How to Avoid Being a Boiled Frog
Top 5 of the Week of April 11
Heading up this week’s Top 5, Dr. Daniel Crosby of Nocturne Capital teaches us to deal with with our “money illusion” by learning from the parable of the boiling frog. Richard Turley at the International Banker uncovers why words like “Socially responsible, ethical, sustainable” are buzzing around in the investment industry. And follow Mark Sievers, president of Epsilon Financial Group, 7 tips to handling market volatility.
Mark Melin from ValueWalk continues the debate about investment concentration and who, if anyone, it works for. And Morgan Housel—from The Motley Fool—showcases Hedge fund manager Mohnish Pabrai, a disciple of Warren Buffett, as an unusual investing role model and discover how probabilities show that you can be wrong and still make money.
How to Avoid Being a Boiled Frog
- A frog thrown into boiling water will jump straight out, but one that starts off in lukewarm water is unaware of the danger and stays until it croaks
- Money illusion: the disconnected view we have of our finances being—unaware of what money we hold in real value and instead focus on the nominal; an illusion of ‘stronger’ buying power
- While overspending is risky; the alternative treasury flooding during economic downturns—instead of buying equities for long-term value—is equally ill-considered
Responsible Investing; Not Just an Ethical Fad
- More and more mainstream funds are considering environmental, social and governance (ESG) standards when making investment decisions
- The impact of increased ESG awareness by companies is proving positive, as the effects of ignoring these factors are such that long-term brand identity, consumer trust, and share price, can be extinguished in seconds
- Not a ‘New Age’ concept concerned only with social responsibility; recent research shows the trait adds not only to the sustainability and profitability of a company, but also long-term investment returns
How to Cope with Market Volatility
- First three months of this year are a perfect example of market volatility; causing understandable reactions of anxiety and uncertainty
- To deal with these; remember that if some investors are selling stocks, others are buying, and the market isn’t set in stone so don’t waste time trying to predict it
- Avoid making rash judgments and don’t forget that markets and economies are not the same things
Hindsight Is Always 20-20
- While many accumulate wealth through concentrated investments, there is a long drawn out debate on the method’s validity
- Extreme wins through concentrated investing are the stuff of legends, it works for a few only; the odds of being an extreme winner are 7% against the higher probabilities of becoming a catastrophic loser at 40% odds
- A perfect example of an investor who should have diversified is Martin Shkreli: his concentrated investment in Valeant Pharmaceuticals saw a personal loss of over $40 million in 2014—given his actions though, some would say he deserved it
- Looking at the past, 75% of investors with concentrated portfolios would have benefitted from diversification, sadly, hindsight can do nothing more than show us this, and hopefully teach us to become better in the future
May the Odds Be Ever In Your Favor
- Despite infamously investing in the company Delta Financial which went bankrupt—but not before many investors copied Pabrai’s investment bet—Pabrai does not apologize and stands by his gamble
- Investing in stocks is a game of probability even if the odds look good you may lose, and yet, still turn a profit
- Balance the level of risk you can handle and learn to accept loss as part of investing—a skill worth developing
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.