The equity risk premium is the academic definition of the idea that stocks should outperform the risk free rate over the long-term. The risk free rate to be used is up for debate, but using the 10 year treasury bond as a proxy gives us a historical equity risk premium of about 4.5% per year…
The Fight to Keep It Simple
“When experts are wrong, it’s often because they’re experts on an earlier version of the world.” – Paul Graham One of the most dangerous places to be as an investor is when you’re the smartest person in the room. Smarts, when not combined with a heavy dose of humility, can get you into trouble because…
The Benefits of Writing
A few weeks ago I talked with Robin Powell about our upcoming Evidence-Based Investing Conference and a host of other topics. He asked me what my motives are for writing this blog. I don’t usually put much thought into this but here’s my answer: I was never much of a writer before starting my site, but…
Do Institutional Consultants Add Value Picking Money Managers?
I grew up in the finance industry working in the institutional consulting world. Most consultants provide a wide range of services but what they’re all really selling is their due diligence capabilities for choosing money managers to invest on behalf of these large pools of capital. They often use buzzwords like ‘alpha’ and ‘access’ to get…
Is the Value Premium Disappearing?
The value premium has been talked about in investment circles going all the way back to the 1934 release of Benjamin Graham’s Security Analysis. At its core value investing relies on buying undervalued securities, something every investor can or should be able to intuitively understand. You buy stocks for less than their fundamental value, wait until that…
The Greatest Bubble of All-Time?
Thinking and acting long-term for the long-term is one of the few edges remaining in the markets. Bring up this idea and there will almost always be someone waiting to take the other side with the ‘what about Japan?’ argument. Japan’s two-and-half decade economic and market struggles make for some important lessons but most investors…
Reflections on Year One in the RIA World
I started working with the team at Ritholtz Wealth Management one year ago this week. It’s been a wonderful experience so far to work with such great colleagues and clients. But it’s also been a great learning experience for me, as well. I had never worked for an RIA (registered independent advisor) before. My previous roles…
The John Bogle Expected Return Formula
I caught Vanguard’s John Bogle on a recent Bloomberg interview discussing his simple formula for estimating future stock market returns: I have a reasonable expectations kind of formula that I’ve been using for 25 years and it’s worked the whole 25 years almost perfectly. There’s some decades where it doesn’t work as well as it…
An Allocation Only a Mother Could Love
GMO’s Jeremy Grantham and Lucas White came out with a report entitled An Investment Only a Mother Could Love this past week laying out the prospects for natural resource equities. Here’s the executive summary of their findings and thoughts: We believe the prices of many commodities will rise in the decades to come due to…
Cialdini’s 6 Principles of Influence & Persuasion
There is a new Robert Cialdini book out this week — Pre-Suasion: A Revolutionary Way to Influence and Persuade. I have it on my Kindle but have just started reading it. I’m sure I’ll have more to say when I finish it in the coming weeks. The reason I’m so excited about this new effort…