Don’t Worry If You Weren’t Invited to the Hedge Fund Party
Top 5 of the Week of September 19
This week we head up our Top 5 with an evaluation from Ben Carlson, author of A Wealth of Common Sense, on the infamous Japanese bubble of the 1980’s. A Teachable Moment’s Anthony Isola discusses how having a fragile, perfect personality can cost us, as investors, in the long run. And Uma Shashikant, writing for The Economic Times, teaches us that there are no shortcuts to making money in the stock market.
Allan Roth of AARP reminds us why we should be grateful if we weren’t all invited to the exclusive hedge fund party. And Michael Dariano, author of The Waiter’s Pad, shares finance guru Michael Mauboussin’s investing wisdom.
A 1980’s Real Estate and Stock Market Bubble of Epic Proportions
- During the 1980’s in Japan, land value peaked with sky-high valuations and share prices grew 3X as quick as corporate profits
- Investors can take away two sets of lessons from this bubble
- The wrong lessons; that there are times in the stock market where buy and hold doesn’t work, and the US is headed in the same direction as Japan
- The right lessons; that investors underestimate market swings, diversification is critical; avoid home country bias and investing all in a single asset class
Don’t Be an Expert at Success But an Amateur at Failure
- Research shows that investors react twice as sensitively to losses as they do to gains
- Investors will have experienced a portfolio drop of 50% or more twice in the last 16 years, and the odds are that it will occur again
- Investors need to steel themselves for losses and learn from failures or be in danger of being “Fragile Perfects”—those who can’t deal with bad news
- Be optimistic too; if you can’t see a light at the end of the stock market tunnel then why invest at all?
Successful Investing is About the Portfolio Process Not Stock Tips
- Those looking for easy wins in the stock market seek out equity tips and reject the idea of hard work that a stock portfolio with better chances of success requires
- But the odds of finding that once in a lifetime stock to change your life are extremely low
- Instead, a successful investor will learn more about business and the math behind financial analysis
- They will also seek out others who work hard at investing, and understand that there’s no such thing as a shortcut to making money in the stock market
Don’t Worry If You Weren’t Invited to the Hedge Fund Party
- Hedge funds are investments that pool capital; designed to protect investors from market uncertainty by using a number of different strategies to generate returns
- Despite 26 yrs of outperforming, hedge funds have taken a major U-turn with returns of only 2.6% in the last 5 yrs; which doesn’t compare well to the 13% average in the US stock market
- Hedge fund investments have ballooned since 2000 from $189 billion to $2.8 trillion, so it’s “too much money…chasing too few wrongly priced assets”
Don’t Rely On Luck; Invest With Skill
- Sometimes it’s right to bet on longshots if the cost is low, and sometimes it’s right to bet if the cost is high
- To succeed at either understand when the right time is for both; know the odds and the payout
- It’s always worth taking a step back from your inside viewpoint; look at your investments and portfolio from an outside perspective for balance
- Stay on the “planned, rational, organized, act-don’t-knee-jerk-react path” with index funds rather than being tempted to pick and choose equities
Share your investing insights 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.
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!
Do you like Top 5 of the Week? Feel free to share it with your friends.
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.