Top 5 of the Week of June 26
Ben Carlson, for Bloomberg this time, opens up our Top 5 this week with a look at complacency in today’s bull market. The Reformed Broker Joshua Brown tries to solve the biggest problem in the investing world at the moment. And Larry Swedroe, writing for Alpha Architects, discusses the Holy Grail in active mutual fund investing.
Collaborative Fund’s Morgan Housel comments on the lure of pessimism. And Chairman & CIO of Ritholtz Wealth Management Barry Ritholtz explains why we can’t read market sentiment anymore…
No Market Correction? No Problem… Right?
- There is never a lack of things to worry about in the markets; high on the current list of problems is the ongoing low volatility
- A lack of risk is a concern because it can lead to investor complacency, which will surely mean an overreaction when the market eventually does go through a correction
- There’s never going to be a “perfect all-clear” from the markets, and while investors don’t have many other options, they’re not necessarily complacent—just unwitting participants in today’s bull market
Why Is No One Celebrating?
- Given the fact that stocks are rising and the market is setting record highs each day currently, it’s unusual that more investors aren’t celebrating
- But there is no joy to be found in mutual funds or hedge funds or investment banks—all are suffering from the rise of machines in place of people
- Job insecurity certainly eats into any cause for celebration given that 65% of the market is “terrified,” and if professionals aren’t enjoying themselves, it’s no wonder individual investors aren’t either
Seeking the Holy Grail
- Every investor wants to find the Holy Grail of an outperforming mutual fund—though just as with the myth, this quest is impossible
- As well as being a poor indicator of future performance, past performance has minimal worth as a predictor also—active share too has little evidence to demonstrate that it works any better either
- So instead of concentrating on alpha, own a fund that focuses on market beta—and also considers other factors such as size, value, and momentum—to gain higher returns
You Decide on the Point of View
- If offered an optimistic or pessimistic view of tomorrow, our tendency is to readily believe that the future looks bleak rather than rosy
- It’s a survival trait as Daniel Kahneman stated, “Organisms that treat threats as more urgent than opportunities have a better chance to survive and reproduce”
- We focus on our pessimistic mindsets because it easier than being hopeful
- So, maybe it’s better to maintain these low expectations; when we are proved wrong it will, instead, be a pleasant surprise
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Are you a pessimist or an optimist? Share your comments on today’s market in the section below
A Mess of Information
- The dominance of the Internet in our lives has drastically changed the way we share and interpret data analysis and opinions on investing
- While on the surface this may seem easier to ‘read’ the market, the open platform for anyone and everyone to share their thoughts has, in fact, made it much harder
- Picking your way through this glut of information on top of the “usual cognitive biases and filter bubbles” just makes for a mess of confused readings—no wonder we can’t work out market sentiment
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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