Here are some things you’ve probably been hearing during the current bull market from a wide range of investors including some tongue-in-cheek translations about what they really mean. On Fair Value: Bears: We think the market’s fair value is much lower than current levels. (Translation: We have to say it’s way lower than the level where…
What If There Is No Small Cap Premium?
In the latest edition of Stocks For the Long Run, Jeremy Siegel offered up a great stat on the small cap premium. From 1926-2012, small cap stocks returned 11.5% per year while the large cap S&P 500 returned 9.7%. But if you were to exclude the 1975-1983 period, which coincides with ERISA laws that made it easier…
Take Care of Your Own First
Jason Zweig’s weekend column in the Wall Street Journal touched on an important issue that’s doesn’t get enough attention in the fund industry — closing a fund that has become too large to outperform. There’s a difficult trade-off between managing for outperformance and gathering assets (and fees) because at a certain point most strategies can’t scale…
The Timeless Nature of the Herd Mentality
Gustave Le Bon was a French psychologist who wrote The Crowd: A Study of the Popular Mind all the way back in 1895. The passage sums up his findings pretty well (emphasis mine): The most striking peculiarity presented by a psychological crowd is the following: Whoever be the individuals that compose it, however like or unlike be their…
Things People in the Finance Industry Don’t Want You to Know
Like most professions, everything is not always as it appears in the finance industry. Here are a few truths you will rarely hear from anyone who works in finance. No one really knows what’s going on most of the time. It’s been well documented that not many people are very good at predicting the future, especially…
An Open Letter to Vice News About Their New Personal Finance Show For Millennials
According to Variety, Vice News is set to launch a web-based personal finance show geared towards millennials: Vice News this week will launch a personal-finance talk show on YouTube, “The Business of Life,” sponsored by Bank of America, which youth-skewing brand says will fill a gap in the media landscape for financial advice aimed at…
What Are Your Actual Returns?
There was some good discussion on my post from last week about the return numbers on the S&P 500 from 1934-1953 (see Stock Market Losses With Low Interest Rates). A reader made the comment that it was unrealistic to use S&P 500 returns from that time because there were no index funds in existence back…
The Impact of the Tech Bubble on Future Returns
One of the most interesting aspects of asset bubbles is that they pull returns forward from future years. Or on the flipside, they lead to lower returns for a number of years when you invest closer to the peak. The NASDAQ was down 80% after the tech bubble burst following the nearly 500% performance during…
Placing Constraints On Yourself
A few weeks ago I wrote about The Psychology of Sitting in Cash and a reader left a great comment about how he has tried to solve this problem in his own portfolio using the financial crisis as an example:
Rebalancing With Required Minimum Distributions
One of the most heavily debated topics in retirement planning is figuring out the safe withdrawal rate. The general rule of thumb is 4% of your portfolio, but if you have the bulk of your assets in tax-deferred accounts such as a 401(k) or IRA, the government makes it easier on retirees to figure out…