How Investors Develop Bad Habits

One of the hardest parts about investing is that prudent advice doesn’t always work. Risk management doesn’t always add value. Legitimate strategies can go long stretches where they don’t work very well. Diversification means you’ll always hate something in your portfolio. Junk stocks can outperform high quality companies depending on the starting prices and valuations….

Some Things That Haven’t Been Around Very Long

I just finished reading David McCullough’s critically acclaimed book, The Wright Brothers. Going into it I didn’t really know too much about the fascinating story beyond that historic first flight at Kitty Hawk in 1903. That first flight garnered little fanfare at the time (most people just didn’t believe it was possible), but the innovation that followed…

Don’t Be Afraid of All-Time Highs in the Stock Market

The S&P 500 last closed at an all-time high in mid-August. We’re only 3-4% away from that number and stocks haven’t done much lately, but many investors become very nervous when they hear about all-time highs in the market. After all, the S&P 500 got cut in half following all-time highs in early-2000 and late-2007. Therefore,…

The Frog-in-a-Pot Theory of Investing

“High prices attract buyers, low prices attract sellers.” There are generally two reasons for a given investment strategy to “work” over time: You earn a premium by accepting more risk. You take advantage of the behavior of other market participants. If I put my rational, textbook theory cap on, number one should make sense. But there’s…

Celebrities & Loss Aversion

If I had to pick just one behavioral bias to help understand why people make the decisions that they do it would be loss aversion. Daniel Kahneman’s research discovered that people regret losses around twice as much as gains make them feel good. Some people will look at these types of biases and conclude that…

Faulty Wall Street Assumptions

Investors have to take some personal responsibility for their own actions, but one of the reasons so many people struggle with their investments is because many in the field of finance tend to perpetuate myths, rules of thumb and assumptions that just aren’t true. Here are some that come to mind that can be harmful…

Technology & Scale in Asset Management

Here’s a fascinating stat from Vanguard CEO Bill McNabb (who recently sat down for another podcast interview with Barry Ritholtz): One of the figures I always love to describe to people is — in 2000 the Internet was just starting to take hold, we had about $500 billion under management with 12,000 people. Today we’re…

A Textbook Performance Chase

As of the end of 1999, it’s estimated that there was roughly $400 billion in assets under management in hedge funds. Fast forward to today and there’s almost $3 trillion in AUM, a compounded annual growth rate of almost 14% (much higher than the returns earned). I think the real turning point for the huge…

The Art of Doing Nothing

“There’s one good financial idea every decade or so, and 5 to 10 marketing ideas a week.” – Eugene Fama The Vanguard Total World Stock Market Index Fund holds a little over 7,600 securities. The Vanguard Total U.S. Bond Market Index Fund and Total International Bond Market Index Fund collectively hold over 12,400 securities. As…

Harvard vs. Yale: The Battle of the Endowments

I talked to Anora Mahmudova from MarketWatch earlier this week about everyone’s favorite topic in the institutional money management world lately — the Ivy League college endowment performance figures. Performance numbers for fiscal year-end 2016 were relatively underwhelming. These things happen when you invest in risk assets. You can’t expect consistent results if you wish to…