Top 5 of the Week of September 12
This week, we kick off our Top 5 with a look at what investors can learn from horse racing according to Micheal Batnick, author of The Irrelevant Investor. Morgan Housel, now a partner at Collaborative Fund, walks us through the difference between expectations and forecasts. And Ben Carlson, writer of A Wealth of Common Sense, shares the money revelations he learned in his 30s.
Vintage Value Investing’s John divulges Princeton professor of behavioral & cognitive psychology Daniel Kahneman’s learned insights into successful investing. And The Motley Fool’s Matthew Frankel reveals five things all investors should know…
Horse Race Betting Behavior Value Investors Can Learn From
- Use the equation Value = Probability x Price for investing success when considering potential stocks; rather than just choosing ones you like the look of
- Don’t give up on your strategy even if it’s unpopular to others and riskier bets seem more exciting
- Today’s investor and horse player share another common point; that there’s no better time than this century to be involved in the stock market and the race track
Forecasting Will Dupe You Into Believing You Should Act…
- By analyzing historical performance of the stock market you can always set certain expectations for the future, but forecasting when those events will happen is very different
- 12 recessions have occurred since the end of World War II; which averages to two every ten years, so expecting the pattern to continue puts you in an informed position
- But it’s important not to let it affect your behavior; forecasting the next recession and trying to time the market in advance will only lead to regret
Mid-life Money Revelations
- Building wealth is about more than living below your means; it’s about driving your career prospects and seeking opportunities to earn more money
- Property hasn’t always been the best form of investment but it’s a great way to plan out your finances, and making bigger payments will improve your returns
- Time is the best investment you can spend money on; your family is the most important asset you have
The Research Behind Cognitive Biases in Investors
- Cognitive biases affect our behavior on a day-to-day basis and also influence our approach to investing
- Anchoring bias; when making decisions (i.e. choosing stocks) we focus heavily on the first piece of information provided and don’t make objective choices
- Loss aversion; monetary losses affect us much more painfully than any pleasure we get from receiving an equal amount in returns
- Narrow framing; investors make shortsighted decisions and don’t consider the context of their entire portfolio
5 Key Investment Principles Whether You’re New to Investing or Not
- By diversifying your investments across different global sectors, your portfolio is better protected
- The best retirement nest egg is constructed with patience and perseverance
- “It’s folly to try and day trade your way to success,” think long-term instead
- Be aware of the money you’re spending on financial costs—great returns mean nothing if you’re hemorrhaging money on fees
Which investing principles do you live by? Share in the comments 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 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.