In three previous posts (here are the first one, second one, and third one) we have been building the case that the rise of a class of "financial advisors" who do not manage money themselves (they do not actually make the buy-and-sell decisions on individual stocks and individual bonds) but rather "pick managers" (selecting mutual funds or portfolios...
Monday, January 28, 2008
Can your advisor answer this question?
Previously, we discussed research showing that the average equity investor (measured by the largest data pool available, which is the money in equity mutual funds) has a twenty-year performance record which is barely ahead of inflation, and which is far below the record of many index funds and actively-managed funds over the same twenty-year period....
Friday, January 25, 2008
Say "tax rate cuts," not "tax cuts"
For years we have argued that the real issue with respect to taxes is not "cutting taxes" but rather cutting the tax rates! In other words, the goal is not to necessarily take in less money overall (which is the way many politicians as well as their echo, the media, frame the issue when they say things like "how will we pay for this tax cut?").That's...
Wednesday, January 23, 2008
A twenty-year perspective for the recent market turbulence
Another powerful insight -- particularly in light of the recent market turbulence -- from the most-recently published Dalbar Quantitative Analysis of Investor Behavior (QAIB) is the fact that the average investor underperformance is greatest over long periods.In a previous post, we discussed Dalbar's research which has consistently shown that most...
Monday, January 21, 2008
A few lessons from 2002
Here's a picture of what it looks like when things get ugly in the stock market.This is a chart of the Dow Jones Industrial Average during the last bear market, which stretched from January of 2000 through October 2002.Note the three different bottoms, marked by red arrows on this chart (these three successive bottoms are also visible in the chart...
Thursday, January 17, 2008
Economic ignorance hurts
Today, Fed Chairman Ben Bernanke testified on Capitol Hill before the House Budget Committee, giving prepared remarks and answering questions posed by lawmakers on the committee.The proceedings were generally a cause for dismay. In fact, although no one ever knows the exact reasons for a market's movements on any given day (although the news media...
Tuesday, January 15, 2008
Remaining calm without being blind or obstinate
In the current turbulent market environment, some subtle aspects of the Growth Stock Theory of Investing are valuable for investors.As we have explained in previous posts, one of the key tenets that Rowe Price outlined in his 1973 essay entitled "A Successful Investment Philosophy based on the Growth Stock Theory of Investing" is that most of the...
Friday, January 11, 2008
Volatility is back in the market
Volatility is back in the market, after several years of below-average volatility.The current volatility is above average and is a reminder of what equity markets are more commonly like.The current stormy weather is threatening to get worse before it gets better.As discussed in this previous post, research suggests that "investors make most mistakes...
Monday, January 07, 2008
Investor behavior. . . or Advisor behavior?
Every year the Dalbar Quantitative Analysis of Investor Behavior (QAIB) is released, showing the results of the financial research firm's examination of investor behavior a twenty-year period beginning in 1987. The results for 2007 are not in yet (that QAIB, which will be called the 2008 QAIB, will come out in March or April 2008), but the 2007 QAIB...
Thursday, January 03, 2008
Look for Paradigm Shifts
In every business landscape, the current predominant business model is always subject to being overturned by a new and more efficient business model that delivers new value over the old one.If a company can find a way of completely changing the landscape in a particular field, that company can "outflank" its competition by shifting the entire paradigm.A...
