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
One of the more common investing myths is the idea that indexing is necessarily “average”.¹ It makes sense at first. If you bought all of the stocks in the market then you’d generate the average return. It would be like playing fantasy football and picking all of the players in the NFL. You would lose… 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
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
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
My newest research paper, Understanding Modern Portfolio Construction, is available on SSRN. This paper is the culmination of years of work and I consider it to be the most important piece of research I’ve published.