Imagine a hypothetical guy who lives a responsible financial life. He’s focused on meeting his obligations, even though he doesn’t have a big cushion when it comes to his take-home pay. Things are tight. He’s not quite living paycheck-to-paycheck, but it’s close. Then one day, an external shock completely outside his control occurs, and it…
In a recent discussion on the Advisor Perspectives website (it was in response to an article I wrote on the performance of Third Avenue Management’s actively managed funds), someone commented: “I am, for the most part, a proponent of passive investing, especially in asset classes (such as domestic equity) where the great majority of active…
“It was totally worth it.” In this case, “it” referred to a Vitamix blender that a friend recently had purchased. He wasn’t the first. Indeed, I don’t know anyone who has purchased a Vitamix blender and didn’t share my friend’s effusive sentiment, even after spending between $429 and $719 (for the new line of G-Series…
You know what’s crazy? The key to getting people to think you’re smart is to stop talking and to start listening. Let me share a little story to demonstrate. Recently, I attended a dinner party with my friend and colleague Dan Solin. We were in a group of 12 sitting at a rather large table….
Are you a value investor or a growth investor? Could your preference be influenced by a biological predisposition partially ingrained from birth? Is it possible that your choice of investment could be explained by your personal experiences, both early on and later in life? The field of behavioral finance advances psychology-based theories to explain investor…
Quick Take on Fixed Income November, 2015 Question: What qualifications are required for a municipal bond to meet our buying parameters? Answer: While there have been few defaults in the municipal market, it’s important to note that not all muni bonds are created equal. The market offers many different types of bonds backed by varying…
While it’s a low bar, Bloomberg TV always seemed to me to be the best of the financial media. Its anchors are professional and knowledgeable. Its coverage is broad and responsible. It avoids the hype and sensationalism typical of many of its competitors. Bloomberg recently launched a new morning program, Bloomberg Go. It features some…
Thanks to Standard and Poor’s Indices Versus Active (SPIVA) scorecard, investors are becoming ever-more aware both of the persistent underperformance of the vast majority of actively managed funds as well the lack of evidence showing any persistence among the minority of winners beyond the randomly expected. This increasing awareness has led to an inexorable trend…
Almost 10 years ago, I knew a guy on a financial rocket ship. He had a great house, a successful business and a solid income. But then things changed. With the benefit of hindsight, it was clear he bought a little too much house and spent a little too much money. At the beginning, he…
Diego Amaya, Peter Christoffersen, Kris Jacobs and Aurelio Vasquez, authors of the new paper, “Does Realized Skewness Predict the Cross-Section of Equity Returns?”, examined higher moments of volatility, skewness and kurtosis to determine if they have provided incremental explanatory power in the cross section of stock returns. Before reviewing the authors’ findings, which appear in…
I had an interesting experience recently. I gave a talk to a group of investors. In the audience were a few brokers. My presentation consisted of two basic points: 1. Send an email to your broker or financial advisor and ask them simply to confirm that they will always put your interests above their own…
Fortress Investment Group is closing its flagship hedge fund following heavy losses and investor withdrawals. The fund, which had managed more than $8 billion in 2007, saw its assets fall to $3.2 billion at the start of 2015 and then again to just $1.6 billion at the time of this week’s announcement. Fortress’s fund, which…
Behavioral economist Richard Thaler explains why financial professionals need to be familiar with psychology. Daniel Kahneman and Amos Tversky legitimized behavioral economics—the study of how people really behave around money, as opposed to how economists say a rational person ought to behave. Read the rest of the article on Time.
The third quarter of 2015 brought hedge funds a very small amount of relief from their historically poor performance. Keep in mind, however, that hedge funds entered January coming off their sixth-straight year of trailing U.S. stocks by significant margins. And for the 10-year period from 2005 through 2014, which includes the worst bear market…
Understanding the volatility of Treasury bond returns, as well as the volatility of both the level and slope of the Treasury term-structure, are fundamental issues in finance. What’s more, they have important implications for investors and portfolio design. Researchers have offered both theory and empirical evidence that suggest important linkages between equity risk and the…