Weekend reading: It’s not perfect, but historical data is the best we have to go on when investing
What caught my eye this week.
Writing a regular personal finance and investing blog isn’t all glamour, acclaim, and partying with insouciant French models, you know.
Sometimes it can even be a tad dispiriting.
You, dear reader, can come across a comment like…
- “I don’t see the point in bonds – I decided not to buy any when I started investing 18 months ago and I haven’t looked back!”
- “Stop trying to pump up FED-inflated shares even higher I bought shares in 1999 and they crashed in 2000 and I lost everything IT WILL HAPPEN AGAIN.”
- “Index funds are for losers. I got my Amazon shares in 2005 when I didn’t know what I was doing and then forgot I owned them and now I’m rich.”
…and you can shrug and be glad you decided not to invest with that particular active fund manager.
(Ha ha. Little joke there, active fund manager friends.)
But as someone who has been writing a blog about this stuff for ten years – well over 1,000 articles in total – it’s hard not to take such silliness personally. Especially when it’s written in the comments of your own website.
It’s understandable that investors in the 1930s, the 1950s or even the 1980s might base their beliefs about investing on personal experience.
Up until the 1990s you had to hunt to find good books about investing.
As for accessing data to reach your own conclusions and devise the right plan – you had to be rich already to buy that data in the first place!
Nowadays though we’re drowning in solid investing advice. Obviously lots of rubbish, too, but there’s so much good stuff being written it’s almost excessive. Filling this page with links every week takes a while, but it’s never for a lack of decent material.
Resources like the wonderful Portfolio Charts has brought data to the masses, too.
So why do some people persist with hokey homemade theories based on just a few years’ personal experience?
Presumably it’s evolutionary. There is good reason to believe what you’ve seen before with your own eyes when another caveman tells you to go cuddle a sabre-toothed tiger.
But as Michael Batnick pointed out in his Irrelevant Investor blog this week, your personal experiences and mine may differ wildly – and when it comes to investing both may be inadequate when it comes to the big picture.
Look at how various cohorts of investors fared with the S&P 500 over the first ten years of their investing life:
Those are extremely different outcomes. As Batnick notes:
Consider an investor who started in 1946 (black) versus one who started in 1966 (light blue).
The former got the chance to invest in a market that compounded at 16.7% while the latter saw stocks compound at just 3.3% while being ravaged by two bear markets.
Now you and I might look at that graph and conclude luck plays a huge role over the short-term in investing.
Some ambitious folk might even believe the graph demonstrates that you need to pay attention to levels of market valuation or momentum when deciding how much to allocate to shares – though I wouldn’t recommend it for most.
But what one should clearly avoid doing is concluding “shares are the only place to be” because you happened to get going in 1946 or “when I hear the phrase ‘stocks for the long run’ I reach for my revolver” because you started investing 20 years later.
True, we can never be sure the future will look like the past.
But it must be better to be aware of a hundred years of ups and downs than to believe investing started the day you opened your broker account.
Asset allocation starts with defining your investment goals – Monevator
From the archive-ator: Bitcoin is a bubble. Probably – Monevator
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1
UK property market is weakest for six years, says RICS – Guardian
Record number of markets have negative total return (in USD) in worst year since 1901 [by that measure] – Bloomberg
UK economy grows at fastest rate since late 2016 – BBC
5.8m Britons excluded from mainstream finance [Search result] – FT
The firms that have switched to a four-day week – Guardian
Chinese headmaster fired over secret crypto-mining operation at school – BBC
43-year old presidential hopeful offering $1,000 a month to all Americans – CNBC
Real wages picking up, fastest growth in nominal wages for ten years – Deloitte
Products and services
Interactive Investor scraps exit fees for all customers – Moneywise
Government announces probate fees hike – Money Saving Expert
Is rent cheaper in the next street? [Interactive map] – BBC
Ratesetter will pay you £100 [and me a bonus] if you invest £1,000 with it for a year – Ratesetter
Would you spend £50 a month, Netflix-style, to go on three weekend holiday breaks a year? – ThisIsMoney
Comment and opinion
Things you see during every market correction – A Wealth of Common Sense
The magic – and danger – of compound interest – Moneywise
What is early retirement like? – Young FI Guy
When things get wild – Morgan Housel
Busting the myths of investment: Do equities outperform bonds? [Search result] – FT
Tracking alpha’s shrinkage [Why ever fewer funds beat the market] – ETF.com
Merryn Somerset Webb: Life begins at 60 [Search result] – FT
You are never done being you – Abnormal Returns
The power of passive [On market/industry structures] – CFA Institute
Inflation, not recession, is the big risk for investors – Forager
You are what your record says you are – Epsilon Theory
Investing in venture capital [I’m writing a series on this, too!] – Value and Opportunity
‘Bonds with a twist’ sends worrying message on risk – The Value Perspective
For stock pickers: Selling Victrex after a rapid turnaround – UK Value Investor
Buffett’s underrated investment attribute – Base Hit Investing
The odd factors: Profitability & Investment [For investing nerds] – Factor Research
Brexit is teaching Britain its true place in the world [Search result] – FT
Pound skeptics turn believers as divorce deal looks near – Bloomberg
Kindle book bargains
The Spider Network: The Wild Story of a Maths Genius and One of the Greatest Scams in Financial History by David Enrich – £1.99 on Kindle
Tiny Budget Cooking: Saving Money Never Tasted So Good by Limahl Asmall – £1.09 on Kindle
The Strategist: Be the Leader Your Business Needs by Cynthia Montgomery – £0.99 on Kindle
A Street Cat Named Bob: How One Man and his Cat Found Hope on the Streets by James Bowen – £0.99 on Kindle
Off our beat
David Attenborough has betrayed the living world he loves… – Guardian
…though on a happier note, the global fertility rate is collapsing – BBC
Britain’s renewable energy capacity overtakes fossil fuels – Reuters
Why the robot apocalypse might not be intentional – Schroders
Trump calls CNN reporter ‘the enemy of the people’ [Video] – Reuters via Twitter
In China, Bill Gates encourages the world to build a better toilet – New York Times
Four forum posts about software that changed the word – Chris Dixon
“It’s a huge positive step forward if you can embrace the fact that you don’t have the edge to beat the markets. It will make you a better investor and leave you wealthier in the long run while spending less time worrying about your investments.”
Lars Kroijer, Investing Demystified
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