SOMETHING FOR THE WEEKEND
A funny thing happened the day after Christmas at the Toyota Center in Houston. An unknown rookie basketball player by the name of Chinanu Onuaku stepped up to the free throw line and threw the ball underarm, or “granny style”, towards the hoop. The crowd gasped and then erupted as he scored the point. invest
Now, I’m less than five foot six, with no hand-to-eye co-ordination, and a very rudimentary knowledge of basketball. But I’m reliably informed there is academic evidence that throwing the ball underarm gives the thrower the best possible chance of making a free throw. Until now, though, it hasn’t been seen in an NBA game since retirement of granny-style pioneer Rick Barry in 1980.
So, why did no professional basketball player until now try to replicate Barry’s success by perfecting the technique that is proven to deliver the best results? According to Adam Kilgore in the Washington Post, “players uniformly resisted it, afraid of looking foolish, standing out as childish or unmanly”. Wilt Chamberlin, who briefly flirted with underarm free throws in the early 1960s, apparently reverted to the conventional style because he “felt like a sissy”. invest
See you in court
As regular TEBI readers know, the academic evidence overwhelmingly shows that most investors are better off investing in low-cost index funds.
But most financial advisers still recommend actively managed funds instead. As a result, investors are ending up with pension pots considerably smaller than they should be.
So, is there a case for suing advisers who carry on investing their clients’ money in expensive funds that fail to deliver? Phil Miller certainly thinks so. A former adviser himself, Phil’s company Pension Focus represents clients who feel they’ve been badly advised.
In this, the first TEBI podcast of 2017, Phil explains why high-fee active funds might become the biggest financial mis-selling scandal in history. invest
A balanced view of rebalancing
There is no single best way to invest. Everyone of us, after all, is different. And although the key principles are irrefutable — the benefits of diversification, for example, or the importance of cost — there are some grey areas. One of those areas is portfolio rebalancing.
I should put my cards on the table. I’m a fan of rebalancing, and I’m guessing that around 90% of what I would call evidence-based investors and advisers are fans of it as well. But many aren’t, and I’m absolutely fine with that. Hey, even Jack Bogle told me he doesn’t do it, and I’m not going to argue with him.
But is rebalancing best practice or not? Well, it all depends on the reason for doing it. For me, the only reason for doing it is to restore your portfolio to the original asset allocation. If you don’t, the danger is that, over time, you’ll end up taking more risk than you can afford to, or that you’re comfortable with; on the other hand, of course, you might be taking less risk than you want to, or indeed less than you need to. Rebalancing ensures a smoother path towards your goals. invest
#Dow20k — it’s only a number
At the time of writing, excitement is mounting that today may finally be the day the Dow Jones Index hits 20,000. Here at TEBI we can hardly wait 😉!
Sorry, I don’t mean to be a killjoy. Humans instinctively find comfort in round numbers. Since the dawn of civilisation, quantifying is one of the ways that we have tried to understand the world. The decimal system is deeply ingrained in the modern psyche. And such is our desire to process complex information simply and neatly, it’s no wonder that numbers ending in 0 — or four of them — appeal so much.
The financial media loves market landmarks. It labels them “significant” or “psychologically important”. Once landmark has been reached, it speculates as to whether prices will “push on” towards the next one, or perhaps fall back towards the last one.
Also worth reading
Better Investing TV, Come on down! (Phil Huber)
10 ways to be a terrible investor in 2017 (Monevator)
The virtues of investing on auto-pilot (Jill Schlesinger)
Passive is growing, but active still holds sway (Ben Carlson)
“Bill to the fund” means “Charge the customer” (Henry Tapper)
UK Parliament urged to probe pension costs (Josephine Cumbo)
Passive investing: smart money or dumb money? (Cullen Roche)
“We can’t direct the wind, but we can adjust our sails” (Tony Isola)
Don’t waste your time looking for the next Amazon (Michael Batnick)
Ad valorem has its merits, but here’s why fixed fees will predominate (Adviser 2.0)
Three out of four American adults report being “financially stressed” (Squared Away)
“Most investors are better off not paying attention to the January Effect” (Wesley Gray)
With markets at new highs, should we be worried about a correction? (Mark Hebner)
Factor premiums “appear quickly, unpredictably, and with large magnitude” (Weston Wellington)
Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.
