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Tag Archive: Market timing


Starting with Nassim Taleb’s sardonic story about forecasting. As the tale goes, a trader listened to the firm’s chief CDSDEFAULT-1-1economist provide a forecast about the markets and then lost bundle acting on it, getting him fired. The trader angrily asked his boss why he was fired rather than the economist, as the economist’s poor forecast led to the poor trade. The boss replied, “You idiot, I’m not firing you for losing money. I’m firing you for listening to the economist.”

Here is a different sort of “top ten” list of interrelated investment insights and recommendations – mistakes that are both common and deadly – for us to try to correct for 2015 and beyond :-

  1. We don’t prioritize properly in financial planning: Your savings rate is far more important than your rate of return in determining how bright your future is likely to be. However, we are far more likely to obsess over squeaking out a bit more performance out of our investments rather than thinking about ways to save more. Continue reading
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History shows that mutual fund investors generally increase inflows after observing periods of strong performance. They buy at bloghigh prices when future expected returns are lower, and they sell after observing periods of poor performance when future expected returns are now higher.

This results in what author Carl Richards called the “behavior gap,” in which investor returns are well below the returns of the funds in which they invest. Perhaps with this observation in mind, Warren Buffett once said, “The most important quality for an investor is temperament, not intellect.”  Continue reading

Investing in the stock market is a bit counter-intuitive. It would seem that the investor that puts in more time and effort managing bloghis investments should have an edge over other investors. However, this extra effort actually can create serious problems. A more hands-off strategy typically works out better for most investors. This is the power of passive investing.

Active vs. Passive Investing

An active investor is trying to get above average market returns by constantly buying and selling stocks. He hopes to find the most profitable stocks on the market through research and market timing. The problem with this is that only half of investors in the stock market can be above average each year. If your picks go wrong, you can earn less than the average return of the market. Continue reading

Guest post: The Power of Passive Investing

images-1Investing in the stock market is a bit counter-intuitive. It would seem that the investor that puts in more time and effort managing his investments should have an edge over other investors. However, this extra effort actually can create serious problems. A more hands-off strategy typically works out better for most investors. This is the power of passive investing.

Active vs. Passive Investing

An active investor is trying to get above average market returns by constantly buying and selling stocks. He hopes to find the most profitable stocks on the market through research and market timing. The problem with this is that only half of investors in the stock market can be above average each year. Continue reading

Most investors are no doubt familiar with the standard disclaimer “Past performance is not indicative of future results.”  downloadThis compliance truism tends to stay in the fine print, both on paper and in investors’ minds, when they make decisions on the basis of real-time market dynamics.

Even if investors purport to buy into the logic of the “random walk” argument about security prices, in practice they tend to extrapolate recent history into the future (termed recency bias in behavioral finance) when making portfolio Continue reading

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