September 9, 2021

Part 14: Bringing the Evidence Home

Welcome to the final installment in our Evidence-Based Investment Insights series: Bringing the Evidence Home.

Here, we will simply summarize your key takeaway from each article in our series. We hope you have enjoyed reading our series as much as we have enjoyed sharing it with you.

  1. Group Intelligence and the Market – Understanding group intelligence and its effect on efficient market pricing is a first step toward more consistently buying low and selling high in free capital markets.
  2. The Siren Song of Daily Market Pricing – Rather than trying to react to ever-changing conditions and cut-throat competition, invest your life savings according to factors over which you can expect to have some control.
  3. Financial Gurus and Other Fantastic Creatures – The evidence indicates that any single person's ability to persistently beat the market is more likely to be fleeting than real and long-term.
  4. The Full-Meal Deal of Diversification – In place of speculative investing, diversify! Spreading your assets around dampens unnecessary risks while potentially improving overall expected returns.
  5. Managing Market Risk – All risks are not created equal. Unrewarded “concentrated risks” (picking individual stocks) can and should be avoided through diversification. “Market-related risks” (holding swaths of the market) should be expected and planned for to deliver long-term returns. 
  6. Get Along, Little Market – Diversification can also create a smoother ride through bumpy markets, which helps you stay on track toward your personal goals.
  7. The Business of Investing – At their essence, market returns are compensation for providing capital. In other words, you provide the funds that allow companies to grow, and in return, the market "pays" you for taking this risk through investment growth. 
  8. The Essence of Evidence-Based Investing – What separates solid evidence from flakey findings? Evidence-based insights demand scholarly rigor, including an objective outlook, robust peer review, and the ability to reproduce similar analyses under varying conditions.
  9. Your Evidence-Based Portfolio – Three key stock market factors (equity, value and small-cap) plus a couple more for bonds (term and credit) have formed a backbone for an evidence-based portfolio.
  10. Exploring New Market Factors – Building on our understanding of which market factors seem to matter the most, we continue to unfold evidence on best investment practices.
  11. The Human Factor  – The most significant factor for investors may be the human factor. Behavioral finance helps us understand that our own, instinctive reactions to market events can overtake any other market challenges we face.
  12. What Makes Your Brain Trick? – In our exploration of behavioral finance, we share six deep-seated instincts that can trick you into making significant money-management mistakes. Here, perhaps more than anywhere else, an objective advisor can help you avoid mishaps.

Your (Final!) Takeaway         

When we began our series, we promised to skip the technical jargon, replacing it with three key insights for becoming a more confident investor.

  1. Understand the Evidence. You do not need an advanced degree in financial economics to invest wisely. You need only know and heed the insights available from those who do have advanced degrees in financial economics.
  2. Embrace Market Efficiencies. You do not have to be smarter, faster, or luckier than the rest of the market. You need only structure your portfolio to play with rather than against the market and its expected returns.

Manage Your Behavioral Miscues. You do not have to – and won’t be able to – eliminate every high and low emotion you experience as an investor. You need only be aware of how often your instincts will tempt you off-course, and manage your actions accordingly.