Practical analysis for investment professionals
11 July 2014

Weekend Reads for Finance Pros: Bogle, Baseball, and Investment Bubbles

Posted In: Weekend Reads

A few weeks ago, my Twitter account was hacked. If this has ever happened to you, then you know the drill: in a matter of seconds your followers are hit with hundreds of spam tweets. It’s annoying, and time-consuming — it took several hours to delete the offending tweets and the hundreds of accounts that I was suddenly following, and I had to change my passwords on other sites. (Yes, I had broken the cardinal rule of cybersecurity by using the same password on multiple accounts.) But all things considered, I got off lightly.

When it comes to cyber risk and financial services firms, however, the consequences of being hacked are a lot more serious. Just last month, The Wall Street Journal ran an article noting that more advisers are insuring against cyber threats. Ross Gerber, who runs an independent advisory firm with more than $121 million in assets, was quoted as saying that cyber-risk was his “secret biggest fear.” And it’s not just the theft of client money through electronic fraud that is the only risk, the article noted. Clients’ personal data can be vulnerable to hacking, too.

If it has been a while since you reviewed your protocols, you may want to read Financial Planning’s tips for best practices when it comes to cybersecurity. And for a more thorough list, check out the tips from the United States Computer Emergency Readiness team, also known as US CERT, part of the US Department of Homeland Security. (The latest headlines suggest that a fellow agency, the US Office of Personnel Management, may also need a refresher.)

Kicking off this week’s round-up of interesting papers, articles, tweets, and blog posts is a cartoon with a serious message:


The article, safe is risky, is worth reading. Here are some other links you may enjoy:

Economics and The Financial Crisis

Investing / Investor Behavior

  • “If your goal is to create a perfect portfolio you have basically already lost because you are only setting yourself up for disappointment. It’s a pipe dream. There are only investment styles that fit your personality and allow you to meet your needs with a high probability for success,” says Ben Carlson in his blog post In Search of the Perfect Portfolio. “The real ‘perfect’ portfolio is whatever approach allows you to stick with your investment plan without completely abandoning your strategy at the worst possible times.” (A Wealth of Common Sense)
  • Morgan Housel hits a home run in his post, How to Win By Doing Less, which opens with a photo of a baseball player catching a ball that was “coming off the bat at about 90 miles per hour. In less than five seconds the outfielder ran to the exact location the ball landed, down to the centimeter, catching it without a blink to spare.” His point is that players don’t do a complicated mental calculation to know where the ball will land, they use a rule of thumb to know where a ball will land:
    • Align a flying ball in the center of your gaze.
    • Run.
    • Adjust the speed and direction of your run so the angle of the ball stays at the same spot in your gaze.

How does this apply to investing? “Markets are endlessly complicated, investors are endlessly emotional, and there are no points awarded for difficulty. Overthinking things like valuation and modern portfolio theory can be the equivalent of a baseball player pulling out a calculator after each ball is hit, desperately trying to track its landing point with precision. Any time you can tame a complicated system into a simple rule of thumb, you will be better off.” (The Motley Fool)

  • The problem with positive thinking: An excerpt on the “introspection illusion” from the new book Investing Psychology: The Effects of Behavioral Finance on Investment Choice and Bias.  (Abnormal Returns)


Economic Soothsayers

Retirement

Luck vs Skill vs Practice


And Now For Something Completely Different

  • If you’ve ever had occasion to pen something more than a quick email or tweet, this should make you chuckle:

  • An interesting fact, and a health crisis that can be mitigated with inexpensive mosquito nets:

https://twitter.com/conradhackett/status/485850673536180224

  • Here’s another staggering fact, courtesy of @conradhackett of the Pew Research Center:

https://twitter.com/conradhackett/status/486082198118731776

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Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

Photo credit: ©iStockphoto.com/JLGutierrez

About the Author(s)
Lauren Foster

Lauren Foster is the former managing editor of Enterprising Investor and co-lead of CFA Institute’s Women in Investment Management initiative. Previously, she worked as a freelance writer for Barron’s and the Financial Times. Prior to her freelance work, Foster spent nearly a decade on staff at the FT as a reporter and editor based in the New York bureau. Foster holds a BA in political science from the University of Cape Town, and an MS in journalism from Columbia University.

2 thoughts on “Weekend Reads for Finance Pros: Bogle, Baseball, and Investment Bubbles”

  1. Jamal Munshi says:

    great article and lots of nice links for the weekend.
    thank you lauren. btw, the hot hand fallacy is probably also where religion comes from. we have a built in device in our brain that prefers false positives put there by darwinian natural selection. there are quite a few parallels between religion and the stock market. also, i have a few things to say about the efficient market hypothesis if anybody wants to ask.

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