Top 5 of the Week of June 5
Samuel Lee of SVRN Asset Management kicks off our Top 5 this week explaining why waiting for market crashes is a bad idea. The Reformed Broker Joshua Brown cautions us against painting our own investment mosaic. And Cullen Roche of Pragmatic Capitalism examines the optimal way to construct your bond portfolio.
Peter Lazaroff, in his self-named blog, explains when ‘less is more’ in investing. And A Wealth of Common Sense’s Ben Carlson questions which investors will stay the course through the next market downturn…
The Right Market Crash? Like Rocking Horse S***
- Many investors sit on cash awaiting a market crash before buying stocks
- Research shows that, on average, this can be a bad idea at any drawdown level—from -10 to -50%—over following a buy and hold strategy in both absolute and risk-adjusted terms
- However, buy and hold doesn’t always win, the best success result lies in waiting for a 40-45% crash before you buy (and holding for at least five years) to capture over half the market’s return
- But these happen maybe once every 18-years—not exactly often
Beware of Constructing Your Own Investment Trap
- Superficially, creating an investment mosaic from data points, news, and economic findings to reinforce your viewpoint can seem “informed”
- On the one hand, when the market fits with this viewpoint, it asserts your profitable—and knowledgable—stance while those around you are losing money
- But on the other, dismissing context and leaving out information that doesn’t suit will sweep you along in your narrow mosaic and trap you—as well as others—if you’re not careful
Are you an investment mosaic painter? Share your comments in the section below
- The all or nothing bias is common during bull markets when big winners are many; these positive returns can have a large impact on overall portfolio performance so you may feel like you want to go all in
- The temptation to chase outperforming assets and adjust your portfolio is huge, but it is risk and not returns that investors are pursuing
- Good portfolio construction is not about building a ‘perfect’ one—there’s no such thing—instead, let diversification play its vital role keeping your portfolio sustainable
Less is More
- Tempting as it is to constantly check the progress of your portfolio; employing a ‘less is more’ approach to checking up on your investments is crucial
- By watching our portfolios constantly, we’re more likely to see losses and react to them, and increasing your trading activity typically leads to more errors
- Accept that investing successfully is, in part, about realizing your losses and moving on, though it’s possible to reduce your chances of loss by investing over an extended period of time
Sadly, There’s No Such Thing as a Do-Over in the Stock Market
- When considered in retrospect, it seems easy enough for investors to re-navigate the market with perfect precision
- Our investment hindsight knows exactly when we should have traded in the past events of our current bull market, and given the opportunity to do it all again we would never have demonstrated any loss
- At the time though, employing the right buying strategy is challenging, and as there is no do-over option in investing it’s best to remain disciplined through any future market downturns
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.