The World’s Most Expensive Hobby (Part 3)

Key Points

  • To invest wisely, you need to define a benchmark before you actually make any investment decisions.
  • Even if you have a benchmark in mind, an active investment philosophy brings a whole host of issues when it comes to tracking investment performance.
  • These issues ultimately obscure the true performance of active investors, which makes it very difficult to figure out if one is investing prudently or not.
  • This obscurity is what likely perpetuates an active investing philosophy; however, over time, this can lead sub-optimal investment performance for the average investor.

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The World’s Most Expensive Hobby (Part 2)

Key Points

  • Investing is all about finding a balance that works for the long run.
  • Loss aversion can lead to underinvestment, but overconfidence can lead to concentrated bets, and as we’ll explore in this post, overtrading.
  • According to the research of Barber and Odean, overtrading can cost investors about 7% a year in returns on average.

Continue reading “The World’s Most Expensive Hobby (Part 2)”

The World’s Most Expensive Hobby (Part 1)

Key Points

  • Hobbies can provide lasting benefit by allowing individuals to refocus their efforts away from their careers towards alternative forms of enjoyment.
  • Nevertheless, active investing as a hobby might not be the best use of one’s free time.
  • Not only are the chances of adding value from this endeavor very slim, but also, the costs associated with investing unwisely can profoundly impact one’s long-term goals and aspirations.
  • As an example, most investors often overlook opportunity cost when making investment decisions even though this particular expense can be significant.

Continue reading “The World’s Most Expensive Hobby (Part 1)”