In the market these days, it seems what goes up must come down — and then go up and then down again. On Wednesday, the Dow Jones industrial average opened 100 points higher, but then fell by more than 150 points before again trying for gains in midday trading. The Nasdaq and S&P 500 weren’t…
Quick Take on Fixed Income February 2016 Q: Does an individual bond ladder offer more protection in a rising rate environment than a bond fund? A: Many investors are worried about how rising interest rates will affect their fixed income portfolio. Many believe an individual bond ladder better protects them against rising rates because they…
I have a problem: It’s really hard for me to say no to new, exciting projects. If you’re doing creative work at all (and I’m using this term very broadly, so that should mean just about everybody), then you’ve probably run into this problem yourself. There are endless options for how you could spend your…
As the director of research for The BAM Alliance—a community of about 140 like-minded RIA firms who believe in providing a fiduciary standard of care using an evidence-based investment strategy—I often get requests from other advisors for my help in answering questions from clients about articles they’ve read in the financial media. As such, I…
Among the more notable anomalies in modern finance is the finding that the lowest-beta stocks have produced higher returns than the highest-beta stocks. Another anomaly is that idiosyncratic (diversifiable) volatility negatively predicts equity returns. In other words, stocks with the lowest idiosyncratic volatility outperform stocks with the highest idiosyncratic volatility. These findings have spurred a…
I like buying high-quality things. And for the longest time, I’ve had this sneaking suspicion that buying high-quality stuff, which perhaps initially was more expensive, actually saved me money in the long run. It wasn’t until very recently, though, that I noticed a strong argument in support of my hunch. The other day, I was…
I have a friend who is an emergency room physician in Salt Lake City. The other day, he described to me an interaction he had with a distressed, uncomfortable patient. After doing all the tests he could and finding nothing wrong, all he could do was give the patient that age-old, wonderful doctor advice: “Go…
Recent research on equities has found that, in contrast to classical economic theory, the term-structure of stock returns is downward-sloping. Stocks with low cash-flow duration earn higher returns than longer-duration stocks. The duration of equities is defined as the weighted average time to maturity of cash flows. It comes from summing up discounted cash flows…
Whether you are planning to retire, or are already retired, Jane Bryant Quinn’s “How to Make Your Money Last: The Indispensable Retirement Guide” is one of the best “investments” you can make. Ms. Quinn is one of the leading journalists in personal finance. She clearly cares very deeply about helping investors find the right answers…
Every time interest rates are low, investors begin to make mistakes. They tend to engage in activities that they otherwise wouldn’t undertake—such as stretching for yield by taking on credit risk—if rates were at more “normal” levels like 4% or 5%. With Treasury yields having been at extremely low levels for seven years now, and…
Particularly in times of extreme volatility, pundits come out of the woodwork to “explain” to the rest of us the reasons underlying the rise or fall of the stock market. For example, how many times have you seen articles attributing recent market declines to a drop in oil prices? I suspect if you polled investors,…
Every year, I like to keep track of the predictions that “gurus” and other market observers make for the upcoming year, specifically the ones that they say are “sure things.” It seems like no one in the financial media holds them accountable (which is a shame, since the evidence shows there are no good forecasters),…
Quick Take on Fixed Income February 2016 Q: What are the upcoming SEC-mandated changes to money market funds, and what impact will they have? A: In 2014, the Securities and Exchange Commission released new rules governing the operation of money market funds that will go into effect by October 2016. The biggest changes pertain to…
Recently, my family needed a new vehicle. I’ve always wanted a truck, and I knew we would get tons of use out of it. Could I have found a cheaper vehicle? Sure. But I knew we could afford the truck, so after lots of careful thought, we decided to buy it. Anytime I make a…
It’s sad that terrible advice is so freely dispensed in tough times. Investors are at their most vulnerable, reeling from the market selloff. Many in the financial media see this as an opportunity to boost ratings and generate revenue for the big brokerage firms that support them with huge advertising budgets. They seem indifferent to…