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Archive for June, 2011

Is Your Home Still A Good Investment?

Posted in Asset Allocation, Behavioral Finance, Leverage, Market Outlook, Market Timing, Markets, Real Estate, Uncategorized, Volatility, Wealth, tagged , , , , , , , , , , , , , , , , , on June 28, 2011 | 2 Comments »

Dr. Robert Shiller, the renowned Yale professor and creator of the S&P Case-Shiller Housing Index, recently made several dire announcements about the short-term and long-term prospects for the housing market. Asked for his prediction on housing prices in a recent interview, Dr. Shiller reported that prices might fall another 10% to 25% in the next few years. (Shiller also acknowledges that forecasting the direction of the housing market is as hard as predicting the weather and that we are in uncharted territory on a range of fronts.)

The Housing Market: A History of Poor Performance

Let’s set aside the short-term housing predictions and focus on long-term issues.

Dr. Shiller analyzed the financial benefits of home ownership from an investor’s point of view. His research found that housing prices did not outperform (more…)

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Do Performance Claims Really Add Up?

Posted in Active Investing, Asset Allocation, Behavioral Finance, Investors, Leverage, Long-term investing, Market Outlook, Market Timing, Markets, Retirement, Risk, Scams, Stock Investing, Uncategorized, Volatility, Wealth, tagged , , , , , , , , , , , on June 22, 2011 | 1 Comment »

Jason Zweig, well-known author of “The Intelligent Investor” column at The Wall Street Journal, recently checked out the claims of market-beating performance in marketing materials from a range of market commentators.

For example, Jim Cramer’s newsletter was reported by Zweig as stating that his stock picks generated returns more than twice the performance of the S&P 500 Index from Jan 1, 2002 to April 1, 2011. Over this period, the newsletter described Mr. Cramer’s performance as generating 39.2% vs.15.5% for the S&P 500.

Mr. Zweig noticed, however, that in Mr. Cramer’s performance comparison, the returns cited for his stock picks included dividends, while the returns cited for the S&P 500 Index (over the same period) did not. (more…)

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How Much Does Your 401(k) Plan Really Cost You?

Posted in Active Investing, Asset Allocation, Behavioral Finance, Income Investing, Investors, Long-term investing, Market Outlook, Markets, Personalization, Retirement, Risk, Stock Investing, Uncategorized, Wealth, tagged , , , , , , , , on June 16, 2011 | 5 Comments »

Ron Lieber at the New York Times recently came out with an article that explores one of the most important problems with 401(k) plans: they can be expensive and plan participants have no idea how much their plans are costing them.

There are costs associated with with running a 401(k) plan–administrative costs for the plan, for example, are distinct and in addition to the expenses associated with the individual funds within the plan.  These costs are sometimes added to the fund’s expense ratio in the creation of a share class specifically designed for retirement plans.  These are usually “R”  class shares.

The New York Timesarticle cites research by BrightScope, a firm that compiles data on 401(k) plan costs, that shows … (more…)

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What you need to know before you invest in IPO’s

Posted in Active Investing, Asset Allocation, Behavioral Finance, Investors, Leverage, Long-term investing, Market Outlook, Market Timing, Markets, Risk, Stock Investing, Uncategorized, Volatility, Wealth, tagged , , , , , , , , , , , , , , , , , , on June 13, 2011 | 6 Comments »

I have not seen this type of brand name IPO trading volume for quite some time. From Groupon (GRPN) and Pandora (P) to Zynga (ZAGG) and now Avaya, the media would have you believe that investing in a brand name IPO is a quick fix for your portfolio.

Take the recent public stock offering in LinkedIn (LNKD) for example. The IPO price was set at $45 and jumped to $90 after one day of trading. As of this writing, the price is just below $73. At its current valuation, Morningstar estimates the Price-to-Earnings (P/E) ratio at 466. By comparison, the tech-heavy NASDAQ has a P/E of less than 20 (as of this writing).

Clearly, many people are very excited about the LinkedIn IPO and it shouldn’t surprise you that investors have had a long history of enthusiasm for IPO stocks. But has this enthusiasm ever paid off over the long-term? (more…)

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The Evolution of Retirement Plans

Posted in Asset Allocation, Investors, Long-term investing, tagged , , , , , , , , , , on June 9, 2011 | Leave a Comment »

These days, most of the news about the state of our retirement savings is bad news . But a recent study from Fidelity Investments contained two very good pieces of news.

  • The average 401(k) balance among the clients the firm surveyed, rose to $74,900 at the end of the first quarter of 2011. That’s the highest it’s been since Fidelity began tracking account balances in 1998, a 12% increase from a year ago and a 58% jump from the same time period two year earlier.
  • Nearly one in 10 participants increased his or her deferral rate during the first quarter. That’s the biggest move in that direction in the past five years.

To some extent, this good news is a triumph of applied Behavioral Finance. Since academics started parsing investor behavior in 401 (k) accounts several decades ago, it’s become clear that Americans have (more…)

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U.S. Investor Behavior: The Government Report

Posted in Behavioral Finance, Tools, tagged , , , , , , , , , , on June 7, 2011 | 2 Comments »

The Securities and Exchange Commission has launched an investor education site, investor.gov that includes a comprehensive summary of what we’ve learned over the last 30 years about how we investors behave and the mistakes we make. This Library of Congress report published last August, Behavioral Patterns and Pitfalls of U.S. Investors, manages in sixteen pages to highlight some of the most important insights of the work of leaders in this academic field like Terrance Odean, Richard Thaler, Daniel Kahneman, Meir Statman, and many others.

The Role of Behavioral Finance

Nestled into a site that is largely a primer for new investors, the study is an interesting acknowledgement by the top securities regulator that there’s value to be found in better understanding our own true investing selves. (more…)

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Tactical Driving

Posted in Active Investing, Asset Allocation, tagged , , , , , , , on June 2, 2011 | 2 Comments »

Earlier this week we ran a piece on the difference between Tactical Asset Allocation and passive investing. In this guest post,  Michael A. Gayed of Pension Partners, a Tactical asset manager, weighs in.

As we approach summer, I can’t help but think about how people drive. After all, Americans are expected to be on the road to go on vacation as the weather gets warmer. (more…)

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