What Makes Useful Investment Research?
The internet provides oodles of investment research, but it's not all that useful. Since useful research will most likely help you make better investment decisions, let's go over some points about what makes investment research useful.
First, when it comes to usefulness, it doesn't matter whether the research is free or whether you pay for it. I've found quite useful free items and paid for much that's really not useful.
Second, understand that "useful" really means "useful to you." Research that's too technical or complicated, given your current level of expertise, or even your current level of mental acuity, really won't be useful to you. It might help someone else, but who cares about that? So, for example, when I worked at a hedge fund shop, some of the pieces by the various managers were more or less useful for me in attaining an understanding of the various strategies. Manager A wrote in simple, everyday language that just about anyone could understand, professional or non-professional. Manager B tended to write pieces that used a lot of investment lingo and technical terms relevant to his or her discipline, so if you weren't already familiar with the strategy they used, you needed to do some homework - sometimes quite a bit - to understand what they were writing. Naturally, the better you understand what's going on, the more confident you become in deciding whether you want to invest. In my case, the more confident I would be in describing the strategy to potential investors, or in reviewing the holdings of current investors. (You'd be surprised at how many people don't really know what they've already invested in.)
Let's use the example of our last post. We tried to present a simple explanation for why bond yields haven't shot to the moon as we've all been hearing they would or should. It boiled down to a continuous strong demand for bonds pushing up the price, which, of course, keeps yields low. (Bond prices rise as yields fall, and vice-verse.) In our example, we sourced some of that continuous demand: banks. And we also noted that with the Fed printing lots of money in recent years, most of which found its way to banks, that newly minted money was used by banks to buy bonds, rather than to lend. Here's what we said:
So the usefulness of investment research comes down to 1) research that you can readily- or with some effort - understand; 2) using that understanding in your investment decision-making process. It doesn't necessarily mean you'll "take action" based on the research. For instance, a given piece might reinforce a decision you've already made, or it might raise some concerns that you'll keep in mind as you review your portfolio or consider new opportunities you might take action on in the future. But if you stick to what you readily understand, and avoid wasting time on things you really don't understand, you'll be ahead of the game.
As for pieces you don't understand, don't get hung up on the idea that you "should" understand them, leaving you to feel as if somehow you're at fault because you lack experience or some higher degree of intelligence. If you want to gain more experience, that's always an option open to you. But for right now, if you don't have that experience, don't be glum; just stick with what you really understand. There's plenty of stuff out there that should suit you. As for lacking intelligence, well, I'm not sure what you can do about that. But, again, no reason to be glum. Really smart people don't necessarily make good investors. Besides, we've all got strengths and weaknesses, and if super-smarts aren't one of your strengths, so what? Lots of super-smart people lack rudimentary common sense, and wind up wasting a lot of that brain power on useless cogitation that never results in useful action. Better you have common sense than super-smarts.
Of course, if you lack common sense, that may be a problem.
First, when it comes to usefulness, it doesn't matter whether the research is free or whether you pay for it. I've found quite useful free items and paid for much that's really not useful.
Second, understand that "useful" really means "useful to you." Research that's too technical or complicated, given your current level of expertise, or even your current level of mental acuity, really won't be useful to you. It might help someone else, but who cares about that? So, for example, when I worked at a hedge fund shop, some of the pieces by the various managers were more or less useful for me in attaining an understanding of the various strategies. Manager A wrote in simple, everyday language that just about anyone could understand, professional or non-professional. Manager B tended to write pieces that used a lot of investment lingo and technical terms relevant to his or her discipline, so if you weren't already familiar with the strategy they used, you needed to do some homework - sometimes quite a bit - to understand what they were writing. Naturally, the better you understand what's going on, the more confident you become in deciding whether you want to invest. In my case, the more confident I would be in describing the strategy to potential investors, or in reviewing the holdings of current investors. (You'd be surprised at how many people don't really know what they've already invested in.)
Let's use the example of our last post. We tried to present a simple explanation for why bond yields haven't shot to the moon as we've all been hearing they would or should. It boiled down to a continuous strong demand for bonds pushing up the price, which, of course, keeps yields low. (Bond prices rise as yields fall, and vice-verse.) In our example, we sourced some of that continuous demand: banks. And we also noted that with the Fed printing lots of money in recent years, most of which found its way to banks, that newly minted money was used by banks to buy bonds, rather than to lend. Here's what we said:
Such buying has gobbled up all the treasuries sloshing around as the Fed continually slops dollops of "liquidity" into the markets. This constitutes a sure and steady source of demand for available supply.You don't need special technical knowledge to understand this. You just need to be able to read, comprehend and think about what you've read. Of course, these days that's not easy for some people. With so many of us focusing our shortened attention spans on text messages, quick e-mails, and more and more stupid and trivial offerings such as reality TV, sports, video games, even those two simple sentences might present a challenge to some people. Nevertheless, those of us who do use our brains - at least part of the day - should readily grasp the points in those two sentences .
So the usefulness of investment research comes down to 1) research that you can readily- or with some effort - understand; 2) using that understanding in your investment decision-making process. It doesn't necessarily mean you'll "take action" based on the research. For instance, a given piece might reinforce a decision you've already made, or it might raise some concerns that you'll keep in mind as you review your portfolio or consider new opportunities you might take action on in the future. But if you stick to what you readily understand, and avoid wasting time on things you really don't understand, you'll be ahead of the game.
As for pieces you don't understand, don't get hung up on the idea that you "should" understand them, leaving you to feel as if somehow you're at fault because you lack experience or some higher degree of intelligence. If you want to gain more experience, that's always an option open to you. But for right now, if you don't have that experience, don't be glum; just stick with what you really understand. There's plenty of stuff out there that should suit you. As for lacking intelligence, well, I'm not sure what you can do about that. But, again, no reason to be glum. Really smart people don't necessarily make good investors. Besides, we've all got strengths and weaknesses, and if super-smarts aren't one of your strengths, so what? Lots of super-smart people lack rudimentary common sense, and wind up wasting a lot of that brain power on useless cogitation that never results in useful action. Better you have common sense than super-smarts.
Of course, if you lack common sense, that may be a problem.
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