It’s small consolation that your broker is only harming one client at a time by claiming the ability to “beat the market.” Recommending actively managed funds, private equity, individual stocks and alternative investments is the tried-and-true Wall Street way of transferring wealth from you to them. The zero-sum game If you need more convincing, I…
Liquidity—the ability to buy and sell significant quantities of a given asset, quickly, at low cost and without a major price concession—is valuable to investors. Therefore, they demand a premium as compensation for the greater risks and costs of investing in less liquid securities. For example, liquidity risk partly explains the equity-risk premium. The average…
The year-end 2015 S&P Active Versus Passive (SPIVA) scorecard provides yet another example of why—at least when it comes to the overall results of active management relative to appropriate benchmarks—the past is in fact prologue. Following are some highlights from the recently released report: Domestic Equities Last year, 66.1% of large-cap managers, 56.8% of midcap…
Because of the magnitude, persistence, pervasiveness and robustness of their related premiums, several factors have dominated the academic literature. Among them are market beta, size, value, momentum and profitability. However, despite their persistence, each factor has undergone even fairly long periods during which it produced negative returns. Said another way, while investors can raise expected…
One of the most important issues in finance concerns the relationship between risk and expected return. 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), which was developed in the early 1960s. The CAPM provided the…
I love finding financial wisdom in unlikely places, like in art and music. These opportunities are more abundant than you might expect. For instance, the punk-Americana outfit, The Avett Brothers, dedicated an entire tune, aptly titled “Ill With Want,” to the scourge of greed and Mumford & Sons taught us that “where you invest your…
The majority of Americans don’t think they are saving enough and are worried their savings won’t last as long as they do. Only 31 percent of workers who participate in an employer-sponsored retirement plan, such as a 401(k), 403(b) or 457, are “extremely confident” or “very confident” that they will not outlive their money —…
As explained in my latest book, “The Incredible Shrinking Alpha,” which I co-authored with Andrew Berkin, accompanying the rapid growth of the actively managed mutual fund industry, the average performance of mutual funds has been trending downward over the past few decades. Teodor Dyakov, Hao Jiang and Marno Verbeek—authors of the study “The Trading Performance…
It’s 6 a.m. in Park City, Utah. I’m in the shower. I go through all the typical shower rituals — I wash behind my ears, shave, and more — until I’m ready to get out. I grab the handle for the water, pause, take a deep breath and then turn it. I don’t turn it…
Tim Maurer, a Charleston, S.C.-based Certified Financial Planner and Forbes contributor who just wrote the book Simple Money: A No-Nonsense Guide to Personal Finance has an enlightening, if unconventional notion. To Maurer, personal finance is more personal than finance. “As I looked at the landscape of personal finance books, there is almost a shtick they…
For almost five decades, the literature on the investment performance of mutual funds has found that very few managers possess sufficient stock-picking or market-timing talent to allow them to consistently and reliably produce positive risk-adjusted performance after considering their fees. In other words, there’s little to no evidence of outperformance beyond the randomly expected. As…
For almost five decades, the literature on the investment performance of mutual funds has found that very few managers possess sufficient stock-picking or market-timing talent to allow them to consistently and reliably produce positive risk-adjusted performance after considering their fees. In other words, there’s little to no evidence of outperformance beyond the randomly expected. As…
This is my fourth article in a series devoted to helping investors stay disciplined in the face of market volatility—and even lengthy periods of underperformance by risky assets. The first was a December 2015 post dealing with what I call “investment depression.” The second was a January post designed to help investors deal with the…
Possessing a well-thought-out asset allocation plan that takes into account your unique ability, willingness and need to take market risk is only the necessary condition for success in investing (unless you just happen to get very lucky). The sufficient condition is having the discipline to stay the course. That’s certainly not easy to do when…
The effect of high-frequency trading (HFT) on market quality is important, and has generated strong interest among academics, investors and regulators alike. Graham Partington, Richard Philip and Amy Kwan—authors of an October 2015 paper, “Is High Frequency Trading Beneficial to Market Quality?”—examined how HFT has changed the dynamics of the market and whether traditional academic…
