A little less than a year ago, author Michael Lewis created a firestorm with his book, ‘Flash Boys: A Wall Street Revolt,’ that chronicled the world of high-frequency trading (HFT). At the time of the launch, he went on 60 Minutes and announced that ‘the market is rigged’ and that everyone who had money in the stock market was a victim of predatory traders. Michael Lewis is one of my… Read More
For a second day in a row stocks were mixed but lacked any major movement, as traders took a bit of a breather after Wednesday’s release of the Federal Reserve’s meeting minutes. Oil sold off for the second day in a row but that market seems to have calmed down from the major volatility of the last few months to settle right around the $50 per barrel area. The major… Read More
One of my most vivid memories from the 2008 financial crisis was when the yield on the US three-month Treasury bill turned negative. Investors were so scared about what might happen that they were willing to pay so much for short-term bills that they would accept negative yields. Investors knew with certainty that they would get back less than their investment. I printed the screen because I thought it was… Read More
In a recent issue of one of our industry trade ‘rags,’ the following chart really caught my eye: The chart shows the number of mutual funds by category in the US, according to Morningstar. It’s hard to read, but back in 1990, there were 665 US stock funds, 123 non-US stock funds, 481 taxable bond funds and 686 funds that fall into the ‘other’ category (I am guessing that they… Read More
Far and away, one of the best reads of the year is the Credit Suisse Global Investment Returns Yearbook – and the 2015 edition is no exception. Click here to download. The yearbook is hot off the presses, 68 pages and chock full of thought provoking content, so I am not even close to being finished at this point. One of the articles titled ‘Do Equity Discount Rates Mean Revert?’… Read More
I am a big fan of quantitative investing, although that term is often misapplied in my judgment, so let me define what I mean by that term. When I say quantitative investing, I am simply referring to a process driven approach to evaluating securities and making decisions. ‘Quant’ investors typically rely on computers to organize and evaluate data that serves as input in the decision making process. The financial press… Read More
Some kinds of diversification are better than others. Legendary investor Peter Lynch often referred to corporate ‘deworseification’ back in the conglomerate days when companies like ITT owned businesses as varied as hotels, insurance, defense contracting and for-profit education. One kind of diversification that Morningstar has popularized, but that I don’t think is particularly useful, is diversification by style box. As you can see in the image, Morningstar has cut the… Read More
Economists had expected that the economy would produce 235,000 jobs in January, so at first blush, it was hard to see why markets were excited by the actual number, which was 257,000. The good news came on two fronts. First, the previous two months were revised higher by a combined 147,000 jobs, which amounts to another month of job creation (a weak month, to be sure, but we’ve had plenty… Read More
In finance, the value of any asset is the present value of all of the future cash flows. When someone first told me that, I had no idea what it meant, so let’s run through a quick example. Assume that someone asks you to borrow $100 for one year. If you think inflation might be three percent in the next year, you’re going to need to charge a three percent… Read More
Many readers know that I have two grade school daughters because I’ve written about them in the context of saving for college. Like any parent, I want smart money kids. While this is a common goal among parents, it’s easy to say and much more difficult to actually accomplish in practice. There was an article in the New York Times over the weekend that described a guy who withdrew his monthly… Read More
