Guest Post Archives

You know regret if you have ever sold a fund or stock only to see it rise shortly afterwards. Worse yet is when the fund or stock you purchased to replace the one sold underperforms. Some index funds systematically duplicate these regretful transactions through what is called “Index reconstitution.”  As you might suspect, such transactions drag performance down. The widely-tracked Russell index series reconstitutes every June. This year it is Friday June 24, 2016.

As-seen-in

 

A case study in just how easily the media’s headline predictions and warnings can mislead is attached in the essay below. In this essay, Weston Wellington reveals the difficulty of achieving superior investment performance by connecting the economic and financial news dots from 2014.

In an above-average, Lake Wobegon world, financial news would give us a leg up. The reality is that most of what passes for news has been anticipated or acted upon by a lightning-fast trader. This “news” offers no advantage. Better to think like Warren Buffett: have a strategy and exercise patience in executing it. A few pithy Buffett quotes illustrate the idea:

How information is presented—or “framed,” in behavioral finance terminology —influences our perceptions. Whether you hear a market summary on the radio as you commute home, watch it on the nightly news, or read it on screen or in the paper, the financial media often frames the performance in disorienting ways. Jim Parker, Vice President, DFA Australia Limited, proposes three reorientation’s in his essay,“Future Testing.”

 

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The Golden Ticket Trap

In a popular children’s story, the young hero pins all his hopes on finding one of a handful of “golden tickets” hidden among millions of candy bars. It seems many people approach investing the same way.

The notion that the path to long-term wealth lies in locating secret and previously undiscovered treasures in the global marketplace of securities is one regularly featured in media and market commentary.

One magazine, for instance, runs a feature called “Fund Managers’ Secret Stocks,” referring to supposedly “bargain” stocks the pros keep hidden. (How the stocks can be secret when splashed on magazine stands nationally is not explained.)