I stand out on the Aptus team for having not played major college basketball, but as an avid fan I can at least contribute to the banter. Complementing the content put out by my playing partners at The Backcourt Report, I periodically share my “Starting Five” posts highlighting the best I can find in the areas of investment management, behavioral finance, and the advisory business. I also throw in a favorite podcast episode, and an “oldie but goodie” post that warrants a new read. Enjoy, subscribe, share!
Rational vs. Reasonable: I think a lot about this, and find “minimization of regret” to be more realistic than “maximization of returns” for most investors. As Morgan says “Better to embrace reality today than pretend it doesn’t exist and be slapped by humility tomorrow.” In my opinion, the best outcomes happen when the advisor can help her client understand a portfolio approach that can be held through good times and bad.
Why Small Habits Make a Big Difference: James Clear’s book Atomic Habits is great; Shane Parrish shares a key insight to which investors should relate. Just as small incremental savings can lead to beneficial compounding effects for investors, the smallest of habits compound into massive results when repeated over months, years, and decades.
The Big Jump: Fee compression for advisors hasn’t resulted in explicitly lower fees, but certainly higher expectations by clients. We’ve heard all kinds of discussion about alternatives to the standard 1% advisory fee, but it’s rare to see firms show the results of thinking outside the box. I remember thinking Milestone Rewards was a pretty cool idea, and now Josh Brown shares the actual impact three years into the offer.
Cash or Bonds at Low Yields and a Flat Yield Curve: my favorite investment provocateur perfectly frames an obvious question…are bonds worth it now that short-term rates have moved up? Jake rarely posts anymore, but when he does it’s “can’t miss”, both for the usefulness of the topic and the simple but creative way he takes the other side of the prevailing wisdom.
Simple Heuristics That Make Algorithms Smart: there can be no debate about whether systems make more consistent decisions than humans. But are they better decisions? Probably, but the more instructive question is why not both? As the Behavioral Scientist puts it, what about the mechanical application of simple models and heuristics?
* Off the Bench: InvestResolve hosted a podcast series called 12 Days of Investment Wisdom, and it was awesome. From the simple to the complex, from the micro to the macro, this was a master class in thinking differently about portfolio construction. Not exactly Investing 101, but I think the conversational tone made it far more accessible than it may have been in print.
** Throwback: The Free Lunch Effect, The Value of Decoupling Diversification and Risk from Salient Partners. HT to Corey Hoffstein for pointing this one out, it’s probably a Top 5 for me given its usefulness and readability. Summary…are we really diversifying with an asset like Aggregate Bonds, or simply dialing down potential risk(and by default, potential return)? Do more “risky” alternatives really add risk, or can they actually improve portfolio metrics? This is a practitioner’s white paper, not an academic’s, so when reading it you clearly see these people have lived markets not just read about them.
Hope you enjoy this edition of my Starting Five, join the updates here!