Tag Archives: indexing

FWB TV: Your Biases — YOU present the greatest risk to your portfolio

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Tim Richards, Psy-Fi Blog

The latest Evidence-based Investor Video  is now available at FWB TV: Your Biases: YOU present the greatest risk to your portfolio.

Markets may be efficient; In 2013, Eugene Fama received a Nobel prize in economics for proving this theory. Yet investors continue to fear the markets when in fact the greatest danger to their portfolio is themselves.

In this four-minute video Tim Richards of the Psy-Fi Blog (pictured) says most investors behave irrationally and that if they insist on trying to buy and sell stocks on their own, they will predictably lose money because of ill-timed decisions. He estimates that such investors can lose between 3% to 4% per year because of poor buy and sell decisions.

Blind spot bias

Many investors suffer from the so-called “blind spot” bias, meaning that while they may be aware of biases (like confirmation bias) exhibited by OTHER people, they’re unaware of the biases they themselves may suffer from when investing.

Richards says the best defence to loss-generating biases is passive investing: using broadly diversified index mutual funds or exchange-traded funds (ETFs) and holding on for the long run.  Only a small minority of investors who are able to disregard their emotions should attempt active trading of securities, and even then Richards is skeptical that such an approach will consistently beat passive investing strategies.

While even passive investors are not immune from irrational behaviour like selling everything during a downturn, their odds are improved by being aware of their biases and better yet by using a financial advisor who is acquainted with the topic of behavioural finance.

After watching the video if you want to learn more, download the free guide, 12 Essential Ideas For Building Wealth.

Trading ETFs can just make dumb moves cheaper

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patmckeoughBy Patrick McKeough, TSINetwork.ca

Special to the Financial Independence Hub

Trading ETFs can work just as well in facilitating dumb moves as it does with smart moves.

Most investors would agree when we say that Exchange Traded Funds or ETFs started out as the most benign investment innovation that has come along in our lifetimes.

The problem is that ETFs work just as well in facilitating dumb moves as smart ones. And there are all sorts of dumb moves that ETFs can facilitate.

In fact, if you get an urge to invest in oil stocks, or gold stocks, or Swedish stocks, or windpower stocks, or any of hundreds of other stock groups and themes, you can act on that urge without doing any messy and time-consuming research on individual stocks—research that may give you pause and keep you from investing.

Manage your portfolio successfully into retirement

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Sensible Investing TV: How to Win the Loser’s Game, Part 9

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Screen Shot 2016-03-09 at 1.44.02 PMSensible Investing TV has posted part 9 of its How to Win the Loser’s Game series of videos, which you can view by clicking here. This 9-minute segment is the second-last episode of the ten-part series.

You can also find it here at Findependence.TV, where all the earlier episodes, plus those of FWB TV, are housed.

David Booth, co-founder of Dimensional Fund Advisors (pictured), says this:

“One of the big difficulties is getting people to stay the course when results are disappointing. It should come as no surprise to people that markets go up and they go down. When they go down, there’s a tendency for people to go, ‘Gosh, Are we on the edge of an abyss? Will things really get bad from here?’

In 2008-2009, it was difficult to get people to stay the course. My heart goes out to these people that were invested in equities, lost half their money then got out and missed the rebound. It may take quite a while for them to get back even again.”

We need to stay the course, and this video shows why …. the culprits will be familiar to many investors: buying low and selling high, panicking at the worst possible time, listening to media noise. There’s also a good segment featuring Vanguard founder John Bogle and the long-term returns that come from dividend yield and earnings growth, as opposed to speculation.  Continue Reading…

FWB Video: Should Stock investors rotate between different industries?

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 The latest video from FWB TV’s Evidence Based Investor Video blogs has been posted: Should stock investors rotate between different industries?. 

In the 3.5-minute video Cambridge stock market historian Elroy Dimson (pictured left) observes that  Investors (and consumers) have a tendency to be attracted to the latest “hot” technology, such as driverless cars or 3D printing.

That might be fine for purchasing cell phones and flat screen television sets but it is not necessarily the best course of action when it comes to investing choices.

Sometimes the emerging “Hot” industry can be a money loser, as occurred early in the 20th century when many auto manufacturers went bankrupt. On the other hand, the “old” staid industry of railways actually performed well for many investors.

Dimson concludes that simply rotating from one hot industry to another is a bad idea for most investors, arguing instead for diversifying both across industries as well as across various regions of the global economy.

After watching the video if you want to learn more, download the free guide, 12 Essential Ideas For Building Wealth

 

Weekly Wrap: MoneySense’s 2016 ETF All-Stars; BMO and Horizons ETF Outlooks for 2016

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ETF word on the green enter keyboard image with hi-res rendered artwork that could be used for any graphic design.Lots of ETF developments to report as we close out January. The February/March 2016 issue of MoneySense magazine includes the latest edition of a feature I spearheaded called the ETF All-Stars.

The focus is on low-cost broadly diversified “plain-vanilla” ETFs but we also included several “Satellite” picks, some of them low-volatility products covering Canada, the US, EAFE and Emerging Markets.

Our six panelists strive not to change  the “All-star” lineup too often, since the idea is to minimize turnover and taxes, while having low-cost portfolios that can be bought and held over the proverbial long run. Even so, each year there there are inevitably a few substitutions and replacements and this time around we modestly expanded the number of “All-Stars.”

BMO’s ETF Outlook 2016

Meanwhile on Friday, BMO Global Asset Management released its ETF Outlook 2016. It noted the ETF industry had another record-breaking year in 2015: globally it grew to more than US$2.9 trillion as of December 2015, with a record US$372 billion in new assets the last year.

The Canadian ETF industry also had an historic year, with a record $C16.3 billion in inflows, and assets hitting just under $C90 billion, which is twice as much as five years ago.

Market volatility and ETFs

The report reprises the market volatility of 2015, notable the China-centric selloff of August 24, the surprise non-hike of interest rates by the Fed on Sept. 16th, and its finally raising them by 25 basis points on December 16. And of course there was the continued slide in the price of oil, which hurts resource-based economies like Canada.

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