- Sound investing comes down to focusing on what you can control, while still maintaining a solid understanding the risks associated with what you cannot.
- Risk Management involves understanding and controlling for the uncertainties related to the financial markets (systematic risk) or a particular company (idiosyncratic risk).
- Risk-adjusted return can be quantified by the ratio of expected return divided by risk.
- Volatility is a common, although imperfect measure of risk.
Continue reading “Risk Management 101 (Part 1)”
- The opportunity cost associated with the poor timing of initial investment allocations can be significant.
- After missing out on a period of good performance some investors may be further compelled to employ additional timing measures that can further exacerbate underperformance.
- Market timing, the tactical timing of when to be invested and when not to, although sensible at a high level, is far easier said than done.
Continue reading “Market Timing 101 (Part 1)”
- Human behavior is subject to pervasive bias that rational observers would consider to be irrational.
- Such irrational behavior is consistent with how investors often approach the financial markets, which over time can degrade investment returns.
- Therefore, it behooves investors to better understand common behavioral biases when making investment decisions.
- As an example, overconfidence can lead investors to overestimate their ability to beat The Street.
Continue reading “Behavioral Finance 101 (Part 1)”
- Research suggests that less than one percent of professional active manages are “skilled” at what they do.
- Given this, the odds of picking a solid active manager is not just slightly worse than a coin toss; in fact, the chances are closer to slim to none.
- Therefore, a passive investing strategy may be more sensible over the long run for most investors.
Continue reading “Passive is the New Aggressive (Part 7)”
- Over long periods, a passive investing approach in index funds is more likely to lead to an outcome that falls in line with a given benchmark.
- With an active investing approach, where mutual fund fees are higher, outcomes are far less certain.
- As such, the long-term opportunity cost of an active approach can be significant, and perhaps even disastrous.
Continue reading “Passive is the New Aggressive (Part 6)”