1.5 Percent Is A Rounding Error, Right?

The World’s Most Expensive Hobby (Part 4)

Key Points

  • Households directly hold a significant percentage of stocks, close to 40% of the U.S. equity market.
  • But the average household gives up about 1.5% a year in performance through unproductive trading.
  • Such underperformance can lead to substantial differences over an investment lifetime.

Continue reading “1.5 Percent Is A Rounding Error, Right?”

Classic Cars: Classic Mistake?

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.

Continue reading “Classic Cars: Classic Mistake?”

Beware: This Strategy Could Cause You To Lose Your Shirt.

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. Yikes!

Continue reading “Beware: This Strategy Could Cause You To Lose Your Shirt.”

Do Not Let This Hobby Ruin Your Retirement.

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 “Do Not Let This Hobby Ruin Your Retirement.”