The Patient Investor

How To Be Positively Skeptical Part 3: How Do You Do Your Due Diligence?

“All media shares one thing: Someone created it. And it was created for a reason. Understanding that reason is the basis of media literacy.” —  Common Sense Media

In previous installments of our “How To Be Positively Skeptical” series, we covered the many forces that tease us into falling for misinformation. Bottom line, our brains are hardwired to lead with fight-or-flight instincts ahead of rational resolve. As such, our critical thinking often plays second-fiddle to rash reactions such as fear, excitement, overconfidence, and regret.

In the financial jungle, it’s essential to look before you leap at emotion-triggering misinformation. Here are five “dos” and “don’ts” for doing your best fact-finding due diligence.

1. Do be positively skeptical. In the courthouse, a defendant is presumed innocent until proven guilty. When managing information overload, we recommend you default to exactly the opposite: When in doubt, remain in doubt until you’ve done your due diligence.

Also watch out for confirmation bias. If you want something to be true, you’ll be more inclined to believe it is. Likewise, if you wish something weren’t so, you’ll assume it probably isn’t.

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The Patient Investor

How To Be Positively Skeptical Part 2: Understanding Your Emotions

“The challenge for all investors is to consume the news without being consumed by it.”  — Jason Zweig 

In a recent post, we introduced our multipart series on the importance of separating fact from fiction—as an investor, as well as in your everyday life. Today, let’s talk about your emotional reaction to unfolding news, and the impact that can have on your financial well-being.

The Usual Emotions in Unusual Times

If anything, current events have made this series even more important. Thoughtful, sober answers to our most pressing questions must now compete against a deluge of emotional misinformation that can almost be as virulent as the ailment itself.

First of all, there’s nothing wrong with having emotions—even strong ones.

For example, many of us may be grieving the loss of the “normal” life we used to have just a few months ago. It’s important to acknowledge these feelings. In a recent National Public Radio piece, behavioral counselor Sonya Lott explains how unattended grief can impair “every aspect of our being—physically, cognitively, emotionally spiritually …” and financially, we might add. Lott says, “We can’t heal what we don’t have an awareness of.”

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The Patient Investor

How To Be Positively Skeptical Part 1: The Benefits of Having Doubt

"I’m not an optimist. That makes me sound naïve. I’m a very serious ‘possibilist.’ That’s something I made up. It means someone who neither hopes without reason, nor fears without reason, someone who constantly resists the overdramatic worldview."  — Hans Rosling, Factfulness

Whether you’re considering an investment opportunity or simply browsing various media for insights and entertainment, it has become increasingly obvious: You cannot believe everything you see, hear, or read. Much of it is “overdramatic.” Too much of the rest is just plain wrong.

To be positively skeptical, we must continue to think and learn and grow. But we also must aggressively avoid falling for hoaxes and hype.

Social Media: An Aggravating Allure

Of course, selling proverbial snake oil and falling for falsities is nothing new. As investors, citizens, and individuals, it will always be our task to remain informed purveyors of the truth. But in today’s climate of information overload, this is no easy task. The very features that make online engagement so popular also make it a powerful forum for sowing deceit and confusion.

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The Patient Investor

You, Your Financial Well-Being and the Federal Reserve

"No matter how great the talent or efforts, some things take time. You can't produce a baby in one month by getting nine women pregnant."  — Warren Buffett

Beginning in December 2016, the U.S. Federal Reserve (the Fed) had been gradually ratcheting-up the federal funds rate, until it reached its December 2018 level of 2.25–2.50%. Effective August 1, 2019, that changed: The Fed lowered the federal funds rate by a quarter point, to 2.20–2.25%. Even though the announcement was not a huge surprise, it was the first rate decrease since the thick of the 2008 Economic Crisis. As such, the move is receiving wide media coverage accompanied by the usual outpour of opinions on whether it will help or hurt us.

What does the rate change mean to your financial well-being? Is there anything you should “do” to your investment portfolio in response? We typically recommend you remain informedbut you act only on factors you can expect to manage within your personal investing. This is nearly always the case for economic events and other breaking news over which we have no control.

In that context, let’s take a moment to share some insights about the Federal Reserve funds rate.

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The Patient Investor

Would You Have Fired Warren Buffett?

"No matter how great the talent or efforts, some things take time. You can't produce a baby in one month by getting nine women pregnant."  — Warren Buffett

One of the most interesting trends in the stock market in recent years has been the strong outperformance of “growth” stocks versus “value” stocks.

Growth stocks have been outperforming value stocks for much of the last decade, and the discrepancy has accelerated over the last 18 months. To provide some historical perspective, at the start of October the difference between growth and value had reached the third highest level since 1990.1

Some of you may remember the two previous times that the difference was this large. The first time was the peak of the “tech bubble” in 2000 and the second time was the market peak before the Great Recession in 2007.

Now, we’re not calling for a market meltdown. However, we do think it’s important to understand what is happening because it is a relatively rare occurrence, and it has had an impact for investors.

Why is this important? As you may know, we use “evidence-based” investment strategies. These strategies use “factors” to seek higher performance levels over time. Eugene Fama famously won a Nobel Prize in 2013 for his work in identifying some of these factors. One of the most well-known was the “value” factor.

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