Welcome to the end of the week and another edition of Happy Hour! Just sit back, relax, and enjoy your end of the week roundup of all things interesting in the land of money.
QE Hints
It’s the most anticipated event in years. When is it? How will it happen? What are the consequences? The idea that anything financial lasts forever usually gets people in trouble. While we all have our views of QE infinity or unending QE, I hope you didn’t take it literally. I vaguely remember folks believing the same with housing prices and dot-com stocks. But I digress.
A report came out this past weekend hinting at the Feds QE exit strategy. Much like a kid sending a “Do you like me note – Yes, No, Maybe” to a grade school crush, the Fed wanted to see Wall Street’s reaction.
With that I welcome you to the next phase of the Fed talk. Before it was all conjecture and guesswork. Now, it’ll be focused conjecture and guesswork – and more of it. You’ll get a wide array of opinions and what ifs. Which will accelerate the longer we wait. Don’t hold your breath on any official announcements soon.
The networks will march the doomsayers out arguing extreme scenarios that all end badly. So here is my warning to you – ignore it, wait and see, you’re investing for the long-term, and don’t throw away your strategy over this event.
Amateurs
One of two investing arguments get presented all the time. That the amateur investor has the deck stacked against them and yet have the advantage to outperform the professionals. So which is it?
Unfortunately both are true and the reasons why are similar. It boils down to behavior. As the quote below stresses, chasing, missing out, and the mental mess investing causes leave most to underperform.
The biggest problem appears to be that – despite all the disclaimers – retail flows assume that past performance is a good guide to future outcomes. Consequently money tends to flow to investments that have done well, rather than investments that will do well. The net result is that the actual returns to investors fall well short not just of benchmark returns, but the returns generated by professional investors. Source: Business Insider
Yet, if another investor keeps their emotions in check and stays rational can beat the pros. The hard part is accepting which of these two possibilities defines you. Are you your own worst enemy? Or do you stay under control? When you have the answer build a strategy that protects you from your flaws.
Last Call
- Markets and Memory Banks – reminder that our memory and experience of recent events tend to cloud our judgements.
- In Soccer and Investing, Bias Is Toward Action – or stop messing with your portfolio and let it work for you already.
- Just How Useless Is the Asset-Management Industry? – great read on high cost of asset management and if it’s worth it.
- Michael Lipper: We Are All Just Gamblers – investing is a process of daily gambles and learning from each.
- You Just Can’t Change Some People – if this sounds like you it’s time for a change.
