As we enter autumn, the leaves start to change and students arrive at college campuses across the country. For parents, as well as for students, the start of the academic year raises the specter of some of the largest costs that a family incurs. Hopefully, families have started to prepare for college costs far ahead of the years of attendance, but the sheer size of the expenses may be pretty daunting even for those who have saved since their children are very young. Continue reading
People have an understandable interest in patterns in stock market returns. As we head into September, we can expect the inevitable articles about the so-called ‘September swoon.’ If you look at the period since 1926, the average return in September has been negative. A 2011 paper in the Journal of Applied Finance concluded that the historical occurrence of negative returns for the stock market in September is so strong and consistent that it cannot easily be explained away. There are a range of other so-called ‘calendar effects’ in which a specific time of the year, month, or week has historically delivered returns that are markedly different from the average across all periods. There are no conclusive explanations for these effects and, in a rational world, these types of anomalies should not persist—but they do. If they expect stock prices to decline in September, savvy speculators should start to sell in August in anticipation of this drop and this selling should dilute the eventual drop in September. Over time, this type of effect should, in theory, disappear to investor anticipatory buying or selling. Nonetheless, these effects remain prominent in historical stock prices. Continue reading
Doug Short has written a great article on median U.S. household income through time. He shows that the median household income in the U.S., adjusted for inflation, has fallen by 7.2% since 2000 and is 7.9% below the peak reached near the start of 2008, as we entered the last recession. How do we reconcile this with the notion of an economic recovery? Continue reading
With unemployment staying fairly high and steady, despite massive economic stimulus, many are wondering what it will take to create more good jobs in America. One explanation is simply that the fastest growing and most innovative American firms simply don’t need all that many employees. Even industries that have historically needed lots of workers are becoming automated. An excellent book that explores this theme is Race Against the Machine, by two professors at MIT. An article that provides a summary of the book’s thesis is available here. Continue reading
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
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.