This has been a chaotic year in the financial world. In this latest article, I will take a look at what happened in 2011 and give my personal views on where things are going for 2012.
Many Happy Returns?
The biggest news of the year would have to be Europe. As I write this, the EAFE index of international developed-market stocks has returned -12% for the trailing 1-year period and an annualized -4.7% per year over the last five years. The EAFE index has a 15-year annualized return of 3.3% per year.
The S&P 500 Index has delivered 2.8% for the trailing 1-year and stands at almost exactly 0% total annualized returns (including dividends) for the trailing three years. On the other hand, Continue reading →
Guest Blog by Robert P. Seawright, CIO, Madison Avenue Securities.
On account of the success of Moneyball (both the book and the movie, nicely satirized here), baseball management is often compared to investment management, and with good reason. Moneyball focused on the 2002 season of the Oakland Athletics, a team with one of the smallest budgets in baseball. At the time, the A’s had lost three of their star players to free agency because they could not afford to keep them. A’s General Manager Billy Beane, armed with reams of performance and other statistical data, his interpretation of which was rejected by “traditional baseball men” (and also armed with three terrific young starting pitchers), assembled a team of seemingly undesirable players on the cheap that proceeded to win 103 games and the division title.
Unfortunately, much of the analysis of Moneyball from an investment perspective is focused upon the idea of looking for cheap assets and outwitting the opposition in trading for those assets. Continue reading →
To begin, Dr. Malkiel asserts that long-term Treasury bonds (10 years and longer) have such low yield that they are likely to have negative real long-term return (return net of inflation). Rather than invest in Treasuries, he advocates Continue reading →
The study starts with an assumed target “replacement rate” that represents the fraction of pre-retirement income that an individual will be likely to need to maintain their lifestyle in retirement. A long-term project at Georgia State to estimate required replacement rates provides the numbers that serve as the foundation of the CRR paper. The Georgia State research suggests Continue reading →
The New York Times had a piece this weekend that proposes a simple portfolio solution for worried investors.
Are you ready for this?
The portfolio is a 50% allocation to stocks and 50% to bonds. The conclusion that the 50/50 portfolio makes sense is based on a study by Vanguard published in October 2011 that finds that this allocation seems to generate consistent returns, regardless of whether the economy is in recession or expansion. The study is based on portfolio performance from 1926 through June 2009.
The 50/50 portfolio generated an average annual return of 7.75% per year during recessions and 9.9% per year during expansions. Continue reading →