30 Dec 2014

Insider Trading Made Easy

Just before the 2008 financial crisis, a Wall Street insider tipped off the Securities and Exchange Commission (SEC) to insider trading at a large, successful, but largely little known hedge fund, the Galleon Group. The founder, Raj Rajaratnam, had a vast network of contacts that he would pay in exchange for confidential information about a company that would affect its stock price when the information became public. Ultimately, he was… Read More

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29 Dec 2014

Beating the Index

One of the complaints that I hear about index funds is that their returns are average and buying them guarantees mediocre returns. Not so! If that were true, you would expect that the returns for the Vanguard S&P 500 index fund (VFINX) would be around the 50th percentile when measured against its peer group. The actual percentile might shift around some from year-to-year, in the 40th percentile one year and… Read More

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27 Dec 2014

Small Cap is Dead. Love Live Small Cap!

Returns for stocks are great everywhere you look in the developed world.  One of the best places though is in small US stocks.  The Russell 2000, the most common small cap benchmark is up 39.3 percent, much higher than the 32.4 percent return for the S&P 500 (through Dec 26). Microcap stocks, as measured by Russell, are up an astounding 45.46 percent this year through yesterday. In this context, it’s… Read More

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19 Dec 2014

The Allure of Market Timing

The performance of the S&P 500 over the past two days has reminded me of charts that I have seen over the years that show the impact of missing the best days in the market. These charts offer a good message about remaining fully invested, which I wholly agree with, but the charts are also a little misleading in my view.  I decided to create one of my own to… Read More

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18 Dec 2014

Splitting Hairs with Janet Yellen

In the new minutes, Janet Yellen and her friends at the Fed did lose the ‘considerable time’ phrase, in the sense that it had been part of a sentence that said that ‘it will likely be appropriate to maintain the zero to one-quarter percent target range for the federal funds rate for a considerable time following the end of its asset purchase program.’ In this statement, they say that they… Read More

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17 Dec 2014

New Dilemma at the Federal Reserve

The second day of the Federal Reserve’s Open Market Committee concludes later today and the big question is whether or not they will drop the term ‘considerable time’ from their forward guidance statement. The phrase has denoted how long the Fed expects to wait between the end of quantitative easing and the beginning of actual interest rates hikes. Earlier this year, Yellen indicated that ‘considerable time’ refers to six months… Read More

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16 Dec 2014

Bonds Surprise and Delight

While no one expected the yields on bonds to fall materially this year (and remember, falling yields translate into higher prices), some elements of the bond market performance have been perfectly normal. The chart below shows the year-to-date performance of selected bond indexes through Friday, December 12, in blue. The orange bars show the performance of each index since inception of the indexes in 1976 through the end of November,… Read More

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15 Dec 2014

There’s A Sucker Born Every Minute: High Yield Products

A client called me last week and asked if I had seen an exchange traded fund (ETF) with a 20 percent yield. In fact, I hadn’t. The client said that he was sure that the yield was phony since it was so high that it was ‘too good to be true,’ but wondered how the ETF could have such a high yield. Good question. In this case, the product is… Read More

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12 Dec 2014

Portfolio Construction: Get Your Yellow Hard Hat On

Sometimes I inadvertently slip into financial jargon that is meant to convey a very specific message but ends up being gobbledygook that is off-putting for a lot of people. Recently, I used the term ‘portfolio construction’ in a meeting and the client, understandably said, ‘Dave, I know you mean how it’s built, but what exactly are you talking about?’ It’s true, the term portfolio construction sounds obvious but isn’t necessarily…. Read More

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