Recently, I heard Nobel Prize-winner and finance professor Eugene Fama define “active management” as any fund that engages in security selection and/or market timing. And actively managed funds are fairly easy to identify. As we know, the term “passively managed” is used to describe the opposite of actively managed. But what, exactly, is meant by…
“We’re just overwhelmed with life.” That was my response to an attorney looking for insight into the obstacles facing Generation X. I’d referred a number of 30- and 40-something financial-planning clients to this attorney. All were in need of estate-planning documents. But he came to me concerned about the difficulty he was having in reconnecting…
If I ask, “How are you today?” I already have a good idea what you’ll say. “Busy.” We’re all busy. It’s reached the point that many of us wear our busyness like a badge of honor. And what better way to measure our busyness than with lists and numbers. Did the children learn a new…
The important economic role played by short-sellers has received increasing academic attention in recent years. The research has demonstrated that short-sellers, as a group, are key market intermediaries that improve the informational efficiency of prices, increase market liquidity and, by doing so, help lower overall country-level costs of capital. In addition, temporary short-selling bans have…
Investing is often made more complicated than necessary by the financial media and the self-styled “experts” featured in its coverage. So maybe it’s not surprising that, for many investors, bonds are a commonly misunderstood subject, because they really are even more technical and confusing than stocks. Investors have many choices when deciding how to invest…
An article I wrote in September discussed the findings of the study, “Benchmarks as Limits to Arbitrage: Understanding the Low-Volatility Anomaly,” in which the authors proposed a new explanation for why anomalies (such as the low-beta/low-volatility anomaly) persist. They hypothesized that the typical institutional investor’s mandate to maximize the ratio of excess returns relative to…
Retain more of your investment income with savvy tax planning. Good investors are good tax planners. Tax planning isn’t as fun as investing – or fun at all – but it helps you keep as much of that hard-won investment income as possible. Dan Solin, a wealth advisor with Buckingham and director of investor advocacy…
There are a number of well-documented anomalies that cause problems for the efficient markets hypothesis (EMH). These problems arise because the EMH assumes any mispricing in the market will be arbitraged away by rational traders who buy relatively undervalued assets and sell relatively overvalued ones. Among the biggest problems are the existence of momentum and…
By definition, being a “professional” means your level of expertise is greater than that of amateurs. It would be surprising if professional golfer Phil Mickelson routinely posted lower scores than the average weekend player. Do you really believe the tennis champion at your local club would make a credible showing against any of the top…
Individual stock ownership provides both the hope of great returns (for example, if you were to early on discover the next Google) as well as the potential for disastrous results (you could end up with a significant holding in the next Lehman Brothers). But because investors are not rewarded by the markets with higher expected…
Over the next few weeks, you’ll hear a lot about setting financial and other goals. I doubt I’ll be the first (or the last) to ask what goals you have in mind for 2015. Obviously, setting goals and wanting to improve our lives are good things. But by focusing our attention in only one direction…
You can learn a lot if you read the financial headlines with the right perspective. It’s unfortunate that most provide misinformation designed to encourage trading, increase anxiety and otherwise foster bad investing behavior. There are some notable exceptions, but finding them can seem like looking for a needle in a haystack. Good headline Burt Malkiel:…
As an investor, you are probably concerned about “uncertainty” in the market. Sometimes it may feel like you are just waiting for the other shoe to drop. It probably doesn’t help that the financial media appears so vocally divided between those who believe the bull market will run at least through 2015 and others who…
Until quite recently, 2014 had been a very quiet and calm year for the stock market. With the exception of a few days in early February, the VIX had never spent any time above 20. As August ended, it stood at just under 12. However, volatility has a nasty tendency to spike. And as AQR’s…
As we have discussed many times, the evidence demonstrates that hedge funds have consistently failed to deliver on their promise of alpha. There is an overwhelming body of research indicating that hedge funds must be ego-driven investments, because there can be no other explanation for why investors continue to pour money down the proverbial drain….