Forecasters often cite a figure of 8% to 10% as a likely outcome for stock market performance in the year ahead, and 2014 was no exception. As sensible as this may sound, it is worth pointing out that over the past 89 years, the S&P 500 Index and its predecessors have never delivered a total return between 8% and 10% […]
Hindsight Bias: Don’t Look Back
How often do you look back at something and believe that you could have predicted it, or that the event seemed so obvious only after it has actually happened? If you fall into this line of thinking, you may display what is known in psychology as hindsight bias, a potential decision making killer. Perhaps the most common occurrences of hindsight […]
The Case for Owning International Stocks in 2015
I’ve had a few questions from my clients about why we own international stocks when they are underperforming U.S. stocks. For those clients who started in 2008 or later, you probably do not remember the time when international stock returns were much higher than U.S. stock returns. I have included a chart from our January 2008 quarterly letter that shows how different international returns were […]
Client Letter – Q4 2014
During the past year, the best performing asset classes were REITs (real estate) and U.S. large stocks. International stocks were all down between -1% and -7%. The following chart shows the 1-year, 5-year, and 10-year performance of many DFA funds (representing different asset classes) compared to the S&P 500 Index: Market Returns for the period ending December 31, 2014 DFA Fund […]
The Devil Wears Nada
The global fashion industry is fickle by nature, pushing and then pulling trends to keep hapless consumers forever turning over their wardrobes. Much of the financial services industry works the same way. Fashion designers, manufacturers, and media operate by telling consumers what’s in vogue this year, thus artificially creating demand where none previously existed. What turns up in the boutiques […]
Inflation: The Grinch Who Stole Your Purchasing Power
As the holidays arrive, there are many constants in life to be thankful for: family, friends, and experiences, just to name a few. As many of us gather around the dinner table, discussions of internet hackers, early picks to win the Super Bowl, and stories of the past are bound to be debated. Perhaps the one thing that all of […]
Buying High And Selling Low: The Investor’s Dilemma
Research released by Dalbar presents a grim evaluation of individual investors. The study reveals that over the 20 year period from 1982-2012, the average equity fund investor has earned an annualized return of 4.25%, while the S&P 500 has an annualized 8.22% return. This begs the question: Why is the individual investor losing nearly 4% annually? Behavioral finance offers some […]
Living with Volatility, Again
Volatility is back. Just as many people were starting to think markets only ever move in one direction, the pendulum has swung the other way. Anxiety is a completely natural response to these events. Acting on those emotions, though, can end up doing us more harm than good. There are a number of tidy-sounding theories about why markets have become […]
The Google Effect?
What can’t Google do? Free email, customized searches, maps, apps, browsers, video—the list goes on. Now researchers claim to have found a link between Google searches and future stock market movements. Researchers at Warwick Business School in the UK and Boston University in the US say they have developed a method that identifies historical links between searches related to business and politics […]
Client Letter – Q3 2014
The third quarter of 2014 was a tale of two markets—large U.S. stocks and everything else. A handful of big stocks pushed up the Standard & Poor’s 500 Index by about 1 percent over the late summer and early fall. Meanwhile, just about every other asset class that we invest in declined, from small U.S. stocks to real estate and […]
