Investors Should Imagine Pain to Evaluate Asset Allocation

While market worries abound, a recent article in The New York Times argues against trying to predict when the bull market will end or making trades based on those predictions. It adds, however, that there are those who “deserve to worry at any particular moment: those who will need most or all of their investment money soon.” It’s difficult to know, the article says, how much is the right amount to have invested in stocks at any given moment, but a good place to start is for an investor to determine “how comfortable you are with the possibility of losing […]

Focus on the “Known Knowns” When Investing

Among the many parallels we can draw between life’s macro issues and the world of finance, perhaps one of the most compelling is the tendency for people to think they know more than they do. While this can be costly in any context, it can break the bank when mixed with investing. In the field of psychology, this tendency is known as the Dunning-Kruger effect, named after the Cornell University psychologists who studied it. David Dunning found that the main reason for such a bias was ignorance rather than arrogance–that is, that often people didn’t realize how much they didn’t […]

James O’Shaughnessy: Knee-Jerk Investing Doesn’t Work

A quantitative investing guru who uses concrete metrics to analyze stocks, James O’Shaughnessy believes that investors get in the way of their own success by reacting emotionally, writes Validea CEO John Reese in this week’s Forbes. The article outlines O’Shaughnessy’s investment philosophy that, to outperform the market, an investor must choose a strategy and “stick to it, no matter what” as well as his belief that most investors lack the mindset that allows them to be successful. Reese explains O’Shaughnessy’s argument that when an investor chooses an active manager, it is essential to understand the underlying stock-picking process and avoid […]

Hulbert: It’s Time to Sell

Constantly reacting to news headlines, writes Mark Hulbert in MarketWatch, will not only prevent an investor from beating the market, it can also precipitate “attacks of doom and gloom.” He reminds readers how the crash of China’s stock market in 2015 led to “panic selling in the U.S. equity market. In one five-minute window late in August 2015, the Dow Industrials were down by more than 1,100 points.” Hulbert points out that the panic at that time presented a “great buying opportunity.” He argues, however, that “investors never learn” and that, since that time, the U.S. market has suffered three […]