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…
If insanity is doing the same thing over and over and expecting different results, investors are insane. The way many investors manage their money seems to perfectly describe Albert Einstein’s definition of insanity: Doing the same thing over and over again and expecting different results. Here’s what isn’t working: trying to predict when to enter…
“We should just move to the country and live in a tent.” I mention this idea to my wife every time I’m confronted with one of the realities of living in Park City, Utah. It seems like almost everyone here is an athlete of some sort, and they take their sports seriously. From mountain biking…
When I lived in Las Vegas, there were billboards everywhere advertising different casinos. One of the most common was the type that promised “98 percent payouts.” I remember thinking how amazing that was. After all, 98 is a lot of percents! It seemed like a really good deal — until I thought about it for…
Smart investors begin their journey by developing an investment plan, or investment policy statement, that includes an asset allocation table. After the plan has been prepared, the next step is to select proper investment vehicles for providing the appropriate exposure to the desired asset classes. A common error among investors who follow a “passive” investment…
The financial media continues to stoke anxiety and fear — and trading — with “news” about a coming market correction. On its list of “must reads” for July 16, Yahoo Finance featured these articles: “Investors haven’t been this optimistic since 1987. Here’s why that’s bad.” “This could be a big problem for stocks.” Sometimes these…
Much of what is written about retirement planning focuses on investing. I am guilty of contributing to the volume of that literature. My book, “The Smartest Retirement Book You’ll Ever Read,” discusses how to invest intelligently so that you can retire with dignity. I certainly don’t mean to trivialize the importance of careful financial planning. Without such…
For the decade from 2004-2013, the momentum premium—as measured by the Fama-French momentum factor—experienced a negative compound return of -1.2 percent per year. (This number was calculated using the monthly momentum premium figures from the Fama-French data series. Note that returns on factors are generally expressed as annual averages, not annualized returns, and during this decade…
Don’t get stuck in your own backyard. Investors should consider building globally diversified equity portfolios that avoid the persistent and worldwide phenomenon of home-country bias. That’s when you allocate a greater weight to your home-country stocks than their percentage of total global market capitalization. Among the reasons investors around the world exhibit this bias is…
Earlier this week, we took a look at some of the historical evidence on the persistence of the Fama-French momentum factor. Today we’ll examine the momentum premium’s out-of-sample record, as well as its uses in portfolio diversification. The authors of the 2013 study, “212 Years of Price Momentum,” concluded that the most recent decade-long underperformance…