Top 5 of the Week of July 18
This week in our Top 5, we kick off with Ed Monk’s take from The Telegraph on the current state of the stock market; which is leaving experienced investors scratching their heads in disbelief. Larry Swedroe of ETF.com discusses the fusion of Value and Momentum strategies and their power. And Michael Batnick, author of The Irrelevant Investor, teaches us to keep our financial cool following major geopolitical events of uncertainty.
Meredith Jones, the writer of the blog MJ Alternative Investment Research, examines the mismatch in fund managers’ and investors’ expectations of each other. And Michael Kay from Forbes asks what we’d do with all that free time if we just stopped watching the stock market…
Share Safety is Becoming Expensive
- Given recent events, investors expect to start looking for lower-priced, alternative, safe assets to invest in, moving away from “risky shares” but at the moment all asset types seem overvalued
- Companies with long-term demand and ‘safe’ profits are highly sought after, and so their prices keep rising despite expectations that they can’t possibly continue that way
- High share prices are making it increasingly difficult for investors to determine whether they are worth the extra money; causing traditional valuation methods to be overturned
The Value and Momentum Power Mix
- Despite individual research on both strategies for the past 20 years, no one has ever uncovered what the combination of Value and Momentum can do when working together
- Some investing approaches occasionally work in one market and not another, but there is evidence to show that both Value and Momentum factors work in all markets
- By employing the two strategies, you gain from their negative correlation; due to lower risk and higher returns, leading to a superior Sharpe ratio
Keep Emotions Out Of It
- Sadly, there will always be cataclysmic events that rock the world stage, but they can’t be predicted and trying to strategize for them financially is futile
- History has demonstrated time and again that geopolitical events do not always have the expected response in the stock market; showing highs where investors would expect lows and volatility
- Don’t let your emotions following these incidents influence any decisions on your portfolio
Expectations Vs. Reality
- It’s unrealistic for investors to expect their fund managers undivided attention, to never lose their money, and not be making anything from management fees
- The reality is no fund manager can continually outperform, they all have other investors to balance time with, and fees don’t mean fat bonuses all the time but probably include running costs
- Look for a fund manager who mitigates your risk appropriately, can learn from losses, and whose fees reflect the true value of the fund’s “bottom line”
Time Isn’t Money; It Never Returns
- Consider the time spent by some investors watching, assessing, calculating, and above all speculating (basically gambling) on the stock market
- Time which is misspent; investing is most successful as a long-term strategy; short day to day occurrences mean nothing in the grand scheme
- Trying to time the market and pick stocks rarely works for any but the lucky few, and as you can’t outsmart it, steal back that time spent watching it and use it for something more meaningful
Do you watch the market regularly? Is it a habit you picked up from your parents? Share your comments in the section below
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.