Like two mountain climbers, we traders need to anchor the pitons, so to speak, in an effort to limit...
10/04/2013 7:00 am EST
Mike Dever of Brandywine Asset Management, discusses three investing myths highlighted in his book, entitled Jackass Investing
SPEAKER: My guest today is Mike Dever. Thanks for joining us and thanks for being with us, Mike.
MIKE DEVER: Thank you very much.
SPEAKER: I was really interested to read about your book, Jackass Investing. I guess I can say that on air.
MIKE DEVER: You can.
SPEAKER: Can you tell me a little about it?
MIKE DEVER: Certainly. Jackass Investing, I had started thinking about writing that book at the peak of the last bull market in the late 90s because I had been hearing so many myths being just perpetuated about how people should invest and essentially just buying and holding on to stocks. Most things had to do with; they were forcing people or teaching people to take unnecessary risks with their money. I laid out a bunch of investment myths. The book is made up of 20 of those common investments myths, starting with stock providing in terms of return for example. I go through and explain why they are not a fact, why people might think they are, but why they are actually a myth. Then I created an action section on the book’s website for people with just actionable things they can do to take advantage of those different myths to exploit those.
SPEAKER: What are the top three myths and what can people do?
MIKE DEVER: The top myth, the first myth I put in there is stocks providing in terms of return. I did that because that shows that it gave me the ability to show that there are return drivers to every market. Return drivers is that common element that provides return and drives the price of the market. In stocks, what you learn by just doing a little bit of research is there is not some fantastical risk premium that is awarded for people earning stocks and what you had is just a landfill where they left all their knowledge that they do not have on why stocks work and it is a risk premium.
SPEAKER: Right, broken dreams.
MIKE DEVER: Actually, there are really two primary return drivers. Over the long-term and I mean long-term more than 20 years, it has to do with corporate earnings growth. In the short-term, it is all investor sentiment. You could have corporate earnings double like they did through the 2000s and have no growth in stock prices at all because sentiment is cut in half. People do not want to own stocks. That is one of the first good myths. The other is the buy and hold works well for long-term investors.
SPEAKER: Buy and hope.
MIKE DEVER: Exactly, it is just a way of rationalizing losses that is the way I view it, because it does not protect you against risk in any way whatsoever. Then the last myth in the book is “there is no free lunch” is I think one of the biggest myths out there and the reason it is a myth is because people say well you cannot get more return without taking on more risk. Well if you start out boxing yourself in and you only going to be owning stocks, maybe some bonds and maybe a little real estate, if you want to get more return, yes you have to take on more risk. If you expand that to the hundreds of markets that are available and the hundreds of different return drivers that are available powering those markets, you can clearly create a better portfolio if you have higher returns with less risk.
SPEAKER: It makes a lot of sense. Well thanks for joining me.
MIKE DEVER: Thank you very much.
SPEAKER: Thanks for being with at the Money Show.com Video Network.
Related Articles on STRATEGIES
Even the casual observer of bond funds knows that 2018 has so far been tough on the wallet. On sever...
Since macroeconomics first began, experts have debated whether or not seasonal cycles have any effec...
When faced with a trading loss, try to focus on protecting the assets rather than growing them. This...