Last week, I had a very enjoyable meeting with a valued client and long-time reader. In the meeting, he said that I should publish some of my old Daily Insights now and again, something I plan to do from time to time when I don’t have an idea (like now) on periodic Throwback Thursdays. The commentary below dates back to August, 2011, when stocks lost more than 15 percent… Read More
When I describe ‘balance’ in a portfolio, here or in person, I am almost inevitably talking about an allocation that is somewhat evenly split between stocks and bonds. I don’t have to specify that I am talking about how much money is in each allocation (forgetting for a moment all of the sub allocations). In recent years, however, some investment managers have pointed out that a portfolio that is evenly… Read More
Even though the first day of fall was on September 22nd this year, it’s only when we enter the fourth quarter that I start to think about the changing leaves, shorter days, corduroy pants, flannel sheets and raking the leaves. I do love summer, which I mentally compartmentalize into the third quarter and 2016’s was particularly enjoyable given the strong market performance across the board. The chart below includes the… Read More
The end of summer was notably quiet, but summer is over and judging from Friday’s market reaction, it appears that volatility may be back. The chart below shows the expected volatility priced in to options as measured by the Chicago Board of Exchange (CBOE) Volatility Index (VIX). You can see the volatility was high at the start of the year when we suffered a 10 percent correction. Expected volatility cooled… Read More
Personally, I was a little surprised that stocks held up as well as they did yesterday after the failed coup in Turkey. Even though the political regime ultimately didn’t change, I thought that tanks rolling through the capitol would be enough to remind everyone that emerging markets (EM) are risky. Instead, the MSCI Emerging Markets index gained 0.26 percent and the two main ETFs that track EM stocks both gained 0.88 percent… Read More
Yesterday’s insight on drawdowns was quite popular and enough people asked for the same thing, so I thought I would do an immediate update. (Click here for the original post.) The first request was for the full history of the S&P 500 since yesterday’s chart only went back 25 years. I picked 25 years somewhat randomly, but mostly because the other chart that went with it was difficult to read going… Read More
The widely followed Dow Jones Industrial Average (DJIA) fell -365 points, bringing it perilously close to correction territory, which is generally defined as a decline of -10 percent from the recent peak. The S&P 500 is already in correction territory having not fully recovered from the steep losses last August. The rally in October offset most of the losses, but a new peak was not reached since last May. While… Read More
One of the bedrock ideas behind Modern Portfolio Theory (MPT) is that diversification lowers risk. A simple view of that concept is that a portfolio of many stocks is less risky than a portfolio that contains one stock because the impact of a failure like Lehman Brothers or Enron won’t blow apart your whole portfolio. Of course, all stocks can go down substantially, like they did in 2008, so diversification… Read More
When people ask me how long their time horizon ought to be when investing in stocks, I usually say 10 years. It occurred to me the other day that either I’ve never really looked into this in a very detailed way or I’ve forgotten about it. In either case, it’s now time to look. To answer this question, I looked at rolling returns for the S&P 500 since 1926 for… 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
