One of the justified criticisms of modern finance is that it relies too heavily on the normal distribution curve – also known as the ‘bell curve.’ In fact, there’s a classic joke (that I think I’ve told here before) about the finance professional that has his head in the oven and feet in the freezer, but on average, feels fine. Critics argue that the normal distribution doesn’t capture the true… Read More
Interest rates are low and many investors are worried about rising rates, which can hurt bond prices. As always, Wall Street has rushed to the aid of investors by creating products to meet this need, just as they did with internet funds in the late 1990s and real estate funds during the bubble. One of the ‘solutions’ that Wall Street has created to meet investor demand is something called a… Read More
One of the ways that investors hurt themselves is by chasing performance. Unfortunately, many financial services organizations enable this practice by focusing on short-term performance. Recently, I saw some data that showed flows into mutual funds and exchange traded funds (ETFs) based on their Morningstar star rating. The chart is self-explanatory except for the columns labeled NR, which means ‘Not Rated.’ To earn a Morningstar star rating, you need at… Read More
A few weeks ago when Federal Reserve Chair Janet Yellen testified before Congress, she said that ‘readings on housing activity, a sector that has been recovering since 2011, have remained disappointing so far this year and will bear watching.’ Since the World War II, residential housing activity has been about 4.75 percent of gross domestic product (GDP). During the bubble that hare increased to about 6.4 percent, cratered to two… Read More
Yesterday, someone asked me what’s going on in the markets. I said that stocks are flopping around zero – plus two percent or minus two percent depending on what you look at, nothing really. I said that the interesting story, in my opinion, was that the yield on bonds has been dropping all year, much to everyone’s surprise. When I hung up the phone, I looked up the yield and… Read More
The first investment strategy that I can remember hearing about is the Dogs of the Dow strategy. One of my parent’s friends, who knew I was interested in stocks back in high school, told me one of the ‘secrets’ to beating the market. The strategy is fairly simply: start with the 30 stocks in the Dow Jones Industrial Average (DJIA) and sort them by their dividend yield. Buy the 10… Read More
I am a little embarrassed to admit that there are so many rules about IRAs that I find it difficult to keep them straight and I have to refer back to a guide that I have and constantly have to ask other Acropolitans if I’ve got my facts straight. There are a lot of rules, even more exceptions and getting it wrong can be costly. A recent IRS ruling highlighted… Read More
As loyal readers know, I am a big fan of 529 savings plans and am a Missouri Most customer on behalf of my two grade school aged daughters. I was reminded of why a high quality education is so important: on average, the unemployment rate declines as education levels increase and incomes increase. The chart shows that for those who didn’t finish high school, the unemployment rate is 11 percent… Read More
I love Robert Shiller. He’s a Yale professor that’s really shaped my thinking on how to value the stock market with the Shiller PE, he wrote a book called Irrational Exuberance at the peak of the technology bubble and he won the Nobel Prize in Economics last year for his efforts in showing that markets aren’t as efficient as the other Nobel Prize winner, Gene Fama, would suggest. Last week,… Read More
Legendary investor Peter Lynch once said that if you spend 13 minutes per year on economics, you’ve wasted 10 minutes. Although I spend more than three minutes per year looking at economic data, I do tend to look a lot less than others in the industry. Many years ago, I saw a study that showed that the connection between gross domestic product (GDP) and stock market returns were lowly correlated,… Read More
