(Hint: It’s the Evidence That Counts)
Traditional Active Investing
Long-term market history
Near-term market forecasting
Peer-reviewed academic evidence
How Do Traditional Active (TA) and
Evidence-Based (EB) Investors Differ?
THEY SEE THE FUTURE DIFFERENTLY
- TA investors believe they can successfully predict when and how to trade on breaking news.
- EB investors understand near-term market swings are unpredictable; they ignore the “noise.”
THEY WORK ON DIFFERENT TIMELINES
- TA investors feel a sense of urgency to make the “right” calls to beat the market.
- EB investors assume that time is on their side; they give their plan time to grow.
THEY ARE GUIDED BY DIFFERENT DETERMINANTS
- TA investors act on “expert” opinions (which are vulnerable to biases, blind spots and changeable conditions).
- EB investors are guided by peer-reviewed academic inquiry (for “steady as she goes” resolve).
THEY DEFINE “SUCCESS” DIFFERENTLY
- TA investors define success as outperforming others or making a lot of money.
- EB investors define success as being able to comfortably fund their personal financial goals.
THEY USE RISK DIFFERENTLY
- TA investors don’t distinguish between market risks (factors that are expected to yield extra returns) and concentrated risks (which just add more risk).
- EB investors manage market risk factors (and their expected returns) and diversify away concentrated risks.
THEY CONSIDER COSTS DIFFERENTLY
- TA investors focus on cleverly timed trades over the costs, commissions and taxes they incur.
- EB investors focus on minimal trading, understanding that the costs involved are among the biggest drags on their end returns.
Bottom Line …
EVIDENCE-BASED INVESTORS APPROACH INVESTING DIFFERENTLY
- TA investors try to beat the market through clever stock-picking and market-timing.
- EB investors participate in the market to earn expected long-term returns according to time-tested academic evidence, their personal goals and their individual risk tolerances.