone
The 411 on Financial Scams
- Beware of ‘financial advisors’ coming out of the woodworks in your various social circles—they do not have your financial interests at heart; only theirs
- Beware ‘financial advisors’ selling sophisticated structured products on behalf of ‘distinguished’ firms—respectable investments will be discovered by investors without the extra sales tactics
- Fiduciary advisors are more client-centric; seek one out for creditable investment advice
Trendy Investment Bubbles to Avoid
- ETFs based on major social trends are not capitalizing on anything shiny or new
- Companies of all sizes that become collated in these ETFs will have been benefiting from these ‘trends’ for years already, which should reflect in their share prices’
- The concept also goes against the grain—and benefits—of portfolio diversification as focusing on a specific niche or theme will end up in you being concentrated in just a few industries
Forecasting Type A, B, or C?
- The Foolish Forecaster: the investor who makes calls on short-term market movements; by extending your time horizon you increase the odds of getting a more accurate picture
- The Oblivious Forecaster: makes predictions based on historical data; though it’s empirical, concentrating performance predictions on the past offers little reflection for the future
- The Probabilistic Forecaster: understands the future won’t look like the past and that it’s difficult to predict; creates a reasonable forecasting model based on the probabilities of many potential outcomes
Future Investment Concerns on the Horizon
- Just as concerning as the Brexit results in the UK’s EU referendum yesterday so are the outcomes for US politics, also offering uncertainty for the future
- Though bond yields are up, there is no such thing yet as a risk-free rate; only “lots of places now where you’re guaranteed to lose money”
- Another major cause for concern are overvalued markets, boring to talk about and difficult to measure but not paying attention to it could create an issue
- The perception of value of ‘today’ is always uncertain, so if we must, we have to assume that today is right, to then be able to use that as an anchor for how different circumstances will affect the future
Concerned for the market future? What type of forecaster are you? Any market predictions of your own? Share your answers in the comments section below – start a discussion today!
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 Babinow 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.