Market expectations about interest rates change because of news. This makes it very difficult to build a coherent investment strategy around a forecast. In a recent article, Bloomberg News noted that the rally in the US Treasury market in 2014 was stronger than every economist surveyed by its journalists had predicted.1 US 10-year yields were around 2.3% at the end […]
Investments
How to Avoid the Next Madoff (especially if you work with a financial advisor)
Over five years ago, Bernard Madoff was sentenced to 150 years in prison for scamming many investors–both novice and expert–out of billions of dollars. It surprised me that so many experienced investors could fall for his lies and believe that his consistent returns were legit. Many of Madoff’s victims were clients of financial advisors, who had foolishly invested their clients’ funds with Madoff. […]
Over the Hedge
A recent press article said that with major risk assets looking “fully valued,” it was time to seek out alternative investments such as hedge funds. But those thinking of making that shift might want to look before they leap. According to consulting firm McKinsey and Co, hedge funds and other “alternative” investments will command up to 40% of the asset […]
The Certainty Principle
A frequent complaint from would-be investors is that “uncertainty” is what keeps them out of the financial markets. “I’ll stay in cash until the direction becomes clearer,” they will say. So when has there ever been total clarity? Alternatively, people who are already in the market after a strong rally, as we have seen in recent years, nervously eye media […]
Seven Ways to Fool Yourself
The philosopher Ludwig Wittgenstein once said that nothing is as difficult for people as not deceiving themselves. But while most self-delusions are relatively costless, those relating to investment can come with a hefty price tag. We delude ourselves for a number of reasons, but one of the principal causes is a need to protect our own egos. So we look […]
Want to retire but cannot control the markets? Save more
The old saying about not worrying about things we can’t control and concentrating on those things we can control applies to retirement planning, says Vanguard, the large mutual fund company. It conducted a study of market returns, savings rates, and investment horizons as they relate to retirement success. It found that savings rates are very important. “Our conclusions reinforce that the […]
The Golden Ticket Trap
In a popular children’s story, the young hero pins all his hopes on finding one of a handful of “golden tickets” hidden among millions of candy bars. It seems many people approach investing the same way. The notion that the path to long-term wealth lies in locating secret and previously undiscovered treasures in the global marketplace of securities is one […]
Simplicity and Sophistication
The Chinese philosopher Confucius once said that life is very simple, but we insist on making it complicated. You could say the same thing about investing. Complexity in investing often comes with a lack of transparency. The highly engineered and multilayered financial derivatives that contributed to the global financial crisis five years ago are a case in point. For many […]
Rate Expectations
Interest rates around the world are at historic lows. They can only go in one direction from here, right? And aren’t rising interest rates bad for bond investors? The truth might surprise you. Central banks in developed economies have injected extraordinary stimulus into the system since the recession arising from the global financial crisis five years ago. The stimulus has […]
Eugene Fama, recipient of the 2013 Nobel Laureate in Economic Sciences
Professor Eugene Fama of the University of Chicago was recently awarded the Sveriges Riksbanks Prize in Economic Sciences in Memory of Alfred Nobel for 2013. Professor Fama began his work in the 1960’s and is considered the “father of modern finance” as well as the creator of the “Efficient Market Hypothesis.” Professor Fama demonstrated that stock prices are extremely difficult to predict and […]
