Institutional Investor recently published the equivalent of exercise a bit more, eat a little less:
How to Invest Like You Eat
Making an investment choice is not that different from deciding what to eat. The ease with which one can follow an optimal diet has not yet been realized in the investment arena, but that may be one of the most important developments we witness over the next decade.
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The value of nutritional information, combined with the recommended daily intake, makes the identification of what we consume easier than the alternative of using basic ingredients as inputs to an optimization. The ubiquitous nature of nutritional information has changed the process from one in which we optimize the choices available in the supermarket to one in which we select from a menu. Designing and describing investment products in an analogous fashion has the potential to both revolutionize and simplify the way we implement our choices.
Herein lies the problem.
What people should eat is not even close to what they actually eat.
It all comes down to what we put on the plate, doesn’t it? All too often, humans fail to acknowledge reality:
High-flying S&P 500 actually down last three years? Investors think so
According to Franklin Templeton, which is scheduled to release some new research later today, individual investors in general are both way too conservative and/or out of sync with what has been happening in the equity markets over the past few years.
One surprising finding shows that investors are likely so consumed by the negative economic news, including high unemployment and the weak housing market, that they haven’t even noticed the strength of the stock market.
For example, when 1,000 investors were asked whether they thought the S&P was up or down during each of the past three years, 66% thought it was down in 2009, 48% thought it was down in 2010, and 53% thought it was down last year.
In fact, the S&P gained 26.5% in 2009, 15.1% in 2010, and 2.1% last year.
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Essentially, as investors pull money out of equities and cling to the safety of low-yielding cash investments, the stock market, which is already up 18% in 2012, is passing them by.
Do we live fast and die young? Or maintain discipline and enjoy a long ride? The good news — at least for your investments — is we have the menu all laid out with the WealthCop strategies. And be sure to drink water, not soda.