Top 5 of the Week of August 21
Aleph Blog’s David Merkel heads up our Top 5 this week asking why the stock market is so high. Joshua Brown, The Reformed Broker, answers the question, “Will stick to buy and hold if the market tumbles?”And Victor Haghani and James White from Elm Funds ask if we should be waiting for the next market correction before acting.
Will Ortel, writing for CFA Institute, reveals how to name your fund. And Peter Lazaroff, guest posting on Market Watch, redirects our focus completely away from active and passive investing…
Today’s High-Flying Stock Market
- There are multiple theories around about the reason why the stock market is so high at the moment
- While it’s difficult to forsee if it will stay high or get even higher in the future, there is no historic precedent for stock markets remaining in top valuations for more than three years
- Given the uncertain nature of the stock market future, it would be wise to reflect on your current asset allocation, and perhaps reevaluate your risk tolerance before it’s too late
A Resounding “Nope”
- According to Mark Hulbert, sentiment and cycle expert, history dictates that when markets take a turn for the worse, “newly converted passive investing diehards” will knuckle under
- And the predicted catalyst for these investors frightening easily? When the S&P 500 corrects by 10 percent, recovers, and readjusts without a new high
- Because investors who have reformed recently to the passive buy and hold strategy will not take kindly to watching their dollars being mistreated by the market
Waiting for the Inevitable
- Investors are watching today’s high market with concern, and many are confidently waiting for the inevitable market correction around the corner before putting cash to work
- While the odds are high that one may happen, the cost of waiting for a correction can outweigh the expected benefit to investing after its timely occurrence
- History also confirms this; evidence shows that higher market valuations are not consistent with negative expected returns
Are you waiting on the inevitable? Share your comments in the section below
What’s in a Name?
- Success in business is rarely attributed to luck, but could language be the key instead? More specifically the name of your fund
- Stocks are 5-15% more liquid if their ticker symbols are found sooner in the alphabet, and being notable and easy to say is obviously a must also
- Whether you use your own initials—or someone elses—or you name it after your strategy, while the right name can help, it’s your fund’s performance that truly matters
Move Your Investing Focus
- Investors can get so wrapped up in defining themselves as active or passive that they fail to see the whole debate is flawed
- Instead, turn your focus to comparing low-cost with high-cost, low-turnover against high-turnover, and rules-based versus a forecast-based approach
- It is only by finding yourself on the favorable side of these comparisons that you put yourself in a position for better investment results
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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