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The Stock Market’s Driving Factors

Top 5 of the Week of March 20

Ben Carlson opens up our Top 5 this week, asking just how many hedge funds are worth the time and investment effort for the Enterprising Investor. John Szramiak, author of the Vintage Value Investing blog, contemplates the factors behind irrational investing behavior. And Collaborative Fund’s Morgan Housel reveals that the secret to success is in our ability to accept losses.

CEO of Ritholtz Wealth Management, Barry Ritholtz questions the value of stocks. And Peter Lazaroff, in his self-named blog, examines the power of collective knowledge…

How Many Hedge Funds out There Are worth Investing In?


  • Hedge funds gained popularity after exhibiting exceptional performance during the early 2000s, causing a massive increase in the number of funds available
  • Today, there are over 11,000 hedge funds out there worth upwards of $3 trillion—but “size is the enemy of outperformance”
  • Only 2% of that number are producing returns that warrant the fees, and even then, past performance is no indication of future results

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The Stock Market’s Driving Factors


  • As investors, we would like to believe we only ever act with reason and neutrality when it comes to our investments
  • But market data shows otherwise, in truth, the stock market is driven up by our greed and down by our fears
  • Strive to invest with objectivity, apply diversification and risk management to your approach and process your decisions based on quantitative information, rather than emotional responses

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The Art of Losing


  • Just as in gambling and business, the key to achieving success with investing is to survive extended periods of losing
  • Now, the edge you eventually gain may only be small, but effectively being able to absorb your losses is necessary to ‘winning’, and small edges can still produce large payoffs
  • From this approach, you become more optimistic about the odds eventually working in your favor, and you place a higher value in your margin of safety

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“Ritholtz’s Rules of Valuations”


  • For the best estimation when valuing stocks, certain guidelines should be followed
  • Overvaluation can continue occurring for a long time, and cheap stocks can get cheaper still
  • It’s important to focus on the big picture, metrics such as P/E and P/B ratios should be examined in context
  • There is nothing concrete about the idea of ‘fair value’, and you must take into account the many influencing variables stocks are subject to
  • Finally, don’t forget, market psychology plays a significant role too!

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The Power of Collective Knowledge


  • As far back as 1906, experiments have shown that as individuals our thought process is flawed, but when combined within a group that information adds depth to the collective knowledge
  • For investors, trying to pit your unique viewpoint against the collective wisdom of the markets is an error in judgment and overconfidence
  • Avoid trying to outsmart the market, though you may think you have an edge; it’s highly improbable that you actually do when it comes to investing

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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.


Anything you would like to discuss about this week’s top 5? Do you have another favorite that isn’t mentioned here? Feel free to add it below. Let’s start a discussion in the comments section!

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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.