Top 5 of the Week of April 3
In this week’s Top 5, David Merkel from The Aleph Blog examines the classic Permanent Portfolio strategy. CEO of O’Shaughnessy Asset Management, Jim O’Shaughnessy, writes about the personality traits active investors need to succeed long-term. And Ivaylo Ivanov of Ivanhoff Capital looks at past performance impacting future success.
The Irrelevant Investor Michael Batnick reveals how we overlook steady market improvements. And David Ott, for Alpha Architect, discusses the dirtiest words in finance…
Go Classic with Your Investing Strategy
- Traditionally, the Permanent Portfolio approach comprises a quarter each of stocks, bonds, gold, and money market funds
- These equal proportions are an attempt to harmonize the impact inflation and deflation have on these asset classes while securing returns from them as they overshoot
- The result is a simple portfolio strategy with relatively low volatility that is easy to maintain
Characteristics for Long-Term Success
- To be a successful active investor; have a long-term perspective—avoid being sucked into short-term volatility—and evaluate your process as thoroughly as you assess potential investments
- Don’t get caught out by market forecasts and predictions, remain diligent and determined, and stay in control of your mental fortitude
- It’s also important to act based on probability rather than possibility; always work out the odds and be highly disciplined in all your investments
The Link between Past and Future
- The problem with past performance is that it does not indicate future success
- When everyone applies the same market strategies that look promising, based on past returns, they tend to stop working
- For long-term investments to prosper, they must go through short stages where they lose money
- So, either stay firm with the same strategy and go through periods of some loss or try many and stick with the one that works in the current market
What the Newspapers Don’t Report
- In the last nine years, there has been an extensive list of headlining events in the stock market that have given us reasons to sell stocks rather than keep them
- From oil spills, earthquakes, and debt crises, to Ebola fears, Brexit, and the recent U.S. election, our global financial media reports on all of it
- What the headlines fail to share are the gradual improvements the stock market has made—the reasons to buy—as reflected in the 260% rise in the same nine-year duration
Dirty Ol’ Market Timing
- Market timing has a bad reputation because it’s mostly an unsuccessful endeavor for even the most seasoned investor
- Timing based on instinct, stock pricing, current events, and financial forecasts will bring you only frustration and loss
- However, managed futures with trend-following strategies have shown good results with regards to market timing
- Adding managed futures to a buy-and-hold equity portfolio “may or may not earn better returns” but may at least lower your overall volatility
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.