I stand out on the Aptus team for having not played major college basketball, but as an avid fan I can at least contribute to the banter. Complementing the content put out by my playing partners at The Backcourt Report, I periodically share my “Starting Five” posts highlighting the best I can find in the areas of investment management, behavioral finance, and the advisory business. Enjoy, subscribe, share!

  • Supply & Demand in the Stock Market: You probably know that the number of listed U.S. stocks has fallen sharply, down from 7000 in 1997 to 3400 today. As Ben shows(with the help of Vanguard and DFA), the shrinking universe has meant little to past returns, and most likely future returns. It’s less about over-concentration and more about a byegone era with easier listing standards.
  • Defense Wins Championships: Slightly related but really different, the folks at Longboard have updated their original Capitalist Distribution piece to demonstrate its validation. They make a convincing case that proactively eliminating the worst performers is a more efficient way to end up holding the big winners that drive markets.
  • Another Lesson on Why Taxable Money in Active Stocks is a Bad Idea: Brutal example of something we all know; mutual funds start with a serious disadvantage to ETFs in a taxable account.
  • What People Will Pay For: Josh nails it here, again and again, in explaining the important role an advisor plays in linking financial planning to the actual portfolio management. “I’m not sure how you can invest someone’s entire life savings without understanding how and when the money is ultimately going to be used. I’m not sure how you can construct a financial plan for someone and then act as though the way they reach their goals via the investment markets is somehow less relevant or worthy of attention.”
  • When Diversification Fails: like one of our prior Starting Five highlights, this one gets geeky so I’ll use this passage to summarize their take on true diversification. “Investors should look beyond diversification to manage portfolio risk. Tail-risk hedging(with equity put options or proxies), risk factors that embed short positions or defensive momentum strategies, and dynamic risk-based strategies all provide better left-tail protection than traditional diversification.”

Hope you enjoy this edition of our Starting Five, join the updates here!