Pragmatic Capitalism

Practical Views on Money & Finance

‘Most Recent Stories’

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

What’s Your Max Pain Point?

My biggest gripe with Modern Portfolio Theory is that it tends to lead investors into very stock heavy portfolios.  The thinking usually goes something like this: Stocks tend to go up over the long-term which means if you are somewhat young then you can afford to ride out the higher volatility of stocks and allocate your assets… Read More

The Cost of Getting Scared out of Stocks in 1998

We were late in the business and market cycle and the global economy looked shaky. Emerging market stocks cratered 40%.  Commodities fell over 25%. The dollar rallied over 20% against most major currencies. Asia looked liked it was falling apart.  No one knew what the impact would be in the USA and stocks seemed to… Read More

Don’t Read this Post

The hardest part is not paying close attention. I know. You want to read everything. We have access to so much information. Real-time stock quotes and real-time news and it’s all jammed in our faces 24/7.  But as I noted previously, all of this information isn’t making us better investors. It’s making us worse. Because… Read More

The One Factor to Explain Them All

Yesterday’s post on hedge funds got me thinking again about how vague “risk factors” are.  CAPM uses a one factor model showing that risk explained why certain assets performed better than others.¹ Basically, take more risk and you’ll generate a better return. That didn’t exactly explain things though. In fact, higher risk often correlates with worse… Read More