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Weekend reading: “Dumb money” versus loud, expensive, and scared money

Weekend reading

Good reads from around the Web.

Josh Brown is a curious blogger and acerbic wit who publishes financial market arcana for his fellow investment pros, sprinkled with the odd post about how stupid and venal some of them are.

I like his blog, The Reformed Broker, a lot, even though it’s wildly inconsistent and goes into the unlikely-to-prove-profitable ‘guilty pleasure’ bracket alongside spread betting and CNBC1.

Anyway, this week he flagged up two factoids revealing how so-called ‘dumb money’ can be pretty smart.

In his post Why Behaviour Is Half The Battle, Josh shared a graph from Fidelity showing how keeping up steady investment throughout the turbulent market has delivered a solid result for American pre-retirees:

401k-trends-chart-1

He notes:

Behavior, ie continuing to contribute through the difficult conditions of the Great Recession and Credit Crisis, was about half the battle. Market performance did the half of the heavy lifting and those who did the right thing have been2 richly rewarded for it.

These simple investors don’t realize it, but they have outperformed almost every hedge fund manager and smart-ass market-timer in the universe.

Or perhaps they do realise it? Anyone who digs through our passive investing HQ should have a good grasp of the essentials. (i.e. That returns from expensive fund managers lag those from cheap index funds, and forecasting the market doesn’t work).

A couple of days later Josh brought us stats from Merill Lynch revealing that retail investors – that’s the likes of you and me – were happily buying the shares that gibbering money managers were throwing overboard as the market tanked.

Josh comments:

The hedge fund segment sold again last week, three in a row. They are now net sellers of the equity market on the year – they were only net buyers during the March and April period of new highs, because, en masse, they are essentially benchmark-chasing pussies who jump in and out of the tape like they’re “managing risk” and then lever up like maniacs when they begin to trail the markets.

… and of course they charge 2-and-20% for doing so. Then again, I’m blogging about how silly they are, and they are driving Ferraris. Who’s the muppet?

I wonder what car Josh drives? Metaphorically speaking, I mean. Perhaps he takes the subway when it comes to actual non-metaphorical transport.

At least he won’t get lynched by hedge fund managers down there.

From the blogs

Making good use of the things that we find…

Passive investing

Active investing

  • The permanent portfolio and a falling gold price – Crawling Road
  • The right temperament for buying stocks – Clear Eyes Investing
  • Value stocks are lagging ‘glamour’ stocksGreenbackd
  • The latest cyclically-adjusted P/E ratio for the FTSE 100 – RIT
  • Are Carillion shares a good investment? – UK Value Investor
  • A laundry list of emerging market investing options – Wexboy

Other articles

Product of the week: Want a personal loan? Two things. First, you’d better have a very good reason, because it’s far better and cheaper to save up instead. Second, Zopa now offers the lowest rate on loans up to £15,000, according to Money.co.uk. It’s charging 4.9%.

Mainstream media money

Note: Some links are to Google search results – these enable you to click through to read the piece without you being a paid subscriber of the site.

Passive investing

  • Proper diversification beats simple 60/40 long-term [Chart]BlackRock
  • How would Warren Buffett handle today’s market? – Swedroe/CBS

Active investing

  • Gold was a horrible investment from 1500 to 1965 – The Atlantic
  • Profiting from harder-to-sell stocks – Swedroe/CBS
  • I confess, buying Co-Op hybrid bonds was a mistake [Search result]FT
  • Ken Fisher: The US isn’t Greece, and nor is the UK [Search result]FT

Other stuff worth reading

  • Why aren’t annuities rising with the 15-year gilt rate? – Telegraph
  • Generation rent laments Thatcher’s ‘property revolution’ – Telegraph
  • The depressing new phenomenon of “rent-to-rent” – Guardian
  • London house prices at highest-ever premium to rest of UK – Guardian
  • Gold price approaches biggest quarterly slump for 93 years – Bloomberg
  • The world has a million more millionaires (12m in total!) – The Economist
  • Pension funds may see a silver lining in interest rate cloud – Reuters

Book of the week: I hear Guy Thomas is to release an epilogue to Free Capital, his inspiring book on private investors who live entirely off their investing wits. The chapter will reveal “what happened next” to the 12 investors profiled, and will apparently be made available on his publisher’s website for download as a PDF.

Like these links? Subscribe to get them every week!

  1. Which I just remembered he also appears on. Maybe I’ve got a man crush? []
  2. Josh actually wrote “ben”, but I am happy to correct the error and make him look good, due to my man crush. []
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{ 8 comments… add one and remember nothing here is personal advice }
  • 1 dearieme June 29, 2013, 3:54 pm

    “Gold was a horrible investment from 1500 to 1965”. And if we still had new worlds to find that might prove highly relevant. And now we all use fiat currency too. We’re gonna keep a bit of gold (though our sale of most of ours, some weeks ago, looks a happy fluke.)

  • 2 dearieme June 29, 2013, 4:02 pm

    Another good investment that I can recommend is Fixing the Interest Rate on Cash ISAs a Year or Two Ago. I suppose the lesson is that if you diversify you’re likely to get a happy fluke on something.

  • 3 dearieme June 29, 2013, 4:24 pm

    When I say “gold” I mean ETFs: I’d like to have some sovereigns but our bank branches all seem to have stopped having safety deposits, so I have nowhere safe to keep them. It’s odd: from our point of view the sole remaining advantage of banks over building societies or the likes of First Direct was their safety deposits. Now I expect to move our current accounts accordingly.

  • 4 Michael @ The Student Loan Sherpa June 29, 2013, 9:14 pm

    Great links. I especially enjoyed the rent-to-rent article. I wish I was more shocked that nonsense like that goes on.

  • 5 William June 30, 2013, 9:50 am

    @Dearieme
    Assuming you reside in London or have access to London – Metro Bank has safety deposit boxes in all their branches. Also have the advantage of no overseas fees on their debit/credit cards.

  • 6 dearieme June 30, 2013, 11:54 am

    Good for Metrobank – but no use to me, I’m afraid. I wish some entrepreneurial bank would open a safety deposit hereabouts – but the expression “entrepreneurial bank” probably explains the problem.

  • 7 David Stuart June 30, 2013, 1:15 pm

    the josh graph,what impressed me most

    Went from catastrophic lows to new highs in just 4 years,and that’s with Europe in crisis all thru out,keeping a small percentage of cash pays big dividends so your not forced to sell wrong time.

  • 8 The Investor July 2, 2013, 11:49 am

    @dearieme — Have you considered Bullion Vault? (Affiliate link, btw). I have a small amount of money in there, and have been toying with starting to build up my gold position (very very slowly! and to at most 3-5% over the years). They are not FSA regulated but have $2 billion or similar under management, and plenty of the gold bug types have researched them and given the thumbs up. Beware minimum $4 a month storage costs for small sums though.

    @Michael — Yes, this is the sort of thing that happens in inflated markets.

    @David Stuart — Definitely. Being a forced seller of a volatile asset is a terrible situation to be in.

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