Pragmatic Capitalism

Capital for Living a More Practical Life

‘How Things Work’

Why Do Corporations Pay Dividends?

There is increasing chatter in recent years about share repurchases, dividends, corporate investment and the ideal way for firms to use capital.  But one question that economists can’t really agree on the answer to is why companies pay dividends at all?  As noted in an excellent Twitter conversation initiated by Matthew Yglesias, even great thinkers… Read More

Why are Treasury Bonds the Ultimate Safe Haven?

The last 10 years have exposed a very important reality for any global asset allocator – US Treasury Bonds are the ultimate safe haven investment.  For decades we have heard stories about how gold, silver, real assets or other types of financial instruments would serve as the “safe haven” investment during times of crisis.  Many… Read More

The Importance of First Principle Thinking

I loved this interview with Elon Musk discussing a wide range of topics.  Of particular interest were his comments on first principle thinking.  First principle thinking is the formation of fundamental truths from which we can build understandings.  Musk has described what he means: “What reasoning from first principles really means is boiling something down… 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

What is Portfolio “Risk”?

The idea of risk is a rather confusing and nebulous concept in modern finance. The traditional textbook definition of “risk” is standard deviation or volatility. This is convenient for academic purposes because it allows us to quantify risk in a portfolio. But this is a flawed concept for several reasons: Volatility isn’t always a bad thing. In… 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

Problems with the Short-Term

Earlier this year I spoke about the problem of “the long-term”.  This is the tendency for modern finance to emphasize a long-term view due to the fact that assets tend to perform well over the long-term. This is empirically true. If we look at the performance of stocks, bonds and the broader economy the performance… Read More