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Listen to Your Brain to Sense a Market Correction
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…
How to Be Happier in Retirement
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…
Is ‘Momentum’ Faltering? Part I
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…
Avoid this mistake about global diversification
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…
Is ‘Momentum’ Faltering? Part II
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…
The Top 10 Places Your Next Dollar Should Go
There is no shortage of receptacles clamoring for your money each day. No matter how much money you have or make, it could never keep up with all the seemingly urgent invitations to part with it. Separating true financial priorities from flash impulses is an increasing challenge, even when you’re trying to do the right…
When Competition Obscures Financial Goals
Years ago, a friend with an incredibly successful career as a sales representative shared a story about what she and her brother called their W-2 Derby. It’s exactly what it sounds like. At the end of each year, they’d pull out their W-2s and compare who had the higher income. There were even rules for…
What are the differences between a brokered CD and a bank CD?
Q: What are the differences between a brokered CD and a bank CD? A: A certificate of deposit is a type of bond that has a stated maturity and coupon payment. Most CDs offer a fixed interest rate, and maturities can range from one month to 30 years. CDs have insurance from the Federal Deposit…
An Eye to the Past Can Help Guide the Future
Over time, we’ve come to accept the concept that knowledge is power. In theory, when we have more knowledge, we can make better decisions. But for many of us, there can be a disconnect between knowing something and acting wisely on that knowledge. As you probably know from experience, it happens often with money. Last…
The 3 Keys to Surviving Major Life Transitions
You might think that the most important work a financial advisor can do is related to allocating a client’s investment portfolio, or perhaps helping secure a timely insurance policy or drafting the optimal estate plan. In fact, their most important work is done when clients are in the midst of navigating life’s major transitions. I…
Small Value Vs Midcap Value
My column from July 14 on the persistence of the small-value premium resulted in some interesting discussions on the subject. I thought it would be informative to share one of them. One reader pointed out that in the past 20 years, midcap value stocks had outperformed small-value stocks. For the period from July 1994 to June 2014,…
Active Funds Fail Again & Again
The evidence is overwhelming that most actively managed funds underperform their appropriate benchmarks, especially after taxes. However, not all actively managed funds underperform, just a large majority of them. Those who believe in active management as the winning strategy believe they can identify the small minority of actively managed funds that will outperform. The only-somewhat logical way…
Enough With The Hedge Fund Hype
The first half of this year again brought hedge funds little relief from their historically poor performance. Hedge funds began 2014 coming off their fifth-straight year of trailing U.S. stocks by some significant margins. And based on data through June 30, it doesn’t look like this year is shaping up to be much better. The latest data…
Not All Value Metrics Are Equal
The metric most commonly used to categorize value stocks and to construct portfolios is the one employed by the Fama-French three-factor model—book-to-market (BtM) ratio. Russell Indexes only uses BtM to determine value as well. However, other metrics also show a value premium. Today we’ll take a look at the historical evidence on the premiums provided…
