Reversion To The Mean Phenomenon: Part II
My prior post explored the ninth wonder of the world: reversion to the mean. Today, we continue the discussion on this phenomenon. Forecasting stock returns is a more difficult task than forecasting bond returns. While the relationship only holds at long horizons,...
Reversion to the Mean Phenomenon: Part I
The Seven Wonders of the Ancient World is a list of remarkable constructions of antiquity. They are the Great Pyramid of Giza, the Hanging Gardens of Babylon, the Temple of Artemis at Ephesus, the Statue of Zeus at Olympia, the...
Faith-Based Funds Don’t Mean Divine Returns
Socially responsible investing (SRI) has been referred to as “double-bottom-line” investing. The implication is that you are seeking not only profitable investments, but also investments that meet your personal standards. Faith-Based Funds (FBF) can be viewed as a subset of...
The Advantage Of ‘Go Anywhere’ Funds: Myth Or Reality
Whether they go by such names as “unconstrained,” “tactical asset allocation,” “absolute return,” or “go anywhere,” Wall Street touts the advantages of funds that have the freedom to shift asset allocations to wherever they see the best opportunities. It certainly...
Lessons From 2013: Part III
Day three of our lessons from 2013, we'll dive right in with an examination of hedge fund returns. This one holds the title with the most repeat performances, appearing most years. The HRFX Global Hedge Fund Index earned just 6.7 percent. The table below shows the returns for various equity and fixed
Start Paying Attention to Tax Efficiency
Much attention has been paid to expense ratios of mutual funds. Yet, despite the fact that taxes have a substantial impact on the long-term performance of taxable mutual fund investors, far less attention has been paid to the impact of taxes on after-tax returns. And while the evidence is clear that it's difficult for active fund managers to create superior investment performance by picking stocks or by timing markets, it's relatively easy to avoid destroying value for taxable fund investors by managing investment taxes. For example, tax-aware funds might attempt to reduce the tax burden by avoiding the intentional realization of any short-term gains and by accelerating the realization of capital losses. Tax management strategies might not only reduce the tax burden, they might also generate lower trading costs. For example, tax-efficient investment strategies exhibit relatively low turnover, generating lower trading costs. In addition, liquidating stock positions with embedded capital losses and holding on to positions with capital gains might generate superior before-tax returns due to the momentum effect.
How the Focus of Dividends Impacts Returns
Many investors, especially those that use a cash flow approach to investing, focus on companies that pay relatively high dividends. The focus on high dividend payers leads to a value strategy. The question for investors: Is that a good value strategy?
Lessons From 2013: Part IV
Over the last few years we've seen a dramatic increase in interest in dividend paying stocks. The heightened interest has been fueled by both the media hype and the current regime of interest rates that are well below historical averages. The low yields available on safe bonds led even many once conservative investors to shift their allocations from safe bonds to dividend paying stocks. This is especially true for those who take an income, or cash flow, approach to investing - as opposed to a total return approach, which I believe is the right approach.
Lessons From 2013: Part I
Every year the markets provide us with lessons on the prudent investment strategy. Many times markets provide remedial courses covering lessons it had provided in prior years. That's why one of my favorite statements is that there's nothing new in investing, only the investment history you don't know.
Lessons From 2013: Part II
What should I do about the inevitable rampant inflation problem we are going to face because of the huge fiscal and monetary stimulus that's been injected into the economy? This has been one of the most persistently asked questions I've received since 2009.
