The Abnormal Returns Way
The world of investing has enough egos to fill the Grand Canyon. Wall Street traders often boast about winning trades like hunters bagging elephants. Fortunes are made overnight. Is this frenzy the way to invest?
Tadas Viskanta thinks not.
With 25 years of investing experience, Viskanta’s approach is a refreshing and humble return to the sound practices that gradually build wealth through discipline and thoughtfulness. He is the founder and editor of the Abnormal Returns blog, which has enjoyed mentions in Barron’s, The Wall Street Journal, Business Insider and The Washington Post.
A Humble Approach
His studies have been published in the Journal of Portfolio Management as well as the Financial Analysts Journal and CFA Digest. Though his articles cover everything from emerging market bond funds to the influence of political and financial risk on fixed-income returns, his advice sounds far from complicated. “Any skill, but especially investing, requires deliberate practice,” he explains in a recent Abnormal Returns post. While Viskanta can speak all day with authority on esoteric topics like hedging and options, his most salient advice is firmly rooted in effective practices any one can employ.
He continues, “[O]verconfidence in our abilities prevents us taking the steps necessary to become better investors.” While Viskanta has plenty of reason to be confident, his message is important: remain humble, be consistent, think about what you’re doing, and keep a record of your actions. This is sage advice that for too long has been lost in the cacophony of investment blogs.
A Return to the Basics
Viskanta’s work is reminiscent of a mentor training his students to tune their ear to the humming of the market while ignoring the palpitations of the media. Part psychology, part finance, his work reminds us that we can often become our own worst enemy. As the author of the critically acclaimed Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere, Viskanta is a resource worth visiting and revisiting to keep a long-term investor on the path to accumulated wealth.
AdvisoryHQ caught up with Viskanta to discuss his experiences in the world of financial blogging. He offers his advice for becoming a better investor and areas that offer value in the equities market.
Interview with Tadas Viskanta
Tea Banic (AHQ): When and how did you start the Abnormal Returns blog?
Tadas Viskanta: I started the blog over ten years ago. I already had experience in the financial markets and some writing under my belt. At that time the financial blogosphere was just getting off the ground and I wanted to be a part of it.
AHQ: Have you found that financial blogging has changed in the years since you began writing?
Tadas: I don’t know that financial blogging has changed all that much in the sense that writing about markets and investing is still pretty much the same. The same principles hold true.
What has changed is everything around it. For example, the mainstream media has adopted the blog as a vehicle. When I started blogging, social media, Twitter, Facebook, podcasts and video for all intents and purposes didn’t exist. Now they are vital part of how we all communicate.
AHQ: What do you do apart from blogging?
Tadas: I am an adjunct professor of finance and am an active, private and angel investor.
AHQ: When did you first become interested in finance as a career?
Tadas: I have for as long as I can remember had an interest in the financial markets. That hasn’t changed. What has changed has how that interest has been exercised.
AHQ: You have over 25 years of experience in financial markets. Do you still invest actively or do you prefer writing about it?
Tadas: Like most people who write about the markets, it really is a symbiotic relationship. The process of writing something down for public consumption forces you to think through the issues at hand. Many investors never take that step and they are the worse off for it.
AHQ: Apart from being a published author, what would you say that your biggest success is?
Tadas: I enjoy educating people about the markets. I have had the platform to do that for over a decade now.
AHQ: What are your favorite finance-related blogs at the moment?
AHQ: What are some basic investment principles you think new investors should be aware of?
Tadas: The arithmetic of active management by Bill Sharpe. Simply stated, it shows that in aggregate, investors can’t outperform the market. This insight should help guide investor decisions.
The second is that our outcomes both in the market and elsewhere are some function of luck and skill. It isn’t always easy to tease the two effects apart. Be on the lookout for lucky individuals touting their skill.
AHQ: Which stocks or investments do you find particularly interesting right now and why?
Tadas: Broadly speaking, U.S. equity markets are expensive relative to overseas (developed and especially emerging) markets. Investors who have not yet eliminated home bias from their portfolios can use this as an opportunity to do so.
AHQ: What are some good habits you think any smart investor should get into?
Tadas: As mentioned earlier, you cannot learn from your mistakes (and successes) if you don’t have a record of what you did and why you did. So this includes the ability to calculate returns and having some method of contemporaneously journaling your thoughts.
AHQ: If there was one piece of advice you’d like to impart to readers, what would it be?
Tadas: Be humble. You’re not as smart as you think you are. The entire world is your financial competition.
The Final Takeaway
The best strategy is a long-term plan. In his quarter century of professional experience, Viskanta has seen a lot. His core approach is brilliant in its applicability to any investor big or small. His work on the fundamentals of risk and return are essential of anyone putting savings in equities or bonds. This dual concept is the very bedrock of investing.
Five Core Principles
Those seeking more information about ETFs and alternative investments will take great value from his work and the carefully culled selection of resources available on his site. Viskanta’s focus on diversification is one of the main pillars of a responsible equities plan. Additionally, his urge to silence the noise of the media and our own ego is a novel and important piece of advice in this era of self-aggrandizement.
Take a careful look at the asset classes you’ve invested in. Understand how these choices impact your anticipated rate of return as well as your exposure to risk. Again, diversification is king in the long game.
While the available options to investors have grown, the investing world has become more complicated. With Viskanta’s strategies, one plan can be developed for long-term implementation. In summary, these five core principles are:
- Diversify your asset holdings
- Take time to understand the dual concepts of risk and return
- Manage your own biases and detrimental investing behavior
- Understand the characteristics of investing in alternative instruments
- Revisit your decisions; measure your performance against the market
Write a goal. Commit to it. Measure it. As Viskanta writes, “Transform your ‘vague sense of returns’ into something more concrete. This would be a great first step.” Learn more from him on his Facebook page Abnormal Returns and on Twitter.
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