19 Jul 2016

Turkey’s Failed Coup and Your Portfolio

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

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27 Jan 2016

Drawdowns Part Deux

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

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14 Jan 2016

Insight: More Bears are Growling

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

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27 Jul 2015

Diversification in Today’s Market

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

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8 Jun 2015

The Right Time Horizon for Stocks

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

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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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11 Sep 2014

Avoid This Catastrophic Loss

Every now and then, I come across some research that really drives a point home. Yesterday, I found a terrific study by JP Morgan on what they called catastrophic losses – or what kids today might call ‘epic fails,’ which Urban Dictionary defines as: a complete and total failure when success should have been reasonably easy to attain. In the JP Morgan study, a catastrophic loss is defined as a… Read More

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28 Aug 2014

Diversification or Di-worse-ification?

As I described yesterday, the S&P 500 is on a hot streak this year, up 9.68 percent so far this year through yesterday. I should also note that outside of REITs (which I mentioned a few days ago) and Emerging Markets, the S&P 500 is the hottest thing going this year. Given that REITs and Emerging Markets are relatively small portfolio weights, you might not be feeling the benefit from… Read More

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