Debunking Alpha: Why Evidence Based Investing Will Prevail
There is a wealth of hashtag data available. Evidence of the source of investment return has been researched by academics for decades. Their findings show how portfolio construction can capture the return of markets most efficiently. Unfortunately, despite this information being freely available, there still remains massive disparity between investment returns and investor returns.
Passive Income is for Chumps
Here is my attempt to debunk "passive income." You can't get paid something for nothing.
Workers are paid for their time, entrepreneurs are paid for the value they create, and investors are paid for the risk they bear.
This article tackles the misconceptions surrounding effortless earnings and explores the realities of investment income, the work it entails, and the strategies for a healthier financial future.
How to Make Money Day Trading
Occasionally, we encounter financial "experts" eager to share their supposed secrets for rapid wealth accumulation. Separating truth from embellishment can be challenging. Yet, a surefire indicator of a dubious offer is when someone attempts to sell you on the idea of making money through day trading. In this article, I delve into the reasons why you should steer clear if someone claims they can teach you to profit from day trading.
Standing on the Shoulders of Giants
Yesterday the world learnt of the passing of Harry Markowitz. Most have never heard of Markowitz, but his influence is far reaching. Credited as father of modern portfolio theory, his work quantifying risk continues to lay the foundation for how the investment community constructs portfolios to this day. He received the Nobel prize in economics for his 1952 paper simply titled "Portfolio Selection" and his theory remains a cornerstone for those fiduciaries who recognize risk management as fundamental to client best interest. Our firm’s investment philosophy is heavily influenced by his contributions to the field of finance and economics.
The Looming Recession and What to do About it.
In a world of information overload, a pertinent question is, “Where can I get good, ‘non conflicted’ advice?” For without clear confidence in appropriate expertise the investor is rudder less in the tempest of markets. There is a capital market rate of return to be achieved but the noise generated by market participants and the sales culture that surrounds this multi-billion-dollar industry obscures and confuses the evidence of how this return can be obtained.
This problem is further magnified by considering that human beings are a bundle of inconsistencies, all with our own values, biases, and understandings of how the world works. We are not robots that make strictly rational decisions based on complex models and spreadsheets. We are human, entirely fallible and each with a unique lived experience that shapes the rationale for how we make decisions. Even the best of us are susceptible to base emotions of fear and greed which have the propensity to cloud our judgement and play havoc with our wealth.
Fear, Greed and The Rational Investor: Lessons from the Collapse of Silicon Valley Bank
The world has been watching a train wreck unfold in the wake of the collapse of Silicon Valley Bank. This has sent shock waves through the US financial system that are far reaching, the consequences of which are not yet fully understood. A perfect storm of inflation, rising rates and poor bank governance has caused a frenzy amongst depositors who all at once decided to take their money and run. This has bolstered already heightened pessimism within financial markets with some investors questioning the resilience of the financial system. Fear it seems is contagious.
Superannuation Tax Changes Set Worrying Precedent
Superannuation is a 3.3 trillion-dollar honey pot which has proven to be too enticing for the government not to leave alone. Introducing tax reforms that are said to only adversely affect 0.50% of the population will likely receive little push back from the general public. Whether these reforms are good or bad will depend on your vantage point and where you fit on the political spectrum.
More concerning to me is the rhetoric which has come to the fore in discussing these changes. Increasingly dangerous classist sentiments have been included in the public discussion which highlight a fundamental misunderstanding of the taxation system. Fueling division between the "haves" and "have nots" is in no one's best interest.
Construction Methodology for Optimal Portfolios - Part Three
As a result of clever marketing most people confuse investing with speculating. There is a huge difference between the two. Heaven forbid you would take your investment capital and speculate with it. Speculating is not wrong in its place. It is just that, as a result of millions of dollars spent each year competing for your investment dollar, there is a lack of clarity as to what is a reasonable expectation of return and over what time frame.
This article goes into some of the more granular detail to offer investors an alternative approach to speculation.
Construction Methodology for Optimal Portfolios - Part Two
Risk is one of investors most misunderstood words. Hearing it can produce sentiments of fear, often paralyzing individuals from taking action. The cruel irony is that inaction also comes with inherent risk as well!
Volatility (risk) is the cost of admission to the game of investment. The return you get is the reward for bearing risk. Accepting this premise, prudent investors will do well to ask the question - “Am I being compensated fairly with a reasonable return for the degree of risk that I bear?” This is a question that investors overwhelmingly neglect to ask themselves. Often investors are paying first class prices (high volatility) for sub-optimal outcomes (lower expected returns).
Construction Methodology for Optimal Portfolios - Part One
At the beginning of each year, we are bombarded with headlines that attempt to predict what will happen in investment markets over the next 12 months. How seriously should you take these prognostications? Well, as someone who has monitored them each year, I have to say you should give January headlines almost as much respect as you bestow on magazine horoscopes.
Like astrology, the trick in writing about the year ahead is to rely on the tendency of readers to forget wrong calls and their propensity for seeing patterns in what really is just random noise.
Over the next three weeks I will share how intelligent investors can use a proven methodology to build investment portfolios that do not rely on the folly of predicting the future or timing markets.
What's on the Horizon for Property Markets
The great Australian dream has been said to own your own home. Not too long ago, Japan shared this dream, before it quickly became a nightmare. Are there any lessons that can be derived from what has gone down in infamy as one of history's greatest property busts.
Fundamentals of Investment Risk
As the calendar year draws to a close, investors will do well to reflect on the year that was. Geopolitics, inflation, and rate hikes across the globe are only some of the influences that have impacted portfolios, creating one of the most challenging years for investors in recent memory. Seasoned investors know that risk comes with the territory.
Understanding risk is an absolute must for investors who desire to benefit from good times while retaining the resilience to withstand the bad.
Let's Get Back to the Fundamentals
It has been said that the four most dangerous words in investing is “it’s different this time.” Approaching the end of one of the most challenging years on record in the share market, it’s important to remove ourselves from the fog and review some time-tested investment fundamentals. Is it really different this time?
Navigating the Tempest of Markets
Evidence shows how portfolio construction can capture the return of markets most efficiently. Unfortunately, there is a business imperative of the professional investment community in selling something that has a far lower chance of success. Without clear confidence in appropriate expertise the investor is rudder less in the tempest of the markets.
A Meaningful Financial Plan Includes a Meaningful Estate Plan
No financial plan is complete without first considering your estate. All too often people neglect to consider how their resource will be treated upon their death. There are often traps and pitfalls that aren't always obvious. A sound financial plan looks beyond the grave ensuring your resource is managed in a meaningful way or at the very least, does not cause unnecessary distress for those you leave behind.
Rebalancing For Optimum Outcomes
A savvy investor that instils systematic disciplines when maintaining their portfolio will achieve vastly superior results in the long run compared to those that speculate on the next top performer. Periodically rebalancing your portfolio significantly increases your odds of success.
It’s After Tax Returns That Count
With recent surges in inflation, investors need to remember that it is the real return after inflation that truly counts. Unless this is well understood, then investors may find themselves in a worse position after they have paid their dues to the tax man. Careful tax planning and consideration of how different types of investments can work to offset this risk will go a long way as prices rise.
The Quality Portfolio Demands Quality Time
The investment landscape is rife with inconvenient truths. One such truth is that money managers by and large fail to deliver value over and above freely available market rates of return over time. If this was widely understood by investors, then many financial advisers, fund managers and superfunds would be out of a job. Too often consumers are intoxicated with promises of high returns by sprookers and salesmen serving their own self-interests. A sober mind is needed that looks to the evidence and quiets the noise.
It’s Time to Weigh Anchor
In the tempest of markets, we are all vulnerable to anchoring our investment approach to fallible fixed points of reference. This can create the illusion of safety or an inflated perception of our own abilities. It is important to remain humble and reflect where our investment anchoring fallacies might lie.
Beware The Enemy Within
There are two ways to be fooled. One is to believe what isn’t true: the other is to refuse to believe what is.
When it comes to picking winners in the stock market, individuals (men in particular) continue to prove themselves the fool. Strangely, market participants seem to be more overconfident the less clear an outcome is likely to be.