19 Feb 2015

Negative Yields: It’s a Crazy Mixed Up World

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

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18 Feb 2015

Mutual Funds: Decisions, Decisions..

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

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11 Feb 2015

Black Box Investing

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

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10 Feb 2015

The Wrong Kind of Diversification

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

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6 Feb 2015

Investing Made Simple

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

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5 Feb 2015

Smart Money Kids

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

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3 Feb 2015

Inside the Belly of the Yield Curve

Yesterday, I wrote that the yield on the 30-year US Treasury closed at an all time low at 2.25 percent. I also wrote that the yield on the 10-year was 2.66 percent, which was completely wrong: it closed at 1.66 percent on Friday, I simply made a fat fingered mistake – sorry. This mistake notwithstanding, I was struck by the two yields because the all-time record-low yield on the 10-year… Read More

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