Guest post by Richard (Rick) A. Ferri, CFA, founder of Portfolio Solutions.
Unconventional success from an investment strategy leads to failure for most investors. The excess gains earned by the early adopters of a new investment idea quickly dissipate as growing crowds become increasingly unsophisticated and push down returns. It doesn’t take long before the average return from the strategy falls well below a simple portfolio of index funds. Continue Reading »
Posted in ETFs, Investors, Mutual Funds | Tagged balanced index fund, Core-4 Portfolio, David F. Swensen, Endowment Model, index fund strategies, investment strategy, models, Yale Model | Leave a Comment »
One of the most interesting market stories in the last week is the big drop in the Japanese stock market. Japan is the third-largest economy in the world, ranked by GDP. The values of the Japanese stock market, as measured by the Nikkei 225 index, dropped by 7.3% on May 23rd, and then suffered another fairly dramatic one-day decline of 3.2% on May 27th.
Over the last five sessions, the iShares MSCI Index ETF, EWJ, has dropped by almost 10% (see chart below). Continue Reading »
Posted in Behavioral Finance, Global Investing, Markets | Tagged earthquake, economy, exchange rate, GDP, Japan, Japanes stock market, Nikkei, Nikkei 225 index, tsunami, Yen, Yen exchange rate | Leave a Comment »
As the market rally persists, many investors will no doubt be kicking themselves and wishing that they had bought in earlier. Some will convince themselves that they better get on board or risk missing out on this bull market. There are many good reasons to invest money, but choosing to get in because of the potential gains that you could have made is not one of them. In the same way that people capitulate and sell out near market bottoms, there is also a big behavioral driver that seems to make people capitulate and join the herd towards the end of big bull markets. I am not saying that we are poised for decline (I am not a good market timer), but simply noting that buy or sell decisions made on the basis of what you wished you had done last month or last year is often truly dangerous. Continue Reading »
Posted in Behavioral Finance, Financial Advisors, Long-term investing, Regular Investing | Tagged bull market, consistent investing, index fund, investor returns, lost decade, market timing, Morningstar, recovery, retirement planning, return data, under-performance, wealth accumulation | Leave a Comment »
The yield of an asset is a key component of predicting future returns. This is true for the yield on Treasury bonds as well as the dividend yield for stock indexes. The yield on aggregate bond indexes is considered a good proxy for future expected returns. The dividend yield of broad stock indexes has been shown to provide significant value in predicting future stock index returns. In both cases, low yields tend to predict high future returns, and vice versa. These arguments that yields predict returns are not without critics, especially for equities. Continue Reading »
Posted in Bonds, Dividends, ETFs, Real Estate | Tagged analysis, Bill Bernstein, dividend yield, equity REITs, ETFs, future returns, future variability, predictors, REITs, Treasury bonds, volatility levels | Leave a Comment »
Guest post by Contributing Editor, Robert P. Seawright, Chief Investment and Information Officer for Madison Avenue Securities.
Value has persistently outperformed over the long-term. Why is that?
In the most general terms, growth stocks are those with growing positive attributes – like price, sales, earnings, profits, and return on equity. Value stocks, on the other hand, are stocks that are underpriced when compared to some measure of their relative value – like price to earnings, price to book, and dividend yield. Thus growth stocks trade at higher prices relative to various fundamental measures of their value because (at least in theory) the market is pricing in the potential for future earnings growth. Over relatively long periods of time, each of these investing classes can and do outperform the other. For example, growth investing dominated the 1990s while value investing has outperformed since. But value wins over the long haul. Continue Reading »
Posted in Behavioral Finance, Investors, Mutual Funds, Stock Investing | Tagged hedge funds, ideologies, investing strategy, price-to-earnings, value stocks | Leave a Comment »
Time magazine has a new article on changes in the home ownership in America. The article, titled A Nation of Renters: Should We Be Worried That Fewer Americans Own Homes?, explores the substantial decline in the fraction of Americans who own their own homes. I have followed this issue for quite some time and the implications for investors may be substantial. Continue Reading »
Posted in debt, Real Estate | Tagged first-time homebuyers, home improvement, home loans, homeowners, homeownership, income property, investment property, Real Estate, real estate bubble, recent college graduates, REITs, renters | Leave a Comment »