The economics professor had a problem. Or rather his students had a problem. Despite their best efforts on a test he had set for them, the students were still averaging only 72 out of a possible 100. Faced with a mass revolt, the professor had a brilliant idea.
For the next iteration of the exam, the professor decided to score the test out of a total of 137 points. The students’ despair subsequently turned to joy when they received back their marked papers. Hey presto! The average score of the class was now 96.
Continue reading “Investing for Humans”
Ever been on holiday where the weather wrongfooted you? The brochures promised tropical bliss, so you packed accordingly. Instead, you are greeted by bone-chilling wind and rain. Shivering and exposed, you resemble an undiversified investor.
As with the weather, financial markets can be unpredictable. Yet, in their own glossy brochures, investment providers often promise the equivalent of endless sun. Excited, investors pile in like bucket shop holidaymakers. This rarely ends well.
Continue reading “All-Weather Investing”
Everybody loves a good story. A good story, however, does not always make a good investment.
The big bubbles that have formed in markets over the past few centuries have proved this to be true.
Every time a bubble has formed, there has been a compelling story behind the rapidly rising prices. However, the story alone is never enough to make those high prices sustainable.
Continue reading “What are the signs of a market bubble?”
The power of passive investing is that it gives you cheap and efficient access to the market. It does this by tracking the performance of an index.
For most investors, this will make sense even on a superficial level. Well-known indices like the FTSE 100 or the S&P 500 are part of the public consciousness. There will be very few people who do not at least appreciate that they represent the UK and US stock markets respectively.
Continue reading “What is a market index?”