The Gemfinder Q2 2018

Albeit a late one, this version comes with lots of goodies. What is the Gemfinder anyway?

I write a Gemfinder article every quarter which lists all important articles, books, podcasts resources I found. As expected, the topics will be about investing, financial independence, behavioural finance and psychology.

So basically, if you want to educate yourself, create income streams, save money, and sometimes be entertained, watch this space!

This is not about reporting any news or temporary content. We recently established I don’t read the news.

Hopefully, I’ll keep the content evergreen and you can go back to it months or even years later and find it valuable. Without further ado please welcome the Gemfinder Q2 2018!

Investing

Who are the Greatest Investors of All Time? (PragCap) – We often think performance is the ultimate characteristic. Warren Buffet, Jim Simons, Ray Dalio. But what about those who established the fundamentals and set a success path for us to follow when investing? Think again.

Personal Finance Flowchart – This is a complicated flowchart displaying all logical steps one can take to improve their finances. Credits to the UKPersonalFinance group on Reddit. I liked the path “No short-term goals?” -> “No long-term goals?” -> Spend and Enjoy! 🙂

The above is not financial advice and the author assumes no liability for this. As always, do your own research.

Do long-term investors need bonds? (A Wealth of Common Sense) – We all know that stocks have outperformed bonds. That’s 85% of the time since 1926 on a 15-year rolling period. So why would a long-term investor with a “forever” horizon need any bonds in their portfolio?

When bond yields throw you a curve (Canadian Couch Potato) – Speaking of bonds, this is probably one of the best pieces explaining the yield curve as well as the effect interest rates changes have on different bond durations.

This implicitly explains why some popular funds include a different mix of bond durations instead of only buying bonds of the target average.

Asset Allocation and the UK efficient frontier (YoungFI Guy) – A very well-written article on understanding the efficient frontier from a UK perspective. It also explains the capital risk (losing money), shortfall risk (not achieving your goals) and inflation risk (losing purchasing power).

Therefore, we should all construct a portfolio depending on which risks we want to protect against. Aaaah there is no silver bullet? Reminds me of the saying: “I can do it quick, I can do it cheap and I can do it well”. Pick two.

[VIDEO] Prof Barberis (Yale) 4-min: Should I stick to my own country? What about pensions that invest in the company I work for?

Twelve books everyone in finance will be talking about in 2018 (BPS and Pieces) – My reading list is growing faster than I consume it but I’m happy about it. I believe in an uncertain world there is huge value in reading: Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts by Annie Duke. 

And another one from BPS and Pieces, great name btw.

Fifteen Shades of Grey (BPS and Pieces) – As human beings, we are more inclined to think in black and white. Pick one vs another, draw patterns when thinking and take decisions. But the world is a grey place and this article explains it perfectly.

Contrary to the common belief, there is no such thing as passive investing. One can trade actively the indexes while another follows a buy-and-hold strategy of active funds. Even close-indexing requires you to pick certain indexes (FTSE or MSCI), enter or exit at different times. Also a good read: The myth of passive investing.

The Death of Diversification (Behavioural Investment) – The whole concept of diversification is to spread your risk in different buckets. So when shit hits the fan, some buckets will not go down as much as others and therefore, carrying our portfolio.

We should expect, then, that not all buckets perform well at the same time. In fact, we should be pleased when this happens and support this behaviour, forecast-free.

Find out when you’ll make your million (Monevator) – From our own UK monevator, this post along with its calculator shows you when you’ll hit your first million. And you know what they say, “The first million is the hardest”.

[VIDEO] Ray Dalio’s Investing strategy and advice – One of the world’s most famous hedge fund manager, Ray Dalio explains how he invests and what to look out for when allocating your capital. Hey, he even advocates 5-10% Gold to achieve prudence which is the most important thing when investing. Priceless video.

And since the first question I asked when watching the above video was “Ok, so how does Ray Dalio suggest the average person invests?” here’s Tony Robbins interviewing him on investing.

If you don’t want to watch the full 1-hour his investing strategy tries to allocate the asset percentages to achieve the same level of risk in a portfolio. Which is why he suggests only 30% stocks! I also found super useful the analysis from Portfolio Charts on the so-called All Seasons Portfolio.

Tails, You Win (Collaborative Fund) – In short, this reminds me of the Pareto principle, only more drastically. 20% of the effort returns 80% of the results. To quote:

Amazon drove 6.1% of the S&P 500’s returns last year. And Amazon’s growth is almost entirely due to Prime and AWS, which itself are tail events inside a company that has experimented with hundreds of products, from the Fire Phone to travel agencies.

Why UK property prices could stay flat for 20 years (UK Value Investor) – As you probably already know I’m not bullish on property here in the South East area of the UK. This article confirms (confirmation bias!) that when an asset is pretty high compared to its historical average, there is a good chance it won’t perform so well in the future. Very well-written piece.

Financial Independence

The Twenty Dollar Swim (Mr Money Moustache) – When buying something, the average cost per use is all that matters.

But as a friend pointed out, you don’t account for the psychological effect this item will have on you. For example, one may wear a £120 Polo shirt once a year, but feel they belong to an upper social class which makes it worth it. Not sure I agree with the Polo shirt purchase, but you get the point.

The Psychology of Money (Collaborative Fund) – Very long piece on how people behave with money, how to benefit from it and how to protect yourself from… yourself.

3 Keys to Retirement Happiness (Vanguard) – 3 keys to retirement happiness. Money is just a number. Choose good friends who live close by. Stay healthy and (surprisingly) avoid living close to your kids!

And because now I can, here’s an embedded Tweet to close with:

Almost forgot… I’m always looking for Gem articles/books/podcasts. If you have found one, please send it to me at [email protected]