Educational articles

In what environments do ETF’s underperform individual stocks?

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ETFs (exchange-traded funds) can underperform individual stocks in several specific environments. The key reason is diversification: it lowers risk, but it also caps upside. Here are the main situations where that trade-off shows up most clearly. Strong Stock-Picker or Concentrated Winners Markets Environment: Markets driven by a small number of standout winners (e.g., early FAANG years, AI leaders like NVIDIA). Why ETFs underperform: ETFs dilute exposure to the top performers by holding many average or weak companies. A single well-chosen …

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Why losses are harder to recover, the larger they become

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In our previous article we discussed the importance of stop losses. We will expand on that topic and display mathematically why losses become harder to recover the larger they become. The main reason is the capital available to be invested decreases and hence a higher percentage gain is needed just to break even. Here’s a mathematical example which shows why large losses are so damaging and hard to recover from. Example: Loss vs Recovery Percentage Assume you start with $100,000 …

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Why growth stocks fall as fast as they rise

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Growth stocks often fall as fast as they rise because their prices are anchored less in what the company is earning today and more in what investors believe the company will earn far into the future. That makes them powerful on the way up—and fragile on the way down. Below is an explanation of the key forces at work. Growth stocks are priced on future expectations, not present reality At the core, a growth stock is a bet on the …

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What happens to a share price during a buyback?

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A share buyback is when a company buys its own shares from the market or directly from shareholders. The share price implications of such a decision are significant and can play out in multiple stages: the announcement phase, execution phase, and long-term valuation phase. This explanation breaks down exactly how and why the share price is affected. 1.Immediate Market Reaction: Often a Share Price Increase When a company announces a share buyback, the share price often rises immediately. This increase …

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What is a carry trade?

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In this article we explain what a carry trade is, why it exists, how it works, what makes it profitable or risky, and the economic forces behind it. The Carry Trade A carry trade is a financial strategy in which a trader or institution borrows in a low-interest-rate currency (called the funding currency) and uses the borrowed money to buy assets denominated in a higher-interest-rate currency (the target currency). The goal is to profit from the interest-rate differential — known …

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