Historically, in terms of yields, because of their federal tax exemption, AAA-rated municipal bonds have traded at a discount to Treasuries. Over the long term, AAA-rated intermediate-term municipal bond yields have typically traded between 75-85 percent of the yields on similar maturity Treasuries. For example, for most of the period from 2001 through 2007 five-year…
When estimating returns, we know that current valuations provide valuable information. The earnings yield derived from the Shiller CAPE 10—the cyclically adjusted price-to-earnings ratio—is considered by many to be at least as good, if not better, than other metrics. It uses smoothed real earnings to eliminate the fluctuations in net income caused by variations in…
Market-timing strategies attempt to outperform a buy-and-hold strategy by anticipating the future direction of a market. They can work, but mostly they don’t. First, such strategies are based on the belief that future security prices are predictable, typically through the use of technical indicators, such as trend following or momentum, that are computed from the…
There’s a growing body of evidence that beta is actually a two-sided, not a one-sided, “coin,” and those two faces are separated by perceptions of risk. Being risk averse, most investors care more than just about the standard deviation of returns (volatility), assigning more weight to downside deviations from the mean than to upside deviations….
I have received a number of questions since “60 Minutes” ran a piece on high-frequency trading (HFT)on March 30 (lest we forget, this is the same “60 Minutes” that ran a piece in 2010 that predicted the municipal market would implode in 2011, and we all know how that turned out). I’ll summarize what I think…
The Supreme Court of the United States has indicated an interest in deciding an important 401(k) case, Tibble v. Edison International. If the Supreme Court decides to hear the Tibble case, and if it decides it in a manner that will benefit investors, the impact could be profound. Before discussing the issues at play in…
It’s unfortunate that most of what passes for financial news is misleading and harmful to investors. It consists of supremely confident “financial gurus” predicting the future. They are either warning us of an imminent crash or observing that a bull run is just beginning. We are inundated with conflicting recommendations about the value of commodities,…
“Trouble. Trouble, trouble, trouble, trouble.” Reading all the news about Bill Gross and PIMCO, I keep hearing that Ray LaMontagne song in my head. (Go ahead—give it a listen while you read this, just for fun.) The king of bonds isn’t yet abdicating the throne, but it’s been a rough stretch since PIMCO came down from the mountain…
You know what has to be done, but it doesn’t make it any easier. You’ve done all the research, asked all the questions and mulled over your options, and you know that moving on from your current company is the right thing to do. You wince, imagining the look on the face of your boss…
A couple of weeks ago, I got an email from someone living nearby who wanted to talk about his investment plan. We arranged a time to meet, and I got to spend an hour being a sounding board. It didn’t take long to discover that he was making a common mistake. It’s one I’ve made,…
Do you consider yourself an investor or a trader? The answer matters because there’s a big distinction between the two. It’s also an answer that will help you make sense of the current sideshow entertaining most of Wall Street: Michael Lewis’s latest book, “Flash Boys: A Wall Street Revolt.” Starting on Sunday with an interview on “60…
It is our desire and intent to educate clients about how capital markets work and to provide them with the information necessary for their financial well-being. The advice to follow an evidence-based approach to investing is significantly different from most of the advice heard on Wall Street and in the financial media. It also…
Point 1: Markets Are Efficient Public information is of little fundamental value. New information is so quickly incorporated into asset prices that use of this knowledge cannot be expected to consistently yield superior risk-adjusted returns. Point 2: Risk and Expected Reward Are Related Investors who expect or need to achieve higher returns must accept…
Recently, I received an email from Russell Investments announcing that they had terminated several money managers and hired new ones. The funds that had changes in management were the Russell Emerging Markets Fund, the Russell International Developed Markets Fund, the Russell Global Infrastructure Fund, and the Russell Tax-Managed Mid- and Small-Cap Fund. Russell is one…
Earlier this month, the People’s Bank of China announced that it would double the allowable trading range for the yuan against the dollar to 2 percent from a midpoint rate it sets every day. This move provides evidence that the government is moving toward a more market-driven economy. I’ve noted that there’s a direct correlation between announcements…
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