Monday, October 20, 2014

Another Great "Coffee Break" Post from Jim Parker

Interesting Links from the Web


When markets become volatile, as we have seen recently, emotions can come into play. How should you deal with this?
In this week’s Coffee Break, we look at the link between emotions and our finances and how we can re-frame the feelings to get better outcomes.


One response to market volatility is to attempt to forecast how markets might evolve. Can we tactically anticipate what might happen to stocks, bonds, currencies and commodities? The evidence suggests not. As an alternative, this writer suggests forecasting your emotions, instead of the markets.

We can’t forecast markets. But we can forecast how we might react to volatility. http://bit.ly/1CeWXEq


Our fear-or-flight stress response was a life saver when we were on the run from sabre-toothed tigers. But it’s not that helpful to us as investors when markets are volatile. This author suggests we draw up a set of rules to guide investment decisions and develop the discipline to stick to them.

The bad news about emotions is they can wreck your investment experience. The good news is they are manageable. http://bit.ly/1wvOb2Y


Negative emotions can often be more intense than their positive counterparts. And when mixed with money, they can really cause problems. What to do about this? This writer says feelings like anxiety, regret and jealousy are all manageable if we tackle them head on and reframe the problem.

Negative emotions can play havoc with our finances. Here’s how to deal with eight nasty feelings. http://bit.ly/1wvQoeA

Thursday, October 16, 2014

WHY DIMENSIONAL / AUSTRALIA

Since opening in Sydney in 1994, Dimensional has tapped into its global strengths in research and application to actively engage with the local investment community, while maintaining a consistent philosophy.
Over two decades, Dimensional has built a strong partnership with Australian and New Zealand clients—a partnership grounded in the joint aim of delivering good outcomes for investors.
Founded in the US in 1981, Dimensional came to Australia in 1994. For their first five years here, they were purely a trading centre. By 1999, they were offering strategies to local clients.
Over the subsequent years, they have grown alongside many of those clients. Their relationship is built on a solid foundation of a consistent investment philosophy and a time-tested set of ideas that is bigger than the firm itself.

Monday, August 04, 2014

Coffee Break-Interesting Web Links from Jim Parker

It might have been the ancient Chinese philosopher Confucius who once said that life is really quite simple, but we insist on making it complicated. Investing is similar, with most of the key lessons fairly straightforward.
In this week’s Coffee Break, we focus on some key truths about investing and ask why people so often insist on overlooking them for opaque and complex alternatives.


One myth that people cling to is that somewhere out there is a Tiger Woods of money management. But the fact is no champion can stay on top forever. What’s more, there can be no return without risk. In this article, a veteran broker lists seven fundamental truths about investment. http://bit.ly/WDwkMd


Many of our money worries are self-inflicted. We spend emotional capital worrying about things we can’t control and forget about what’s really important to us. In this article, Carl Richards shows how “letting go” and stopping seeking to control everything can improve our sense of financial balance. http://bit.ly/1nx15MJ


Many of the problems we experience in investment originate from our belief systems getting out of whack with reality. We have a knack for interpreting events through our own prejudices. In this article, Barry Ritholtz recommends at least recognising our own failings. http://bv.ms/1rsJNPW


DFA Australia Limited | Level 43, 1 Macquarie Place, Sydney NSW 2000, Australia

Monday, May 05, 2014

Perils of Picking Stocks

by Jim Parker, DFA Australia

Investing for the long-term is not just about taking risks, but about understanding which risks are worth taking and which are not.
One persistent myth is that investment success depends on picking individual stocks. The media wants you to believe this myth because it’s harder to write stories about the broader forces that drive long-term returns.
1. The Re-Education of a Brash Young Stock Picker
You can get lucky picking stocks, but you don’t get lucky for long. In fact, those who pin their long-term wealth-building hopes on individual stock tips usually are mistaking speculation for investment. In this article from The New York Times, the writer focuses on some finance professionals who learned the stock-picking lesson the hard way.
2. Busting the Stock Picker’s Myth
Do you ever read in the financial press that “it’s a stock picker’s market”? This is a phrase used by traditionally active fund managers to justify charging you big fees for their supposed expertise. It’s true that sometimes these bets can pay off. But, equally, if you’re unlucky, you can build a big hole for your portfolio. This article looks at the evidence.
3. The Stock Promotion Sting
The growth in online financial media and the demise of traditional fact-checking journalism are providing opportunities for stock promoters to dress up product selling as financial advice. An investigation in the US found advertisements about stocks are being characterised as editorial. It’s another reason to be wary about stock-picking stories.
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Monday, April 14, 2014

Investments versus Investors


Interesting Links from the Web from Jim Parker

You won’t read this in the Australian Financial Review, but the typical investor doesn't do nearly as well as the typical investment.
The reason for the gap between advertised returns and what we receive is our own behaviour – the theme of this week’s Coffee Break.
We publish these links each week to provide you with client-ready articles that reinforce a patient, disciplined approach to money.
1. How Investors Get it Wrong
Why do so many people not get the market rates of return owning to them as investors? The answer is simple, says respected US economist Tim Harford. We trade too much, we try to time the market, we don’t focus on cost and we fail to diversify.
2. The Science of Investor Behaviour
Did you know there is an entire branch of psychology devoted to how we fool ourselves as investors? Chasing past returns or mistaking luck for skill or sticking to close to home are all documented “behavioural biases”. This article lists some of the major biases and shows how you can deal with them.
3. Squiggly Lines and the Future
Financial journalists appear on the news every night showing you lots of squiggly lines on graphs and making it all sound obvious. But people go wrong in looking at patterns in past data and turning them into forecasts. This article warns against drawing big conclusions from pretty graphics.
Jim Parker, DFA Australia Limited

Tuesday, March 11, 2014

Not Rocket Science

by Jim Parker, Vice President,  DFA Australia Limited

 


When the media raises the subject of beating the market through astute stock picking, the name 'Warren Buffett' is usually cited. But what does this legendary investor actually say about the smart way to invest?

Buffett is considered to have such a track record of picking stock winners and avoiding losers that his annual letter to shareholders in his Berkshire Hathaway conglomerate is treated as a major event by the financial media.1
What does he think about the Federal Reserve taper? What are the implications for emerging markets of the Russian military advance into the Ukraine? What does a China economic slowdown mean for developed markets?
Buffett has a neat way of parrying these questions from journalists and analysts. Instead of offering instant opinions about the crisis-of-the-day, he recounts a folksy story about a farm he has owned for nearly 30 years.
Has he laid awake at night worrying about fluctuations in the farm's market price? No, says Buffett, he has focused on its long-term value. And he counsels investors to take the same sanguine, relaxed approach to liquid investments such as shares as they do to the value of their family home.
"Those people who can sit quietly for decades when they own a farm or apartment house too often become frenetic when they are exposed to a stream of stock quotations," Buffett said. "For these investors, liquidity is transformed from the unqualified benefit it should be to a curse."
While many individuals seek to ape Buffett in analysing individual companies in minute detail in the hope of finding a bargain, he advocates that the right approach for most people is to let the market do all the work and worrying for them.
"The goal of the non-professional should not be to pick winners," Buffett wrote in his annual letter. "The 'know-nothing' investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results."
As to all the predictions out there about interest rates, emerging markets or geopolitics, there will always be a range of opinions, he says. But we are under no obligation to listen to the media commentators, however distracting.
"Owners of stocks…too often let the capricious and irrational behavior of their fellow owners cause them to behave irrationally," Buffett says. "Because there is so much chatter about markets, the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits -- and, worse yet, important to consider acting upon their comments."
The Buffett prescription isn't rocket science, as one might expect from an octogenarian, unassuming and plain-speaking man from Nebraska. But he rightly points out that an advanced intellect and success in long-term investment don't necessarily go together.
"You don't need to be a rocket scientist," he says. "Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ."

1. 'Buffet Warns of Liquidity Curse', Bloomberg, Feb 25, 2014

Tuesday, January 28, 2014

Coffee Break: Keeping Your Nerve


Interesting Links from the Web from Jim Parker

Long-term thinking can be tough in an increasingly short-term-focused world. So it pays to occasionally reflect on ways of counter-acting the daily noise that threatens to drain our energy and commitment.
In this week’s Coffee Break, we highlight articles that reinforce the principles of discipline and sticking to the long-term goals you set at your most lucid moments.
We publish these links each week to provide you with client-ready articles that reinforce a patient, disciplined approach to money. We don’t necessarily endorse everything in each article, but there are always a few nuggets to use.
If you see anything worth sharing, please let us know.


The first rule in sticking to a long-term goal, like building a retirement nest egg, is accepting that it’s hard to do. No-one is perfect and we wouldn’t be human if there were not the occasional lapse. This article provides some useful tips for staying focused, like resisting the all-or-nothing approach and breaking down big goals into lots of smaller ones.


People who are tempted to break a diet often say they feel a sense of panic and lack of control. The strategy for dealing with this often comes back to having a framework for times when emotion threatens to get the better of us. The same principle applies to long-term investing. This article from The Wall Street Journal provides some practical tips to beat temptation.


Long-term thinking has always been hard, but it’s an even bigger test these days in the face of a 24/7 news cycle and the flood of digital information coming our way. Every day, it seems, there’s a new “unprecedented crisis”. Sometimes the best way of dealing with the madness is making fun of it. And that’s just what this article does.


DFA Australia Limited | Level 43, 1 Macquarie Place, Sydney NSW 2000, Australia | T: +61 (2) 8336 7100