All across America, a familiar ritual is repeated at least quarterly. Sponsors of 401(k) plans meet with their brokers, insurance companies or other advisers. The purpose of the meeting is to decide which funds to keep as investment options and which ones to eliminate. Everyone has a familiar role. The plan adviser comes prepared with…
A regular reader sent me the following email: “If you get the chance, I would appreciate you including a piece about whether the Franklin Templeton Developing Markets (TEDMX) fund adds value. Its manager, Mark Mobius, is always quoted as the guru and pioneer of emerging markets investing. Does he do any better than a passive…
Despite the fact that financial theory has long held that dividend policy should be irrelevant to stock returns, one of the biggest trends in recent years has been individual investors rushing to buy dividend-paying stocks. In some cases, it’s a substitute for safer, but lower-yielding bonds. In others, it’s because investors believe dividend-paying stocks are…
“I’m bored.” You’ve said it. I’ve said it. Your children or nieces or nephews have said it. Our usual response to these two little words is to recommend doing something about it. You tell children to go outside. You pick up a new book or go to the movies. I head out on my mountain…
Until the recent sell-off toward the end of July, yields on high-yield bonds had been hitting record lows. At the end of June 2014, the yield on five-year bonds rated BB—the credit rating just below investment grade—was only 4.3 percent, or about 2.7 percentage points higher than the yield on five-year Treasurys. That puts the…
There have been a number of articles over the past few years claiming to refute the existence of a small-cap (or size) premium, which is the historical difference in returns between small-cap stocks and large-cap stocks. While the critiques have been somewhat varied, two common claims are that the risk-adjusted returns of small-cap stocks have…
When interest rates are low, some investors stretch for yield by taking on credit risk. At the same time, many investors are also seeking alternative ways to protect themselves against a potential rise in interest rates, without sacrificing that hard-earned yield. These dual concerns have led many to consider bank loan funds, which recently have…
It’s not too late to make some summer reading recommendations, and a quick review of my bookcase turned up some titles I think would be valuable for any investor. These books cover topics ranging from a detailed explanation of how the markets really work to the basic benefits of financial planning and some of the…
When will financial journalists draw a line between entertainment and information? According to a new book, people subconsciously shut off the part of their brain when watching some financial news shows. The book, “Clash of the Financial Pundits,” co-authored by Jeff Macke and Joshua M. Brown, is a fascinating insight into the real agenda of…
One of the more persistent themes we’ve been hearing from forecasters, for quite some time now, is that the Federal Reserve’s easy monetary policy—starting with its move to drive the Federal Funds rate from 5.25 percent to zero—would inevitably lead to a dramatic spike in inflation. As each new round of quantitative easing (QE) was…
In Mebane Faber’s new book, “Global Value,” he states: “It is ironic that the largest and most famous index, the S&P 500, is really an active fund in drag. It has momentum rules (market cap weighting), fundamental rules (four quarters of earnings, liquidity requirements) and a subjective overlay (committee input). Does that sound passive to…
I have long been skeptical of how fair bond fund prices are — or more accurately said, the potential ability for knowledgeable investors to “game” bond fund prices — in fixed income asset classes where liquidity isn’t great. Two asset classes that immediately come to mind are municipal bonds and high-yield corporate bonds. I finally…
It was a particularly hot summer weekend day in St. Louis, too hot to be outside. So I decided to use the time going through the collection of articles I keep for future use. I save these articles, to be resurrected at a later date, in an effort to hold forecasting pundits and active managers…
For more than a decade now, Standard & Poor’s has been contributing to the debate over active versus passive investing by producing its S&P Indices Versus Active Funds, or SPIVA, scorecards. These twice-yearly scorecards evaluate the evidence concerning the performance of actively managed funds relative to their benchmarks. They show, year after year, that fewer…
What if you could create a forum for discussing the best way to invest in a responsible and intelligent manner? Who would you invite to participate in this debate? Here are my suggestions: There would be no shortage of candidates to advocate stock picking, market timing and fund manager selection. Jim Cramer, for example, could…