Episode 195: Common Misconceptions Among Beginner Investors

When it comes to the uncertain future of financial markets and technological innovation, a deep understanding of history and the roots of the systems at play in our contemporary climate is often overlooked. This is the argument made by Bill Janeway, our guest on the show today and the author of Doing Capitalism in the Innovation Economy. We have a fascinating conversation with Bill who has vast experience in both the academic and venture capital spheres, having spent years working in both sectors. The world of personal finance is full of axioms, and new investors can get caught up in investing myths and ‘rules of thumb’ that are limiting at best and lead to underperformance and unnecessary losses at worst. In this week’s episode, we outline some of the common misconceptions that new investors have, the evidence (or lack thereof) surrounding them, and how to think more like a seasoned investor. Is value investing really a safer strategy with lower expected returns? Do you need to employ a Buffett-Lynch stock picking approach when value investing? Are all index funds good investments? Tune in to find out the answers to these questions and gain some insight into the relationship between risk and return, dividend investing versus total risk investing, and whether or not exclusively investing in US stocks is a good idea, plus so much more!

Key Points From This Episode:

• Upcoming guests, including Professor Eugene Fama in Episode 200. [0:01:27]
• An update on our 22 in 22 Reading Challenge, with over 1,000 books read. [0:05:30]
• A review of The Great Depression: A Diary by Benjamin Roth and lessons learned. [0:07:18]
• A quick overview of The Bond King, the story of Bill Gross by Mary Childs. [0:17:10]
• This week’s news stories: 24/7 investing from Robinhood, stock splits, Wealthsimple portfolio changes, and more. [0:20:02]
• Our main topic: some of the common misconceptions that new investors have. [0:28:50]
• Whether or not value investing is a safer strategy with lower expected returns. [0:30:42]
• Some examples of where the myth that value stocks are safer comes from. [0:33:25]
• The fallacy that value investing requires discounted cash flow (DCF) analysis. [0:40:52]
• Why Warren Buffett’s outcome could be a challenge to systematic value investing. [0:43:41]
• Debunking the misconception at all index funds are good investments. [0:46:48]
• Conversely, Ben shares why not all actively managed funds are bad investments. [0:47:34]
• Why all exchange-traded funds (ETFs) tracking an asset class are not the same. [0:48:12]
• The myth that risk and return are always related and the cases when this isn’t true. [0:51:02]
• Ben shares his reflections on the misconception that dividend investing is less risky than total return investing. [0:53:14]
• Analysis that demonstrates whether or not dividends are actually safer. [0:56:09]
• Our last misconception for today: you should only invest in US stocks because they perform best. [0:59:40]

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