- 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)”
- 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 endeavour 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)”
- There may be strong psychological reasons why financial firms can command such high fees.
- Ultimately, these high fees can lead to the systematic transfer of wealth away from investors’ pockets.
- The Efficient Market Hypothesis suggests that actively invested mutual funds face an impossible challenge in outperforming their passively invested counterparts.
- Nevertheless, the fees for actively managed funds are much higher than those of passively managed funds.
Continue reading “Passive is the New Aggressive (Part 3)”
- According to theory, on a forward-looking basis, stocks are priced such that each stock should offer its investors with the same risk-adjusted return as any other stock, irrespective of past performance.
- Based upon this line of reasoning, outperforming the market is exceedingly challenging.
- Given this, passive investing aims to keep investment choices to a minimum with the goal of selecting an appropriate benchmark and aligning investments as closely as possible to said benchmark, with minimal fees and cost.
- Alternatively, active investing involves making purposeful decisions regarding the selection and timing of investments, in an effort to nevertheless outperform the market.
Continue reading “Passive is the New Aggressive (Part 1)”