During bear markets, the dividends thrown off by companies provide the cash flow required, while a total-return approach requires one to sell shares to provide the cash flow—a clear advantage of dividend-focused strategies that those who favor them are quick to point out. This blog addresses that issue specifically. We’ll begin our discussion by pointing…
There’s an interesting new paper by Claude Erb, “Has the Stock Market Been Overgrazed?” He begins with noting that over time (since the 1920s), the beta, size and value premiums have all declined. He then asks: “What if too many investors are demanding too much from a possibly limited supply of opportunities?” Said another way,…
The tendency for mutual fund companies to drop poorly performing funds when calculating historical return data is a major problem for unsuspecting investors, and it’s known as survivorship bias. An investor selecting mutual funds today is choosing from a list that excludes the losers that have been either closed or merged out of existence so…
Some things never change. In 1940, Fred Schwed wrote a humorous book called, “Where Are the Customers’ Yachts?” It was about the dichotomy between the lavish lifestyle of those who manage money and the far less glamorous struggles of those whose money is being managed. In 2006, Paul Farrell noted in a MarketWatch blog post that more…
For much of the past decade, I have been on a mission to persuade you to fundamentally change the way you invest. It’s my firmly held view that the road to financial perdition begins with a call to a broker or adviser who claims to be able to “beat the markets.” I am not alone…
Having the privilege of walking through life with people vocationally, aiding in the acquisition, maintenance and dispossession of earthly resources as a financial advisor, I’m burdened with a heightened sense of the battling spirits of scarcity and abundance. The dehumanizing poverty that torments the Majority World screams that resources—here and now—are scarce. Remembering when I handed…
Ten years ago, I tracked every penny of our family’s spending. That’s good, right? Over time, however, I lost sight of why I was doing it and eventually stopped. Recently, I decided to try it again, and I find myself having the same mental conversation every time I sit down with my receipts. “I don’t…
Q: What are the benefits of buying higher coupon bonds? A: A higher coupon or “premium” bond has a higher coupon rate than the current market interest rate and will trade above par. These bonds sell for more than 100 percent of their par value, so the dollar value is greater than the normal $1,000….
by Brad Jenkins Life is hectic. Dealing with jobs, friends, family, and everything else you have on your plate contributes to that rapid pace. When you add children to the mix, it doesn’t get any easier. At some point, we run out of time to accomplish everything on our to-do list. Eventually, every one of…
Today concludes our four-part series on the efficient market hypothesis. While the EMH helps us understand how markets work, in terms of investment strategy it really doesn’t matter whether markets are efficient or not. The only thing that really matters is whether you can exploit inefficiencies persistently, after the expenses of the effort. That has proven to be extremely…
There are many investors who have a hard time accepting the fact that when a company pays a dividend the payment results in a permanent relatively lower price (relative to what the price would have been the dividend had not been paid), not just a lower price on the day it makes the distribution. The problem results…
One of the more persistent investment myths is that the winning strategy is to sell stocks in May and wait to buy back until November. While it is true that stocks have provided greater returns from November through April than they have from May through October, since 1926 there has still been an equity risk…
While there are many studies demonstrating a link between the value premium and risk, the empirical evidence draws inconsistent conclusions on whether distress risk is a systematic risk factor that is priced in the cross section of stock returns. There are studies that conclude that default risk is positively priced in the stock market, and…
The efficient market hypothesis asserts that financial markets are “informationally efficient”; that is, investors shouldn’t expect to consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made. However, we know that the market isn’t perfectly efficient. In fact, as I explained in my Seeking Alpha series on…
A June 2012 study by Robert Novy-Marx, “The Other Side of Value: The Gross Profitability Premium,” provides investors with new insights into the cross section of stock returns. Among the important findings were: Profitability, as measured by gross profits-to-assets—gross profits being sales minus cost of goods sold—has roughly the same power as book-to-market (a value…
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