Yes, there IS such a thing in investing as “too easy”
The investment industry has a way of taking a good idea, and over-simplifying it to make a sale. Concepts like “Asset Allocation,” “diversification” and “long-term investing” are the mantras of many investors and their financial advisors. These are 3 good concepts that have been dramatically over-simplified through the years.
So, let’s review each one and you can decide how close you want to get to them. Or, if you should do the social-distancing thing with them. That is, acknowledge their value, but don’t get so close as to put your wealth in danger.
Asset Allocation is a fine concept. You invest in assets that zig and zag differently, so as to reduce the degree of fluctuation in your portfolio. That has a psychological benefit, but also gives you more ways to win over time, since you don’t get into all-or-nothing situations, like people who invest in just 3 stocks, or let it all ride on a crypto currency.
But, Asset Allocation can easily be over-simplified. And when you have your life’s savings on the line, the one who needs to be most aware of that is YOU. The classic mistake I have seen over the years is when people think that simply owning a lot of “asset classes” at the same time, you have accomplished something positive.
Pretty colors, ineffective strategy
In reality, all you have done is created a colorful asset allocation pie charts, with a rainbow of colored slices. More asset classes are not better. The reason is that in today’s markets, too many asset classes move in sync.
This is particularly the case when the market gets nasty, as was the case during the first quarter of this year. Regardless of what stock market sector, industry or theme you owned, they were all being sold off.
For most of our investment lives, when stocks fell, bonds rose. That is, to some, the simplest and easiest form of diversification. However, that only goes so far as falling interest rates. And, they have fallen for 40 years. The ability of a bond allocation to play the role has traditionally is not like it used to be.
Another way to asset-allocate
That’s why my approach to asset allocation is quite different. I prefer to allocate by “offense vs. defense” and by “owning versus renting.” That leads to creating and maintaining a portfolio in 3 segments: Core equity, hedge, and tactical. I have written about this approach here before, and will again, so let’s move on to the second social distance concept I’d like you to consider.
Diversification is like a cousin to Asset Allocation. That’s because it also purports to be about reducing risk by spreading your wealth around. Diversification is an awesome concept. However, it has also been commercialized by Wall Street, to investors’ detriment.
You see, being diversified is not simply about owning a lot of securities. It is also about how much of those securities you own. And, more to the point, it is about how you mix and rotate those securities during a market cycle. Many investors have succeeded in the past by owning index funds that replicate indexes like the S&P 500.
However, owning 500 stocks is not the diversification benefit you might think. During bull markets, the winning stocks tend to dominate the index, as investors pile in to a narrowing group of past performers. This creates an illusion of diversification.
I would rather see investors look at broad markets, and make diversification about reducing sameness within their portfolio. That means understanding what is in the investments you own, and making sure you are comfortable with why you own them.
I track a list of 150 ETFs for inclusion in my ETF portfolios. Of those, 85 are what I refer to as “tactical” pieces, which represent sub-segments of the global stock market.
And, while I am not saying you must replicate that degree of research, I do believe any investor with lots of wealth on the line in the public markets owes it to herself to look a bit below the surface.
Finally, there’s the concept of long-term investing. I will simply say that the long-term is a series of short-term time periods. That is, if you don’t understand your makeup as an investor when it comes to the roller coaster of the stock market, the worst time to find out is during a bear market.
It’s like a boxer in a 15-round match, who finds himself staring up at the sky during round 2, after taking a punch. So much for the long-term plan there.
So, don’t just give in to the concept of long-term investing. This is particularly the case if the person talking to you about it has something to gain financially from you staying fully-invested for a long time. You know, like a steady fee, which they earn on a percentage of assets.
I have no issue with asset-based compensation. In fact, I have lived it for most of my career. But the intersection of investing and lifestyle planning sometimes dictates that risk-management and tactical adjustments take precedence over the “just hang in there with all your assets” approach I hear about too often.
I think it is better to focus on the objectives you have, in real-life terms. Then, convert those to wealth goals, risk tolerance, and all of that good stuff. There is a good chance that there are several stops along the way on that long-term investing train, so to speak.
Comments provided are informational only, not individual investment advice or recommendations. Sungarden provides Advisory Services through Dynamic Wealth Advisors.
These Stocks That Are More of a Gamble Than an Investment – Barron's
Some stock market trading activity has looked an awful lot like gambling as of late, with huge run-ups in companies that have shown little actual evidence of profits, or in some cases, sales.
Academics say there’s more in common between gambling and stocks than you might imagine. And researchers have a simple methodology for determining which stocks are gambles rather than investments.
A research paper released this month found that gambling accounted for about 14% of stock market volume in developed countries, and that stock market gambling is 3.5 times the combined gambling in casinos, lotteries, horse racing, sports betting, gaming machines, and online gambling. The U.S. and Hong Kong have the highest per capita levels of stock market gambling in the world.
The paper—from Alok Kumar of the University of Miami, Houng Nguyen of the University of Danang, and Talis Putnins at the University of Technology Sydney and Stockholm School of Economics—proposes looking at volume over market cap as a way of determining lottery stocks. “We assume that gambling in stock markets involves disproportionate amount of trading in lottery-like stocks,” they said.
The list makes intuitive sense—a variety of travel and energy stocks, such as American Airlines Group (ticker: AAL) and
Broadening out the screen to any New York Stock Exchange or Nasdaq-listed company with a market capitalization of at least $500 million yields even more aggressive plays, such as cannabis stock Sundial Growers (SNDL) and genome analysis specialist
The analysis can also easily be extended across the world.
(ARB.London) headlines the London-listed lottery stocks with market caps of at least $500 million. Solar play
GCL New Energy Holdings
(451.Hong Kong) is the biggest lottery play among Hong Kong-listed stocks.
One perhaps surprising finding from the researchers is that the stock-market gambling helps the broader market function. “Even if gamblers are relatively or completely uninformed traders, they can still contribute to market efficiency by making markets more liquid and thereby encouraging informed trading,” researchers found.
Write to Steve Goldstein at email@example.com
Bitcoin – a Means of Financial Investment – Net Newsledger
When it comes to money and financial assets, it’s only a thin line that separates them. Even though some people classify money as a particular type of financial asset, this, in turn, does pay back little or no interest at all. Other types of financial assets do have huge interests or returns on investments (ROI). Take for example, when you buy stocks and bonds, you would expect to get some kind of interest on it or receive dividend payments, you can even go as far as selling the stock at a very high price in the future.
Even though Bitcoin was developed with the intent of serving as an international currency, there have been changes over the year and the increase in demand for bitcoin has made it a means of investment for many people. Today, Bitcoin has turned into a high financial investment asset that can be used for different transactions.
Bitcoin which is being characterized as a means of financial investments has drawn the interest of many investors and at the same time, it has given room for financial loss. While it can be argued that the line between financial assets and money is very thin, investors’ actions generally have revealed the role asset plays in the economy.
Truly, Bitcoin price chart has really been inconsistent over the years, sometimes we experience a high run-up in price and sometimes, it is followed by some drastic crashes but checking through this chart, it has been studied that it consistently retained a large portion of its gains every time it plummets. Since the first introduction of Bitcoin, it has been the first digital asset to start the current ecosystem of cryptocurrencies. For quite a while now, investors have seen its future as a possible and replacement to the physical money we have now.
Today, the hype surrounding Bitcoin has basically been keeping it as a financial investment instead of using it as a means of payment for goods and services, You can start earning with immediate bitcoin. Jannet Yellen, who is a Former Federal Reserve said that Bitcoin is “not a stable store of value and it doesn’t constitute legal tender. It is a highly speculative asset”.
The amazing benefits Bitcoin introduced to the market cannot be over-emphasized. For one, it is a safe ecosystem for your peer-to-peer money transactions. There are little to no intermediates when it comes to Bitcoin transactions. That is why it is cost-efficient and also very fast. You can send millions of Bitcoin within a few minutes and the cost of sending this is very low compared to using fiat currency. Bitcoin has made international payments so easy in a previously unimaginable way.
If you are an investor looking to invest in bitcoin through the capital markets, then you should do that with Bitcoin Trader.Using Bitcoin Trader provides investors some certain advantages which makes an investment in bitcoin a more reliable option. For one, their system ensures a transparent trading environment through DLT technology. Also, they use trading algorithms that implement HFT trading techniques which generate profits from even the slightest market movement.
When investing in Bitcoin, you can approach it from two different scenarios:
Short Positions on Bitcoin
When there is a Bitcoin bubble (which means rise in prices of bitcoin followed by a decrease in the price), investors might bet on bitcoin decreasing in value. With this, they might decide to sell bitcoin at a certain price, and after some time, they buy it at a price lower than the selling price. Take for example, if you buy bitcoin worth $1000 and later sell it at that same rate, and you wait for bitcoin to decrease in value before buying it back. You would be buying it at a very lower price, thereby making more profits.
But you have to be careful when taking this approach, there is a high possibility that the market might move against, which might result to losing money. Before going for this, as an investor, you should have a deep knowledge about leverage and margin calls.
Long Positions on Bitcoin
With this strategy, investors want a less immediate return. They purchase bitcoin and wait till the end of a price rally before selling it. This process can be approached in so many ways, one of them is relying on the cryptocurrency’s volatility for a high rate of return, should the market move in the investor’s favor. Several bitcoin trading sites like Bitcoin Trader now exist. These platforms have provided leveraged trading. Bitcoin Trader has a trading program that conducts bitcoin trading automatically.
The decision to make Bitcoin a means of financial investment boils down to your appetite for risk. The price could drop drastically, going against you as an investor, and a single online hacking or hard drive crashing can wipe out your stash of Bitcoin with no compensation or repayment. You need to transact with a reliable trader!
India’s risky investment climate – Financial Times
Last year, India celebrated a milestone in its long campaign to attract foreign direct investment, crossing the $500bn mark in cumulative inflows over the past two decades. For the government, it was a welcome piece of good news and a sign that overseas interest remained undimmed. The numbers, however, obscure a less promising reality. India’s economy, hard hit by the pandemic, has fallen into recession and there are worrying signs that the government of Prime Minister Narendra Modi, far from pursuing a path of liberalisation, is turning inwards.
There are good reasons to scrutinise the supposed momentum behind the foreign investment influx. While foreign companies, including Amazon and Walmart, have gained footholds, a shifting regulatory environment has all too often sent the wrong signal to international investors. And although Silicon Valley money poured in last year, a large chunk was directed at a single company: Jio Platforms, the telecom-and-digital services arm of Mukesh Ambani’s Reliance Industries, which attracted more than $10bn from the likes of Facebook and Google.
Foreign companies may be investing but the overriding trend is still through joint ventures or by taking minority stakes in companies owned by powerful Indian entrepreneurs. James Murdoch recently reunited with Uday Shankar on a media venture. All too often, the sums involved are not large and appear to be more defensive plays than a serious attempt to commit to the Indian market.
There are longstanding concerns that Mr Modi’s government, far from being the business-friendly administration that executives had hoped for when his Bharatiya Janata party came into power has, at best, an ambivalent attitude towards foreign investment. It has proven itself to be, in essence, an economic nationalist government. Regulation has remained unpredictable and frequent policy changes, including the recent increase in import tariffs, have fostered uncertainty.
The precariousness for international investors has been exacerbated by New Delhi’s ambivalent attitude to the rule of law, in particular in reference to two corporate tax disputes, with Vodafone and Cairn Energy, which had gone to international arbitration. They stem from a decision by the previous Indian government in 2012 to change the tax code retrospectively, a move that gave it the power to claim taxes for deals struck years earlier if the underlying assets were in India. The government lost its case against Vodafone in September and against Cairn in December.
The government has since challenged the Vodafone ruling. Business expects it to do the same in the Cairn case. It is time for the government to accept the rulings. It should also make clear that it will no longer use or follow up on retroactive tax claims. Both actions would send a powerful signal that India is committed to the fair treatment of investors. Mr Modi commands strong popular support and should ignore dissenting voices that believe the government would look weak to its domestic audience.
There is a risk that the recent backlash that has greeted government proposals to modernise India’s agricultural sector might reduce the incentive to liberalise in general. This would be a shame. As western companies seek to diversify their operations from China, India has a unique opportunity to become an alternative destination for manufacturing investments. As China has shown, export-oriented manufacturing is a critical factor for economic growth. India has a valuable opportunity to signal that it is open for business.
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