A well-thought-out financial plan is necessary for successful investing, but even the greatest plan won’t bear fruit if an investor doesn’t have the discipline required to stay the course, rebalancing and tax-loss-harvesting as needed. Unfortunately, even thorough and intelligent plans will sometimes end up in the trash heap because investors lose heart when their strategy…
The financial crisis of 2008 has led to another surge in demand for funds using a tactical asset allocation (TAA) investment strategy. Morningstar currently classifies about 332 funds as tactical asset allocation funds. That’s up from just eight in 2007. The objective of TAA, which originally gained popularity in the 1980s, is to provide better-than-benchmark…
A number of academic papers have demonstrated within the last few years that low-volatility stocks have provided greater returns than higher-volatility stocks. As I’ve mentioned before, these findings run counter to economic theory, which predicts that higher expected risk is compensated with a higher expected return. The result is what’s known as the low-volatility anomaly….
Momentum is a well-established, empirical fact. Its premium is evident in more than 87 years of domestic market data, in more than 20 years of out-of-sample evidence beginning from the time of its original discovery, in statistics from 40 other countries, and in the performance of more than a dozen different asset classes. In fact,…
Last week, I wrote in-depth about some of the problems with hedge funds, especially in terms of how they’re viewed and how they affect financial markets as a whole. I thought I’d begin this week with a closer look at the performance of private equity, another nonpublicly traded investment. The term “private equity” is used…
Despite extremely poor returns, the growth of the hedge fund industry has been explosive. Assets under management grew from about $50 billion in 1990 to more than $2 trillion by 2007. Today that figure is at an estimated $3 trillion. It’s believed hedge funds account for almost a third of the average daily stock market…
Investors tend to think of hedge fund managers as the superstars of the financial world. Collectively, it’s estimated they now manage somewhere in the neighborhood of $3 trillion. Unfortunately, their reputation hasn’t translated into the type of returns that live up to all the hype. As we’ve continued to demonstrate over the years, the hedge…
The combination of the S&P 500 Index losing about 1 percent per year during the decade from 2000-2009 and a rising tide of obligations caused a “perfect storm” for public workers’ pension funds across the country. These funds increasingly began turning to riskier alternative investments in private equity and hedge funds in an effort to…
In my book, “Think, Act, and Invest Like Warren Buffett,” I noted that the Oracle of Omaha advised investors: “We have long felt that the only value of stock forecasters is to make fortune-tellers look good. Even now, Charlie (Munger) and I continue to believe that short-term market forecasts are poison and should be kept…
As a continuation of our previous discussion earlier this month on small value mutual funds, today I’d like to review the metrics of some popular small value ETFs. As a reminder, the smaller and more “valuey” the stocks that a fund owns, the higher the expected returns of the portfolio are. The following table, with…
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…
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…
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…
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…