Groundbreaking investment research from 1992—supported by other studies since then—indicates that value stocks and small stocks outperform the stock market as a whole. Recently, professors Eugene F. Fama of the University of Chicago and Kenneth R. French of Dartmouth—authors of the 1992 study—have identified another important component of stock returns: the higher returns of small and value stocks are due […]
It is the ‘unknown unknowns’ that will affect your portfolio
Among the many peculiar word constructions former Secretary of Defense Donald Rumsfeld is remembered for, there is one that applies to all forecasts of the future: the “unknown unknowns.” In his words, they are “the ones we don’t know we don’t know.” That phrase, incidentally, was already commonly used in the Defense Department and elsewhere in its shortened version, “unk-unk.” It […]
Client Letter – Q2 2007
It’s easy to see what long-term stock market investors earn—just look at the averages, right? Maybe not, according to some new research by Ilia Dichev at the University of Michigan. From Jan. 1926 through this past April the Standard & Poor’s 500 Index grew at an annualized pace of 10.45%. But Dichev’s research on investor cash flows into and out […]
Teens have high aspirations but need help understanding money
The typical teen believes it is important to live within one’s means and to have good money habits. But the typical teen also lacks basic financial knowledge and has unrealistic expectations about their earnings potential as adults. The average teen looks forward to an annual salary of $145,000 once they hit the workforce. Boys, who expect to earn $173,000 per […]
Was the February market drop a portent of things to come?
Complacency will get you into trouble, at least in the financial markets. Back in February, when the U.S. stock market dropped almost 3.5% in one day (following an 8% plunge in the Chinese market), investors became alarmed, newspapers ran front-page headlines for several days, and television “experts” opined about the market’s sudden volatility. It wasn’t the market that had suddenly […]
Forget trends and patterns: Randomness rules the stock market
Despite impressive evidence that most short-term movements in the markets are random, professional and amateur investors alike continue to throw hundreds of billions of dollars at strategies designed to beat the market. The common perception is that certain securities are “mispriced”—that is, investors have bid them too high or too low based on their inherent value.The human mind has evolved […]
Financial gurus can be too simplistic
Best-selling author Suze Orman has become a veritable guru to women (and many men) who want to get a handle on their finances. Through her books, television shows, and personal appearances, Orman has preached a philosophy of financial responsibility and debt reduction. There is no question that her basic message is helpful and important to the many Americans who find […]
Client Letter – Q1 2007
Please take a moment to remember the 3.3% decline in the Dow, which occurred less than a month ago (and was caused by the sell off in Asian markets). Now, look at your performance reports. You’ll notice that your investments are up for the quarter by two to three percent, which is a great quarterly return. It always amazes me […]
Want to retire? More savings, not higher returns, will get you there
First, the good news: it is entirely within your power to make a significant difference in your retirement income security. Now, the bad news: because it is within your power, you have to do the work. You cannot rely on the investment markets to carry you to a comfortable retirement. Your level of retirement savings—not the performance of your retirement […]
In the stock market as in horse racing, go with the odds
Predicting the stock market is like handicapping the horses: you can pull in and analyze lots of variables, but in the end it’s better to go with the odds. Bettors at the track look at a horse’s lineage, recent races, jockey, performance in similar weather, and hundreds of other variables. In the end, however, the results of that particular race […]
