As someone who drank the Kool Aid, I saved religiously, invested periodically into index funds and lived frugally. I ticked every box of the FIRE movement (Financial Independence and Retire Early), but like the majority on an average salary, I realized the dream of early retirement was just a fantasy. High hopes turned to disillusionment and this prompted me to look into some of the most prominent FIRE bloggers and promoters. I discovered that they continuously spread half-truths and myths, while concealing their true sources of income — which is you. …
The stock market is at record highs, everybody is making money, investing is easy — I hate to be the Grinch, but it shouldn’t be this way.
On a total return basis, the Nasdaq-100 is up 39.46% this year, the S&P 500 increased by 17% and the MSCI World index is up by 14.5%. 2020 will go down as an aberration; Covid-19 has accelerated the adoption of digital technology, and governments have unleashed unprecedented levels of monetary and fiscal stimulus to combat the pandemic induced shutdowns. …
I have lost count of the amount of times pundits have dismissed US markets, citing lofty valuations — they subsequently recommend allocations into cheaper markets such as Europe and Asia. I first heard this back in 2013, and had you followed their advice your returns would have been derisory.
From 01/01/2013 to today, you have forgone a return of about 140% by reallocating out of the US.
On the surface investing looks seductively easy, with legendary investors like Warren Buffett telling us to just buy good companies; it is no surprise that many investors are lured into believing they can do the same.
However in trying to emulate them, the average investor typically buys the winning stocks of the last decade (performance chasing), and these are usually the companies with the largest market capitalization. This approach has produced decidedly mediocre results, underperforming the market averages.
Researchers at Dimensional Fund Advisors have examined the performance of stocks following the year they became one of the 10 largest companies…
Terry Smith recently released a new book to mark the tenth anniversary since the launch of his flagship ‘Fundsmith Equity Fund’. Titled ‘Investing for Growth’, it’s a compilation of articles and annual shareholder letters written between September 2010 to August 2020, the book contains a wealth of insights into one of the most successful fund managers of his time.
Since inception (November 2010) the fund has returned 420% (to 30 October 2020), far ahead of its benchmark (MSCI World Index), which returned 183% over the same period. …
The Psychology of Money by Morgan Housel is comfortably the best personal finance and investing book I’ve read. Morgan Housel is a partner at the Collaborative Fund where he writes a regular blog; previously he was a columnist for the Wall Street Journal and the Motley Fool.
What’s refreshing is that Morgan is one of few writers who is conscious of reader’s time; the book is concise (less than 250 pages) and to the point. …
My political party is best for the stock market
False: Markets don’t care who is in power.
The United States presidential election is due to be held on Tuesday, 3 November. One of the media’s favourite pastimes is speculating on its potential impact on the stock market. But the data is unequivocal, markets rise regardless of who is in power.
Buying or selling because your preferred candidate loses or wins the election is fatal to long-term market returns. To illustrate this point, the graph below shows the derisory returns you would have earned on the Dow Jones Industrial Average had…
The outperformance of the tech-heavy Nasdaq 100 (NDX) since the financial crisis has prompted a bevy of comparisons to the infamous dot-com bubble. At first glance these concerns are understandable; from 01/01/2009 to 18/09/2020 the Nasdaq 100 delivered a whopping 916% total return vs. 369% for the S&P 500. This translates into a compound annual growth rate (CAGR) of 21.91% relative to 12.23% for the S&P 500. Like the Nasdaq during the dot-com boom, it is hitting all time highs again, but that is where the similarities end.
Source: YCharts
*Invesco QQQ Trust is an exchange-traded fund based on the…
“The definition of insanity is doing the same thing over and over again and expecting different results.” — Albert Einstein
It is well known that investors buy at market tops, when sentiment is unanimously optimistic and valuations severely stretched. We saw this in the late 1999’s during the dotcom bubble, with widespread euphoria around internet-related companies and record inflows into mutual funds. This was followed by a savage bear market in which the Nasdaq index fell more than 75% from its peak in March 2000. …
The holy grail
Much like the search for the fountain of youth, the quest for consistent market outperformance is a graveyard littered with failure. The reality is that the majority of actively managed funds, hedge funds, private equity, endowment funds and individual investors have failed to outperform a stock market index after fees.
Larry Swedroe, chief research officer at Buckingham Strategic Wealth wrote a fascinating book called ‘The Quest for Alpha’. It details his search for the holy grail of consistent market outperformance, beyond what can be normally expected by chance. He examines the evidence from numerous academic studies on…
