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Value Investing and Startups

Top 5 of the Week of March 14

We hope you’ve all recovered from any St Patrick’s Day celebrations this week and to pique your financial interests, we have a variety of articles on offer this week to whet your weekend investment appetite. Price Action Lab analyses the relationship between dividends and the rolling 30-year S&P 500 total returns. Meredith Jones, of Alternative Investment Research, argues that we should maybe ease off our overly rigid appraisal of Money Managers.

Aditya Bhushan Dwivedi, from Your Story, teaches us the ground rules for building an endurable startup are by learning our lessons from Value Investing. ThinkAdvisor’s Emily Zulz shares three different options for retirees to achieve their investment objectives instead of the usual failing cash allocation strategy. And self-assessed expert on both equity and credit asset classes, Cullen Roche (Pragmatic Capitalism) weighs in on why one will always trump the other.

Dividends Declining Importance on Equity Returns

  • For the past six decades, dividends impact on the rolling 30 yr total return for the S&P 500 Index has sharply decreased
  • S&P 500 charts show trend changes after 1960’s, with the dividend impact factor falling to 111% from 420%
  • The path to accumulating wealth has evolved from dividend reinvestments as its chief source to share price gains becoming the new key factor instead

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Grading of Money Managers ‘GPA’ is Too Strict

  • We should not hold our money managers accountable at a single performance indicator, such as return
  • Measure instead your performance expectations for your money manager, the risk target you believe they should be hitting, their communication with you, and the overrall` impact they have on your portfolio
  • Big-picture thinking; let’s be more rationalinstead of narrowin our assessment, grading them too harshly based just on return may harm our overall portfolio performance

Weigh in on this debate with us. Are we being too harsh on our money managers or is return the only thing that matters? Share your comments below

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Value Investing and Startups—A Back to Basics Guide

  • Businesses operate on par to the “old school method of investing money,” i.e. Value Investing, and the ‘back to basics’ rule applies for investors as well as entrepreneurs
  • As the saying goes, ‘Success breeds success, and money breeds money,’ —have real capital behind you, not the “promise of cash” for investments
  • Follow Warren Buffett’s “Circle of Competence” rule; keep within the boundaries of your areas of expertise
  • Accomplish more in business by thinking long-term, as proven by hedge funds for wealth accumulation

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Think Outside the Box With Your Cash Allocation

  • The 7% expected return of a surveyed group of 500 investors while holding a 23% cash allocation in their portfolios, is unrealistic
  • The common view cash is held in fear is wrong, it is indecisivenessbetween choosing an unreliable but traditional fixed income or the risks with plunging all into long-only equities
  • Choose instead to check out an active global bond portfolio, real estate and infrastructure funds, and/or include other strategies such as hedged equity, or long-short equity also

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Why Equity Will Always Trump Credit

  • A common error is assuming returns from the credit market are influenced by ingenious bond traders, rather than the actual source; the investment products themselves
  • For a more immediate revenue, corporate bonds produce a regular steady “fixed rate of income expense paid by the issuing entity”
  • But due to its high-risk nature, equity gains will always yield better long-term returns

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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 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.