Building upon the work of Harry Markowitz, the trio of John Lintner, William Sharpe and Jack Treynor are generally given most of the credit for introducing the first formal asset pricing model, the capital asset pricing model (CAPM). It was developed in the early 1960s. The CAPM provided the first precise definition of risk and…
As 2015 approaches, and you begin thinking about resolutions for the new year, make changing the way you invest your first priority. “Active investing” means trying to outperform benchmark indexes (such as the Standard & Poor’s 500 index) through market timing and stock picking. You can capture the returns of a benchmark index (less the…
Do you play recreational tennis or golf? Would you bet your retirement savings you could beat Roger Federer or Tiger Woods? Of course you wouldn’t. In most areas of your life, you objectively assess your skill level, and make intelligent decisions about the outcome of your planned activities. Overconfidence is common in investing. Unfortunately, many…
You’ve heard that New Year’s resolutions have a horrendous success rate, right? One source suggests the number is as low as 8 percent … 8 stinking percent. But why? Is it for a lack of resolve? Somehow, I don’t think that’s it. It took a heck of a lot of resolve for your nephew to conquer the…
Educational institutions hold billions of dollars in endowment funds. As of June 2013, the most recent data available, the five largest educational endowments (Harvard University, Yale University, The University of Texas system, Stanford University and Princeton University) collectively managed nearly $110.5 billion. All educational endowments managed in excess of $448 billion. While they are often…
According to the 2014 Investment Company Fact Book, the mutual fund industry in the United States manages an astounding $15 trillion in assets. That represents a whole lot of investors who must be disappointed with the performance of their actively managed mutual funds. Approximately 85 percent of active large-cap stock funds underperformed their benchmark indexes…
A recent CNBC poll asked, “Which asset are you buying as a hedge against inflation?” The three choices offered were equities, precious metals or alternative assets. My colleague and co-author, Kevin Grogan, found it interesting that the poll provided takers only three choices, none of which is among the best available hedges of inflation. We’ll…
Baseball’s “modern era” began in 1903. Prior to that time, foul balls that weren’t caught weren’t considered strikes, giving hitters a major advantage. From 1903 through 1941, seven different players achieved a batting average of over .400 a total of 12 times—Ty Cobb and Rogers Hornsby each did it three times, and George Sisler did…
In previous blog posts, I’ve discussed the dismal performance of actively managed mutual funds. I also noted this underperformance has not gone unnoticed by investors. Actively managed funds have experienced massive outflows through September, while index funds have seen net inflows for the past eight months. The slim chance of “winning.” But this isn’t the…
Since the 1992 publication of “The Cross-Section of Expected Stock Returns” by Eugene Fama and Ken French, the size factor has been among those used in asset pricing models that attempt to explain the differences in returns of diversified portfolios. While Fama and French limited their model to three factors (beta, size and value), asset…
In the Mormon Church, the first Sunday of each month is called Fast Sunday. As my kids have pointed out, however, it’s not because it goes by faster than any other Sunday. Quite the opposite, in fact. It’s called Fast Sunday because members of the Church of Jesus Christ of Latter-day Saints, or Mormons, use…
Financial planning guru George Kinder has a powerful tool for helping people set priorities for their money…and their lives. Here it is. Few things seem more diametrically opposed than managing money and spiritual enlightenment. But not everyone sees it that way. Some very influential people in the financial advisory community have dedicated their lives to…
America has discovered a new financial guru. Tony Robbins’ new book on investing, MONEY Master the Game: 7 Simple Steps to Financial Freedom, has shot to the top of Amazon’s bestseller list. Mr. Robbins, who has been nicknamed the “mahatma of motivation,” excels at self-promotion. The publication of his book has generated immense publicity, including…
In my 20 years’ experience as a financial advisor, I’ve learned that even if there were such a thing as the “perfect portfolio,” choosing the asset allocation that’s most likely to allow you to adhere to your financial plan is even more important than the allocation itself. Because adhering to your plan should give you…
I travel a decent amount. I don’t mind flying, but I’ve always struggled with the loss of productivity. Hours waiting at the airport. Even more hours in flight. But with the advent of in-flight Wi-Fi, I thought my productivity problems were solved. I was wrong. I’ve instead concluded that by nixing slow and unpredictable in-flight…