Dejan Ilijevski’s article on the financial news media was published in Advisor Perspectives. Learn the difference between entertainment and sound advice.
SCM In The News
Read Dejan Ilijevski’s article in Advisor Perspectives. It explains how noise and nonsense in the financial industry confuses, scares, and nudges investors into making the wrong decisions. Learn how to improve your odds of success instead.
Sabela Capital Markets was quoted in this GoBankingRates slide show article, “What to Do With Your 401k Right Now?”.
“Choose funds with the lowest expense ratios,” said Dejan Ilijevski, president of Sabela Capital Markets. “The funds with the lowest costs tend to be index funds, which are also generally the best option when investing. Research has shown that disciplined investing with a globally diverse portfolio of index mutual funds has in the long-run outperformed — net of fees — more expensive, speculative strategies and actively managed mutual funds. Look for ‘index’ in the fund name, like ‘Total Stock Market Index Fund.’ If they are available in your 401(k), Vanguard funds are a great option.”
“Fees can squander your returns,” said Ilijevski. By choosing funds with no or low fees, you can maximize your retirement savings. Read more
Sabela Capital Markets was quoted in this Bankrate article about market timing, “Morgan Stanley strategist says to get out of stocks — here’s why you should stay in”.
Morgan Stanley has recently cautioned investors to get out of stocks. Should you care? The truth is, Morgan Stanley’s investment chief probably has no more insight than you do about which way the market will go. Like for all other supposed “gurus”, there is no risk in making a bold call. If right, he’ll be considered skilled, if wrong, he will be given a pass.
Why? Well, when you tune in to any financial news channel, you are persuaded with sensationalized market information, enforcing your anxiety about the complexity of the markets and about being left out of the game. The financial news media sensationalizes information in order to make you think that you need their understanding, otherwise why would you watch. The more of us watch, the more they make in advertising dollars.
To help you “make sense” of the recent news, they provide a platform for financial industry insiders. Talking heads on tv with fancy titles must have magical powers to forecast, right? And we actually want these “experts” to be right because then maybe we too can benefit from their understanding.
What these financial news media channels don’t disclaim is the dismal forecasting record of these so-called market “gurus.” Unfortunately, on average they make forecasts that turn out to be wrong more than half the time. That’s worse than a flip of a coin. A monkey throwing darts at a stock board can probably provide you with just as much useful guidance.
So why do we give a pass to these gurus when they are wrong? Perhaps it has to do with behavioral biases, like projecting overconfidence, which leads us to believe that positive returns are attributable to skill, while losses are due to some uncontrollable or unrelated force like bad luck. In reality, when speculating, there isn’t much difference between skill and luck. Yet we tend to overemphasize the winning trading decisions at the expense of the losing ones. So, when a guru turns out to be wrong, then it must be due to some unforeseeable event, like The Fed changing interest rates, etc, rather than their skill. However, shouldn’t these market experts be able to foresee upcoming market-driving events that the rest of us can’t. It’s these tough calls that should define their skill. Surely, if they end up wrong, there shouldn’t be any excuse, right?
The next time that you think about buying that stock or selling your equity portion from a portfolio based on some market expert’s advice, consider the evidence and flip a coin instead. If you are really serious about improving your odds of investment success, pursue a better investment experience by focusing only on actions that add value. Ignore market headlines, tune out financial media “entertainment”, and invest in a risk-appropriate portfolio of low management fee, globally-diversified index funds for the long term. You’ll be more rational and relaxed about investing. Good luck.
Sabela Capital Markets was quoted in this Good With Money article about hedge funds, “Can Hedge Funds Ever Be Ethical?”.
I don’t believe that investors need to separate their ethics from investing. Even sustainability investing does not mean aligning beliefs at the expense of returns. Indeed, sustainable firms can be ethical, efficient, and even more profitable. Unfortunately, the capital markets don’t distinguish among the motivations of the participants. The markets are simply information-processing machines, quickly incorporating all available news and expectations. When hedge funds make bets in the short term, they can still provide liquidity to other participants (even to those of us who think investing should be for the long haul, rather than for short-term speculation) and, by pushing their expectations into the markets, hedge funds may even contribute to the overall fairness of security prices.
The more important question may be why investors still get caught up in the hype, ignoring the evidence and opting for speculation gimmicks. Making bets in the short-term hasn’t been a good idea. Rather, minimizing costs, diversification, and discipline are much more important for your odds of investment success (the opposite of speculation). Capital markets have rewarded long term investors. And, there are so many indictments against hedge funds’ performance. See “Reputation of Hedge Funds is Hacked Back Hard: Research finds the investment vehicles underperform simple benchmarks after fees”; “Confessions of a Jaded Hedge Fund Manager”; “Another Problem With Hedge Funds, They Don’t Even Hedge”; and “How A Toronto fund manager became and indexing advocate.”
Ethics may not help nudge investors away from hedge funds. For many, the phrase ‘hedge fund’ “still invokes Hollywood images of rich white men in pinstripes sipping champagne in million-dollar penthouses as they bank profits from another day’s ruthless stock market trading.” Reality for the investors who make bets with hedge funds has strikingly been different. Just this week, another rock star hedge fund manager is mulling shutting down his fund, “John Paulson mulls shutting down his hedge fund.”
Don’t fall for speculation gimmicks. Anyone can get lucky once or twice. To really hedge against the next crisis, your best bet is to hold a broadly diversified portfolio of low management fee mutual funds.