Simplicity is the ultimate sophistication

  • “Finance is a simple industry made to look and sound complicated to justify fees. Active managers even use a Greek word—alpha—to describe what other industries call ‘doing your job.’” — columnist Morgan Housel, writing on 11/6 about the importance of common sense and keeping things simple—in investing, and in life. Read More
  • “I used to think being great at investing long-term was about genius. Genius is still good, but more and more I think it’s about doing something reasonable, that makes sense, and then sticking to it with incredible fortitude through the tough times.” —AQR Capital Management Co-Founder Cliff Asness, quoted by Business Insider on 11/16, talking about the importance of staying power for investing success. Read More
  • “Does this mean that you’re guaranteed to earn a certain level of returns in stocks if you hold them for a specified time frame? No. Will these same results be guaranteed to repeat themselves in the future? No. Has anyone figured out a better way of compounding your money in stocks beyond increasing your holding period? Not many.” —Ben Carlson in an 11/8 article on his blog, A Wealth of Common Sense, on market history showing that the longer the time frame, the better the odds of positive returns. For example, from 1926 to 2015, daily returns were positive 54% of the time; 20-year returns were positive 100% of the time. Read More

The danger in the mirror

  • “Most people think they are above-average investors, and as a result they trade too much and diversify too little. Overconfidence can also lead people to invest during what appears to be a bubble, thinking they will just get out faster than others. Research shows that the more individuals trade, the lower their returns. Not surprisingly, men suffer from this problem more than women.” —University of Chicago economist Richard Thaler, author of the book, Misbehaving, in an interview with Vanguard, explaining how one of many behavioral biases can trip up investors. Read More
  • “The financial markets are the only places I know where people want to pay top dollar and resist buying anything on sale. Where else do people want to wait for prices to go up before they buy? That’s largely on account of recency bias and our emotions.” —Robert Seawright, Chief Investment and Information Officer at Madison Avenue Securities, writing on his blog, Above the Market, on 10/27 about the dangers of investment-related behavioral bias. Read More

Money bedevils old and young, but in different ways

  • “I recommend that everyone should make the most important decisions regarding their financial affairs no later than in the first stage of retirement. At that time, they should also put into place an action plan of how and when others will be brought in to assist (or take over) the decision-making process in the later stages of retirement.” —Fred Vettese, author of The Essential Retirement Guide, about research showing that financial acumen declines quickly as people age, while confidence about one’s cognitive abilities actually goes up. Read More
  • “Nearly half of people ages 25 to 34 agreed that ‘what you might earn investing isn’t worth the risk of losing your money,’ the most of any other generation... And despite having decades to save for retirement, 70% of their portfolios are in cash or cash-like investments.” —Wall Street Journal reporter Kate Davidson in a 10/26 article about a survey showing that a fear of investing is especially common among Millennials. Read More