You may be all too familiar with commercials featuring folksy celebrities explaining how everyone tells him that reverse mortgages sound “too good to be true,” but there isn’t a catch this time. You can have the best of both worlds: You can stay in your home and get cash for the equity you have built…
In his new book, “Negotiating Your Investments,” Steven G. Blum discusses some of the traps investors confront when they seek financial advice. This book contains a wealth of helpful information, but I am going to focus on two areas of particular interest: conflicts of interest and asymmetric information. They are inextricably intertwined and present formidable…
This is a tale of two fictional investors, Paul and Mary. They approach investing very differently. I suspect you will be able to identify with one of them, and perhaps learn something from both. Both Paul and Mary are deeply troubled by market volatility. They are still scarred by the market crash in 2008-2009. They…
Individual investors have been busy the last few months. TD Ameritrade saw a 30 percent jump in daily trading volume compared with the same period last year. Other discount brokers reported a similar increase in daily trading volume. I spoke to TD Ameritrade, and it said this number represented a broad-based increase in trading. The number of…
Last week, I wrote about the documented evidence that trading activity results in lower returns to investors. This is equally true for those people we think of as professional investors and for people day trading in their parents’ basements. As far as I’m aware, there’s no peer-reviewed, academic study that shows any evidence that active trading will…
When it comes to vacation planning, many vacationers tend to forget the planning part. Carl Richards, director of investor education for the BAM ALLIANCE, writes the “Sketch Guy” column for The New York Times. He offers a two-step process for planning for not only your vacation but for your happier vacation: “First, pick your trip,…
Overview: A typical vacation planning checklist is bound to include the usual considerations: booking a rental car, making hotel reservations and testing how much can really fit into that carry-on luggage. But not as many travelers consider what they would do if a health crisis were to occur on their trip. Following is advice on…
Investors’ behavior can be heavily influenced by their experiences. For example, the financial crash of 1929 and the ensuing Great Depression permanently shattered many investors’ belief in buying stocks. A whole cohort of potential investors stayed away from equities for a very long time, if not permanently. Similarly, the “lost decade” of 2000-2009, when the…
This is the first of a two part series that aims to define risk. Since we live in a world without crystal balls that allow us to clearly see the future, prudent investing is all about the management of risk and expected returns. A problem that both investors and investment advisors face is defining what exactly risk…
Today concludes our two-part feature that aims to define risk. Not being able to do so is a problem for both advisors and investors. Alternative Definition of Risk Risk can also be defined as the probability of not achieving your financial objective – with the objective generally being not the accumulation of the greatest wealth, but instead,…
Part one of our series introduced the efficient market hypothesis. Part twoexplored evidence in the mutual fund and pension plan worlds that showed that while the EMH fails all the tests of efficiency, it passes the only test that really matters – are active investors likely to outperform appropriate benchmarks after the expenses of the effort? Today,…
Yesterday, we discussed the history and overview of the efficient market hypothesis. Today we’ll look at some of the evidence on the efforts of mutual funds and pension plans to generate alpha. Mutual Funds Each year, Standard & Poor’s publishes its Indices Versus Active Funds Scorecard, more commonly referred to as SPIVA, presenting the evidence on the…
Today begins a four-part series on the efficient market hypothesis. We’ll begin with a brief history and explanation of the EMH. Eugene Fama, recent recipient of the Nobel Prize in economics, is considered the father of the efficient-market hypothesis (EMH). The EMH asserts that financial markets are “informationally efficient.” As a consequence, we would expect…
Modern financial theory now includes the existence of many anomalies that shouldn’t exist if investors were perfectly rational and markets were perfectly efficient. Perhaps the most important anomaly is the persistent and pervasive momentum premium. Among the others are the low-volatility anomaly (low-volatility stocks have outperformed high-volatility stocks) and the poor performance of extreme small…
Today concludes our two-part series on the research aimed to provide explanations for risk. We’ll pick up with more research on the topic. We looked at three different papers in Part I as we sought to assess the value premium through the lens of risk, and today we turn to a fourth paper: The 2005 study “Understanding…
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