Warren Buffett has one of the greatest long-term investing track records of all time. The chart below shows the excess return (y-axis) over the market of some of history’s best performing investors and the number of years (x-axis) behind each track record – Buffett is way over to the right highlighted in yellow. Buffett’s total excess return over the market, a result of compounding 55+ years of market beating returns, may never be matched by… Read More
By Jack Forehand, CFA I have always thought I am a better discretionary investor than I am. I think I can predict where the market is headed. I think I know which investing styles will work best going forward. When I look back at the current crisis, I am pretty convinced that I saw it coming and that I could have sold at the top and then bought back at the bottom. Of course, none… Read More
The stress of today’s falling stock market is palpable, and investors need to understand the havoc it can wreak on the human brain. This according to a recent article by columnist Jason Zweig of The Wall Street Journal. “To keep it from destroying your long-term investing plan, you will need to manage that stress and restore a sense of control,” writes Zweig, who explains that matters in the current environment are made worse by the… Read More
Many amateur investors stick to active strategies, even when the evidence shows that “it’s more than likely to be a fool’s errand,” because we allow mental shortcuts to lead us to mental errors. This according to a recent Wall Street Journal article by finance professor and author Meir Statman Ph.D. Many amateur active investors think of stock trading as a skill that they will get better at with time and practice, Statman notes, which is… Read More
“When fear defines financial markets, remember Warren Buffett,” says a recent Barron’s article. Buffett once asserted that the secret to beating the market was to “be fearful when others are greedy and greedy when others are fearful,” a simple idea that the article notes can be difficult to follow, “especially now, when no one knows what the coronavirus might do.” The negative market reaction to the recent health threat, the article points out, raises a… Read More
By Jack Forehand (@practicalquant) — No investing factor has been maligned more than the Price/Book in recent years. In a period where value in general has performed very poorly, the Price/Book has struggled more than any of the other common value factors. When you couple that with the fact that the Price/Book’s failure to account for intangible assets makes its validity questionable in a world where more than 80% of assets are intangible, you have a… Read More
The biggest investing risks are born of human decision-making, according to a recent CFA Institute article that outlines behavioral biases and how to combat them. “Biology encourages our brains to take cognitive shortcut that can cause big problems,” the article states, but adds that there are workarounds to these tendencies. It cites comments from psychologist Daniel Crosby, who believes that identifying these biases is the first step to overcoming them. Crosby condenses what academics have… Read More
The AAII Journal recently reported on a survey it conducted to evaluate what lasting impact the 2007-2009 financial crisis has had on its members’ investing decisions. Here are highlights of the results from 227 member respondents: 46% indicated that they changed their investment strategy or portfolio allocation; 22% described themselves as having become more cautious, patient or adoptive of a more conservative approach; More than 8% said they pay more attention to the market; Nearly… Read More
In a recent article for The Wall Street Journal, columnist Jason Zweig writes, “Bit by bit, the myth of the ‘dumb money’ is dying.” Although Wall Street has long characterized individual investors as being “ill-informed, fickle and hapless” and therefore in need of fee-based advice, Zweig argues that the claim is “nonsense” and that “new evidence of its foolishness is piling up fast.” He cites a recent study of Vanguard Group clients that shows them… Read More
By Jack Forehand (@practicalquant) There are so many biases that can hurt your returns in investing that it is hard to keep track of them. There is also no shortage of advice being given on how to recognize these biases and combat them. This advice would lead you to believe that if you just did certain things, you could escape their impact and prevent them from hurting you. There is one major problem with this… Read More