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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.

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Passive is the New Aggressive (Part 3)

Key Points

  • 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)

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Passive is the New Aggressive (Part 1)

Key Points

  • 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)

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Why invest in one thing over another? (Part 4)

Key Points

  • The Efficient Market Hypothesis has plenty of criticisms that are not only important to understand, but also have strong validity, and therefore should not be dismissed.
  • Boom and bust cycles provide strong evidence of pervasive market irrationality; nevertheless, this is not the same as knowing when irrationally exists and knowing when it will go away.
  • It is not enough to be able to spot irrationality because, “the markets can stay irrational longer than you can stay solvent”.
  • Rational and irrational investors may be unduly influenced by behavioral biases leading to the sustained, yet unpredictable mispricings of securities.

Continue reading → Why invest in one thing over another? (Part 4)