24 Apr 2015

New Thoughts on the Active Passive Debate

Wednesday night, I was reading a new paper by some of the principles at AQR titled, ‘Fact, Fiction and Value Investing.’  You can find a copy here and this follows on a paper that they wrote last year called, ‘Fact, Fiction and Momentum Investing (which you can find here).’ Now that you’ve read our primers on value and momentum investing, no further explanation is required, although if you want a refresher, you… Read More

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23 Apr 2015

China’s Red Hot Market

Last Friday, Chinese regulators said that they were going to make borrowing on margin more difficult for investors in an effort to curb the recent euphoria in Chinese stocks. I have to admit that I didn’t grasp just how hot Chinese markets have been recently, partly because the Chinese stock markets are broken up into multiple segments that are hard to follow and have dramatically different returns.   The Hang… Read More

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22 Apr 2015

A Real Greek Tragedy

We may not be happy with the slow and choppy recovery from the 2008 financial crisis, but I think we would all agree that we can thank our lucky stars that we aren’t suffering like the Greeks. The definition of an economic depression isn’t precise, but I think we can all agree that Greece is mired in a horrible depression: the economy is almost 30 percent smaller on an inflation… Read More

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21 Apr 2015

Momentum: A Moving Body in Motion

In recent weeks, I’ve written about two well known risk factors, the size premium and the value premium. Today, I’ve got a more difficult topic to cover: momentum.  Virtually everyone agrees that you can find evidence of momentum in the data, but there’s a lot of disagreement about why it exists and how it should or shouldn’t be applied in the real world. In short, momentum is the tendency for stocks that… Read More

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20 Apr 2015

Finding True Diversification in Alternatives

They say that the only free lunch in finance is diversification. With stocks trading at lofty valuations and bonds yields historically low, it’s sensible to look at other alternative strategies that could potentially lower risk or increase return (or better yet: do both). Over the last five years, investors have flocked to ‘alternative’ investments, although the definition of alternative is pretty broad and can include things as generic as REITs… Read More

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16 Apr 2015

Wither Emerging Markets?

In the first few years after the 2008 financial crisis, a lot of investors were excited about emerging markets. The story making the rounds at the time was that the US and other developed markets were in for a long period of sluggish growth while the prospects for economic growth in emerging markets were still strong. Therefore, the story went, investors should allocate money away from the US stocks into… Read More

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15 Apr 2015

Behavior Beats Strategy

In the past two weeks, I’ve written primers on two of the strategies that we use, over-weighting to small cap stocks and investing in cheap, value stocks. One of the Portfolio Managers here at Acropolis correctly reminded me that all of the best strategy in the world can be undone with poor investor behavior, so I thought I would try and put some numbers on that idea. To demonstrate how… Read More

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14 Apr 2015

A Value Investing Primer

Value investing is perhaps the oldest and best-known investment strategy, which basically suggests that cheap stocks tend to outperform expensive ones. The strategy was first popularized by Benjamin Graham, teacher and mentor to Warren Buffett, who also co-wrote one of the most important books in finance, Security Analysis, with David Dodd in 1934. Graham introduced the idea that stocks have an ‘intrinsic’ value that can be roughly estimated with a… Read More

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13 Apr 2015

Old Advice, as Valuable as Ever

When my wife and I got married more than 15 years ago, we had a lot of things in common including the fact that we had both inherited stock in GE.  In fact, it was about 10 percent of our combined net worth.   I don’t remember the exact numbers anymore, but the cost basis on the stock was low for both of us because each of us had separately… Read More

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10 Apr 2015

To Hedge or Not to Hedge

For the most part, the returns associated with foreign stocks and bonds have two components: the return of the stock or bond and, secondly, the return of the foreign currency.  Over the past eight months, the impact of the exchange rate has been unusually high.   For example, a German investor that owns an index fund in the DAX is up 24.04 percent so far this year through yesterday.  For… Read More

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