Although not for novice investors, Andrew Ang’s new book, “Asset Management: A Systematic Approach to Factor Investing,” represents a comprehensive, clearly written and accessible review of the latest thinking in modern financial theory. It provides some important lessons that investors can learn and implement in constructing well-diversified portfolios. I thought it worth sharing some of…
Almost everything we’re taught about money is focused on spending it and saving it. Parents, teachers and even personal finance books discuss saving money as keeping it, increasing it and controlling it. Saving money involves figuring out ways to get more of it, to build a bigger cushion. We’re taught that’s the ultimate goal. In…
Many estate planners advise their clients to complete a useful, albeit sobering, exercise. The exercise calls for the client to assume they have died, and that their beneficiaries are gathered around the dining room table dealing with the aftermath. The point is to identify before the fact some key estate planning questions a client may…
As we have discussed, the investment success of the Yale Endowment led many endowments, foundations and even high-net-worth individuals to consider adopting the strategies utilized in the so-called “Yale Model.” This included a focus on alternative investments and attempts to capture the liquidity premium available in illiquid investments, such as private equity and hedge funds….
Overview: With expected inflation rates very low, there will be significant attention on the possibility of deflation causing the stock market to fall. This blog examines the relationship between the rate of inflation and stock and bond returns. Generally, the research shows that stock returns are no lower in deflationary environments than in normal inflationary ones….
The securities industry is working itself into a frenzy trying to explain why you should ignore historical data that indicates most actively managed funds underperform their benchmarks. Some of the reasons they provide do not withstand scrutiny. Here’s a small sample of their lame excuses: 1. Last year was an aberration. According to Dan Culloton,…
Almost everything we’re taught about money is focused on spending it and saving it. Parents, teachers and even personal finance books discuss saving money as keeping it, increasing it and controlling it. Saving money involves figuring out ways to get more of it, to build a bigger cushion. We’re taught that’s the ultimate goal. In…
In doing some related research, I came across a Federal Reserve Bank of Atlanta research paper that I thought was worth sharing, especially in light of the tendency in recent years for many investors to stretch for yield. Over the long term, the correlation of Treasury bonds (whether they are short-, intermediate- or long-term) to…
Overview: With expected inflation rates very low, there will be significant attention on the possibility of deflation causing the stock market to fall. This blog examines the relationship between the rate of inflation and stock and bond returns. Generally, the research shows that stock returns are no lower in deflationary environments than in normal inflationary…
There are many well-known anomalies in finance. The most notable of these anomalies include the momentum effect, the low-volatility effect (in which high-volatility stocks produce lower returns on average than low-volatility stocks) and the poor performance of IPOs, penny stocks, stocks in bankruptcy and small growth stocks with low profits. But perhaps the biggest anomaly…
Behavioral finance is a fascinating field that combines psychology with investing. And one of the insights provided from the research is that some individuals want more from their investments than just returns. Some people make investments for the same reason they buy Rolex watches and oversized Gucci bags, labels proudly displayed. Just like with their…
Author Russ Roberts takes an interesting tack in his new book, “How Adam Smith Can Change Your Life.” While Smith’s most famous tome, “The Wealth of Nations,” has been most popular in economic and investor circles, his other volume, “The Theory of Moral Sentiments,” contains some of the venerable writer’s most valuable insights. One of…
What was the biggest surprise to hit the markets in 2014? I think most investors would tell you it was either that interest rates fell or that the price of a barrel of oil fell by half. My own view is that there was a far bigger one. For the 12 months ended August 2014,…
While Wall Street investment firms have done a very poor job of delivering good risk-adjusted returns to investors, their well-tuned marketing machines have done a great job creating demand for products where none should really exist. Their latest creation is a type of investment offering referred to as “smart beta.” To ensure you understand why…
The sharp market decline in January has raised the anxiety level of investors everywhere and brought out the worst in the financial media. Many investors are asking the wrong questions, like these: 1. Is this the beginning of a market correction? 2. Should I sell my stocks and just “sit on the sidelines”? 3. Is…