Happy New Year! We had a pretty good year in 2005, with regards to overall portfolio returns, which were more in line with historical averages than the past two years. Unfortunately, for the typical U.S. investor who is overweighted in U.S. large stocks (as measured by the S&P 500 Index below), 2005 was not a very good year. Also, bonds […]
Honey, I’m home: Inflation makes its comeback
If you’ve been to a gas pump lately or paid your heating bill, you have a pretty good sense that energy costs more today than it did a year ago. A trip to the grocery story will add to your growing store of anecdotal evidence that prices are rising appreciably. Recently the statistics confirmed your worries: the inflation rate has […]
It’s time to make peace with capital gains tax
The average investor hates paying taxes—who doesn’t? And yet, long-term investors get some great tax breaks on both their profits and losses. The tax breaks make investing a better after-tax proposition than working for paid income. And at this time of year, investors should be looking at their capital gains totals because they may want to make some moves before […]
Familiarity does not breed investing knowledge
Shortly after Hurricane Katrina devastated New Orleans, insurers reported higher interest from clients in other parts of the country in homeowner’s coverage for catastrophes like floods and earthquakes. In early 2003, following three years of big losses in the U.S. stock market and just as the market was about to take off on a renewed bull run, investors were dumping […]
Profit by losing your control attitude
Perhaps the hardest thing to do on the way to becoming a successful investor is unlearning everything you think you know about financial markets and the economy. The difficulty lies in admitting you do not know very much at all. Face it: You probably will not be able to add extra return to your investments by using your “knowledge” of […]
Client Letter – Q3 2005
One of the first rules of financial success is to protect what you have so that a disaster won’t set you back too far. That means investors who are trying to increase their wealth should protect their sources of wealth with appropriate insurance: health insurance to cover medical catastrophes, disability insurance to protect against loss of salary, and long term […]
Investment pro to individuals: Index or lose
David Swenson is an investment success story. As overseer of Yale University’s endowment fund for the last 20 years, he has helped it grow to $15 billion by beating the stock market with annualized returns of 16% per year. Swenson hires and oversees active money managers who buy and sell based on their outlooks for individual stocks, industries, and the […]
Why gamblers and investors make mistakes
How many times have you assumed that what’s happened in the past will continue in the future? For instance, if your trash collector has been showing up early every morning, it seems a pretty good bet that you better get the garbage out the night before, rather than waiting until after breakfast on pickup day. He won’t necessarily show up […]
Why you cannot switch to bonds after retirement
A common misconception among investors is that an investment portfolio in retirement should be “conservative” because a retiree cannot afford to “lose” money. Unfortunately, investors often use the wrong definitions of the words “conservative” and “lose.” Too often, investors are worried about current—and usually short-term—market fluctuations. They fear “losing” money when the stock market falls. That temporary decline in value […]
How ‘anchoring’ obscures investment values
Our minds work in funny ways, and one of the most fascinating traits involves our tendency to hang our decisions on irrelevant information. Behavioral psychologists call this tendency “anchoring.” We see it in the investment markets when investors come to regard the price at which they bought an investment as more significant than any other price, or when their predictions […]
