18 Feb 2015

Mutual Funds: Decisions, Decisions..

In a recent issue of one of our industry trade ‘rags,’ the following chart really caught my eye: The chart shows the number of mutual funds by category in the US, according to Morningstar. It’s hard to read, but back in 1990, there were 665 US stock funds, 123 non-US stock funds, 481 taxable bond funds and 686 funds that fall into the ‘other’ category (I am guessing that they… Read More

11 Feb 2015

Black Box Investing

I am a big fan of quantitative investing, although that term is often misapplied in my judgment, so let me define what I mean by that term. When I say quantitative investing, I am simply referring to a process driven approach to evaluating securities and making decisions. ‘Quant’ investors typically rely on computers to organize and evaluate data that serves as input in the decision making process. The financial press… Read More

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

6 Feb 2015

Investing Made Simple

In finance, the value of any asset is the present value of all of the future cash flows. When someone first told me that, I had no idea what it meant, so let’s run through a quick example. Assume that someone asks you to borrow $100 for one year. If you think inflation might be three percent in the next year, you’re going to need to charge a three percent… Read More

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3 Feb 2015

Inside the Belly of the Yield Curve

Yesterday, I wrote that the yield on the 30-year US Treasury closed at an all time low at 2.25 percent. I also wrote that the yield on the 10-year was 2.66 percent, which was completely wrong: it closed at 1.66 percent on Friday, I simply made a fat fingered mistake – sorry. This mistake notwithstanding, I was struck by the two yields because the all-time record-low yield on the 10-year… Read More

15 Jan 2015

Portfolio Insights

We are pleased to provide a digital copy of Portfolio Insights, our quarterly newsletter.  This issue is particularly exciting because it features an entirely new look and feel for the same great content that we’ve been creating for the last dozen years. Table of Contents: Evaluating Global Stock Exposure Predicting Interest Rates Review of 2014 The Allure of Market Timing New at Acropolis Six Financial Planning Myths The US Dollar… Read More

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

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

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

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