Pragmatic Capitalism

Practical Views on Money, Finance & Life

‘Investment Strategy’

Control What You Can Control

Vanguard has a timely reminder for investors – “cost is the new performance”.¹  We’ve entered a new era in the asset management business.  The era of low fees.  We now know definitively that paying high fees is hugely destructive to long-term performance.  You don’t don’t get what you pay for and you don’t get better… Read More

Assessing the Utility of Wall Street’s Annual Forecasts

It’s that time of year when everyone starts preparing for the New Year and Wall Street makes its 2016 predictions.  I’ll get right to the point here – these annual predictions are largely useless.  But it’s still helpful to put these predictions in perspective because it highlights a good deal of behavioral bias and some of the… Read More

The Temporal Problem in Market Forecasting

You can’t talk about money and investing without talking about time.  After all, the two are inherently interconnected.  There’s the time value of money, the erosion of value due to inflation, the linkage between money and interest rates, etc.  The problem is, time is a great unknown for all of us.  It is a concept… Read More

Why Indexing Works [New Research]

It’s no secret that I think most investors should index.  To be more precise, I’d call most “investors” savers.  And if you’re treating your portfolio as if it’s your savings then your financial goals are pretty simple: 1) outpace inflation and 2) reduce the risk of permanent loss.  You don’t need to “beat the market”… Read More

What If Everyone Indexed?

I see this question more and more as indexing grows in popularity.  People generally think that more indexing will make the markets  function less efficiently .  I don’t think this is true at all.  Unfortunately, the question and its answers are usually shrouded in misunderstandings about how assets are priced and myths about what it… Read More

“Price is a Liar”

This is a very good lecture by John Burbank of Passport Capital. I particularly like his explanation of prices: “Price is all the information that exists in the market…it’s just what people think….price means nothing other than the equilibrium of liquidity…It doesn’t mean it’s good or bad, it’s just where people agree.” That’s really clean… Read More

Three Things I Think I Think – Stupid Markets Edition

Here are some things I Think I am thinking about: 1.  The fact that markets are hard to “beat” does not make them smart.  I noticed this comment on a recent Scott Sumner post claiming that markets must be smart because they make it difficult to become wealthy.  He says: Markets are just amazingly wise.… Read More

Smart Beta, Dumb Money and EMH

Someone asked me about Smart Beta in the forum the other day and I got to thinking about this.  Indexers are all basically chasing some form of beta.  But some indexers chase beta in stupid ways and some indexers chase beta in smart ways. An increasingly common example of this is the many forms of factor… Read More

Why Countercyclical Indexing Makes Sense

I am totally convinced that low fee indexing is the best way to allocate one’s savings (in fact, my entire company is based around this view).  But when it comes to allocating that savings in a specific manner there are virtually limitless options. We know that reducing your frictions is the only way to guarantee higher… Read More