Capital for Living a More Practical Life
If you take a basic finance course the first thing you learn about bonds is that bond prices are inversely correlated to interest rates. So, when rates rise bonds prices fall and vice versa. This idea is so ingrained into people’s heads that it seems to have become the only thing that anyone can remember… Read More
Most of what we end up doing in our lives is determined not by what we decide to do, but by what we decide NOT to do. In the course of any given day we decide not to do millions of things. Eliminating all of these actions results in a direction that determines how we… Read More
Bonds have always struck me as fairly simple instruments. In general, you know what a (high quality) bond’s return will be and you know what its time horizon is. That makes investing in fixed income instruments much simpler than investing in stocks. After all, the most difficult part about the stock market is that you… Read More
Here are a few things we know about the financial markets: Beating the market or obtaining “alpha” (excess return) is extremely difficult as evidenced by the annual SPIVA Scorecards. Alpha doesn’t exist in the aggregate because we all hold what sums to one portfolio wherein we earn the after tax and after fee return of… Read More
It’s the Monday following the second leg of the Triple Crown and a whole bunch of people lost money betting on the Preakness. Like the stock market, the allure of gambling is strong because many people think that having more money will solve most of their problems. And while there are some similarities between investing… Read More
Should we pursue appropriate portfolios or optimal portfolios?
If I had to pinpoint the biggest problem for most asset allocators I would probably say short-termism. Short-termism is the tendency to judge financial markets in periods that are so short that it results in higher fees, higher taxes and lower average performance. We’ve become accustomed to judging the financial markets in quarterly or annual periods… Read More
In my new paper on asset allocation I go into quite a bit of detail about why certain asset classes generate the returns they do. Understanding this is useful when thinking in a macro sense and trying to gauge why financial assets perform in certain ways in both the short-term and the long-term. It’s important to… Read More
Here’s Josh Brown with a good piece on dividends. He asks, “are we too obsessed with dividend income?” Tricky question, but I would tend to answer by saying that, when we substitute equity income for bond income, we’re often searching for “safe income” in all the wrong places. As I noted in a recent piece, corporations… Read More