Welcome to the July 2013 Carnival of Passive Investing, a monthly collection of the best and most intelligent Passive Investing strategy articles around the internet. Some people foolishly want to beat the market (want being the key word) but we just want to invest with it.
The purpose of the carnival is two-fold:
- To provide a forum to showcase articles and research in passive investing strategies (i.e., investing in ETFs, index mutual funds, etc., in such a way that one avoids employing active stock picking). By investing with the market, we are able to beat 70-80% of investment “professionals.”
- To create a community of passive investment bloggers to connect and share expertise.
The theme for this month’s carnival is: Behavior Gap sketches by Carl Richards. You can take a look at Carl’s sketches here. I’ve selected a few of my favorites to add some color and fun and under-the-radar learning experiences for the July 2013 carnival. I like Carl’s work for several reasons. One is that he focuses on the emotional side of the stock investing project and I view mastering the emotional side as the key to long-term success.
Another is that his sketches communicate to us without words. There are too many words written about investing! Seriously, we have heard the words so many times that we tune a lot of the out. Sketches can hit us with a familiar point in a fresh way. That can be a mighty good thing if the sketch is the thing that finally permits an important point to sink through our thick skulls!
Here are this months Editor’s Picks:
1) Jason Hull presents The Stock Market Is Irrational. Does This Mean You Can Take Advantage Of It? at Hull Financial Planning.
Juicy Excerpt: I fully believe that the market is irrational. I also believe that there’s probably someone out there who is killing it in the market because he’s cracked the code and knows how to take advantage of all of the irrationality of retail investors. I’m convinced that he’s not going to sell you that information in a $397 course or webinar, either, and get rid of his investing advantage.
2) David presents Diversification: Why Not Put Everything in Whatever Will Go Up the Most? at Marotta on Money.
Juicy Excerpt: In any given month, the diversified portfolio never performed better than all of the five indexes. Asset allocation means always having something to complain about. It will never “win.” Not even one month. This is an obvious result of diversification. The diversified portfolio is a weighted average of all five underlying indexes. It can’t possibly be better than all of its components. It will always lose to something. On average it comes in third or fourth (of the six) each month.
3) Rowan Wellington presents What Is Efficient Market Pricing in the Securities Markets? at The Skilled Investor.
Juicy Excerpt: The preponderance of evidence is that securities markets are efficient and tend to reflect available information. Whether you believe markets are efficient is very important to your decisions about appropriate investment strategies and tactics.
Juicy Excerpt: Reading Room (Passive vs. Active) contains a plethora of links to research papers. Some are listed above. In all cases, the authors make the case that passive index funds beat active funds due to cost.
Juicy Excerpt: There’s certainly nothing wrong with owning cap weighted index funds. There are alternatives available: equal weighted and fundamentally weighted index funds are just two possibilities. You can use a fund screener to make your search easier. Both are relatively new compared to the history behind cap weighted indexes. Understand, each has its own flaws too.
That’s it for this month’s edition of the Carnival of Passive Investing. Bloggers, be sure to submit your passive investing posts for the next Carnival (link).