Over the past decade, investors have continued to pour new assets into hedge funds. Total hedge fund assets under management are now greater than $2.6 trillion, and the number of hedge funds continues to grow (current estimates put them in excess of 10,000, more than twice the number there were in 1990). Consider also that…
The data is irrefutable. There’s a direct correlation between low fees and higher expected returns. Two recent studies from Morningstar bring this point home in a powerful way. The significance of low fees Read the rest of the article at The Huffington Post.
You’ve heard of the American dream, right? The American dream was this machine we built to get rid of uncertainty and create security. It’s the white picket fence, the job and the minivan. You watch Dan Rather and a sitcom. You go to bed, go to sleep and repeat. It may not be that exciting,…
Classical economic theory suggests that free markets, in which individuals each act according to their self-interest, yield the best of all possible worlds. All one has to do is look around at places like Cuba and North Korea to see the benefits this system has provided. But economists George Akerlof and Nobel Prize-winner Robert Shiller…
It’s logical to believe that corporate managers have a preference for issuing equity at times they perceive their firm’s stock price is overvalued or high relative to some benchmark (such as price-to-earnings ratio or book-to-market ratio). The academic research on the subject supports this hypothesis—seasoned equity offerings (SEOs) do tend to be preceded by unusually…
Earlier this week, we discussed a March 2016 study by Rodney Boehme, Veljko Fotak and Anthony May, “Crash Risk and Seasoned Equity Offerings,” which provided evidence that companies will tend to withhold (and accumulate) bad news for an extended period of time, keeping stock prices temporarily higher (think WorldCom and Enron). Bad news, however, cannot…
Why settle for ruining the retirement dreams of one individual investor at a time when doing so on a massive scale is far more lucrative? That seems to be the strategy of some retirement plan sponsors, consultants, endowments and their advisors. The dire state of retirement funds An article in Zero Hedge describes this sordid…
I was driving with a friend recently and telling him about some projects that really excited me. I mentioned a new book I’m working on, an article I’m writing and this new hobby of adventure motorcycling in the desert. He interrupted me and said, “How do you stay so motivated and so excited about things?”…
It’s a mystery to me why so many investors pay brokers to pick “winning” mutual funds. But they do, and it turns out that they aren’t alone in this often fruitless quest. Pension funds pay obscene fees to “consultants” who claim the ability to select outperforming mutual funds or other types of investments. A flawed process The…
As the director of research for The BAM ALLIANCE, I frequently receive questions related to the advisability of purchasing payout annuities (as opposed to variable annuities, which I generally categorize as products meant to be sold, not bought). Combine the relatively poor performance of equities since 2000 (the S&P 500 returned just a little more…
The financial crisis of 2008, when all risky asset classes suffered dramatic losses, led many investors to seek out “alternative” investments that claimed to provide downside protection, or positive returns independent of the market environment. This resulted in the introduction of a new segment of mutual funds that operate at the intersection of traditional mutual…
The Shiller cyclically adjusted (for inflation) price-to-earnings ratio—referred to as the CAPE 10 because it averages the last 10 years’ earnings and adjusts them for inflation—is a metric used by many to determine whether the market is undervalued, fairly valued or overvalued. Employing a 10-year average for earnings, instead of the most current 12-month earnings,…
The prevailing wisdom is that the market for equities in emerging markets is less efficient than in developed markets. Unfortunately, the evidence doesn’t support this hypothesis. For instance, the S&P Indices Versus Active (SPIVA) scorecard showed that over the 10-year period ending June 2015, 92% of actively managed emerging market funds underperformed their benchmark, the…
Now that more financial professionals are going to have to act in their customer’s best interest, where can you actually find someone who will really, truly, for sure do that? It seems like a simple question, but it’s not. I’ve been around the financial planning industry for 20 years, and one of the hardest (and…
Most investors believe all passively managed funds within the same asset class should have the same, or at least very similar, returns. However, while all index funds and passive structured asset class funds are similar in the way that rectangles and squares are similar, they are also very different. All squares are rectangles, but not…