Point 1: Markets Are Efficient Public information is of little fundamental value. New information is so quickly incorporated into asset prices that use of this knowledge cannot be expected to consistently yield superior risk-adjusted returns. Point 2: Risk and Expected Reward Are Related Investors who expect or need to achieve higher returns must accept…
Recently, I received an email from Russell Investments announcing that they had terminated several money managers and hired new ones. The funds that had changes in management were the Russell Emerging Markets Fund, the Russell International Developed Markets Fund, the Russell Global Infrastructure Fund, and the Russell Tax-Managed Mid- and Small-Cap Fund. Russell is one…
Earlier this month, the People’s Bank of China announced that it would double the allowable trading range for the yuan against the dollar to 2 percent from a midpoint rate it sets every day. This move provides evidence that the government is moving toward a more market-driven economy. I’ve noted that there’s a direct correlation between announcements…
In 1993, the Fama-French three-factor (beta, size and value) model replaced the single-factor capital asset pricing model (CAPM) and became the standard model in finance, explaining more than 90 percent of the variation of returns of diversified portfolios. While the model was a big improvement over the CAPM, it couldn’t explain some major anomalies. In…
Since the publication of the study “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency” in 1993, the momentum anomaly—buying past winners and selling past losers, generates abnormal returns in the short run—has received a lot of attention. This anomaly presents perhaps the greatest challenge to market efficiency, because it could not be explained by…
Many great discoveries come about by accident, like the discovery of the anti-malarial drug quinine, the smallpox vaccination, X-rays and insulin. Here’s a discovery that relates to retirement: the unexpected importance of marshmallows in explaining the difficulty of delaying gratification. A famous Stanford study by Walter Mischel, which took place in the late 60s and…
Approximately 51 million Americans have invested an estimated $3.5 trillion in 401(k) plans, according to the Investment Company Institute. If you’re one of them, you’re probably being ripped off, big time. How? Your plan likely includes a dizzying array of investment choices. These options are dominated by funds that have high management fees and are actively managed,…
Timothy Sykes is offering you an opportunity to make big bucks. According to his website, he turned $12,415 into more than $3.7 million by trading penny stocks. He represents the following “verified” returns: 2014 (year to date): 90 percent 2013: 66 percent 2012: 38 percent 2011: 54 percent 2010: 57 percent Mr. Sykes sells a trading system…
What is your most valuable asset? Your home? Not likely, even back in 2006. Your 401(k)? Doubtful, even when it was 2007. No, if you’re not yet glimpsing your retirement years, it’s likely that your biggest asset is you—and not just metaphorically. Let’s say you’re only 30, with a degree or two and some experience…
As more of the burden of generating income in retirement falls on the shoulders of retirees—and not the companies who signed their paychecks throughout their careers, in the form of corporate pensions—it’s become increasingly important for retirees to understand the role that Social Securitywill and will not play. Here are some points you may not be…
Years ago, a friend came home with a new, top-of-the-line road bike. My first thought: How can he afford that? It seemed like such a big purchase based on what I thought I knew. We lived in the same neighborhood, were close to the same age and both had young families. His life looked a…
The asset allocation process is somewhat like a Russian nesting doll. What appears as a sole, simple object actually comprises a great deal. Like each doll, one after the next, a portfolio consists of detailed, intricate workings. We’ve already seen this in earlier articles in our asset allocation series, where we covered some essentials, namely,…
We’re getting closer to the finish line in our series of articles concerning asset allocation. So far, we’ve covered how to analyze your ability, willingness and needto take risk — and what do when one or more of those factors conflict. Then we moved to the equity portion of your portfolio, starting with a discussion aboutdomestic vs. international stocks. Then…
Summary Socially responsible investing encompasses many personal beliefs, not just one set of values. Some investors don’t wish to invest in the “sin stocks” of companies whose products go against their morals. By avoiding the “sin stocks,” some investors may be accepting more risk than they realize because they’re not fully diversified across industries. Socially…
Summary While dividends may comprise a significant portion of total returns, they don’t add any explanatory power to future returns. Approximately 60 percent of U.S. stocks and 40 percent of international stocks don’t pay dividends. The total returns to investors come from capital gains. Corporate dividends can be replaced with self-made dividends. Seeking Alpha blogger…