Behavioral economist Richard Thaler explains why financial professionals need to be familiar with psychology. Daniel Kahneman and Amos Tversky legitimized behavioral economics—the study of how people really behave around money, as opposed to how economists say a rational person ought to behave. Then Richard Thaler and Cass Sunstein applied the lessons of behavioral economics to …Read More.
While the debate over the merits of active versus passive investing is ongoing, there has been a very clear trend spanning several decades now showing that investors are slowly (but steadily) abandoning the hope of outperformance offered by active management in favor of the certainty of earning market returns (not average returns) offered by passive …Read More.
Quick Take on Fixed Income November 2015 Question: What are agency bonds? Answer: Agency bonds are securities issued by two types of entities: 1) government-sponsored enterprises (GSEs), which usually are federally chartered but privately owned corporations; and 2) federal government agencies which issue bonds to finance activities related to public purposes, such as increasing home …Read More.
A large body of literature examines whether managers of actively managed funds add value to their investors by generating abnormal returns. Unfortunately, not only do the vast majority fail to do so, but the evidence, as presented in my book, “The Incredible Shrinking Alpha,” demonstrates that the already-small percentage of managers able to beat their …Read More.
It’s well-established in the literature that valuation metrics—such as the dividend yield (D/P) and the earnings yield (E/P), as well as its cousin, the Shiller CAPE 10—provide important information in terms of future expected returns. In fact, these metrics are the best that investors have for predicting long-term equity results. For instance, the Shiller CAPE …Read More.
Jane Bryant Quinn, a highly regarded and nationally syndicated columnist, once called much of the output of Wall Street and the trade publications that cover financial markets “investment porn.” She summed it up this way: “Americans are indulging themselves in investment porn. Shameless stories about performance tickle our prurient financial interest.” The roller-coaster swing of …Read More.
The academic research has provided investors with strong evidence there’s a small group of investment factors—or sources of returns—that have delivered higher returns over the long term. To be considered among this small group of factors, the evidence should have the following characteristics: Persistence: It holds across long periods of time and various economic regimes. …Read More.
Steve Wiechel, Fixed Income Advisor, Buckingham Explaining duration. Fixed Income Advisor Steve Wiechel with the ins and outs of bond price sensitivity, using higher coupon bonds to lower duration and targeting the duration to best combine yield and volatility. Quick Take: What is Duration from The BAM ALLIANCE on Vimeo. …Read More.
November 2015 How These Changes Could Affect Your Future Filing Strategy Establishing a well-crafted plan that addresses the role Social Security retirement benefits will play in your financial future has never been more important, especially in light of recent changes to how these benefits are administered. On Nov. 2, 2015, President Barack Obama signed into …Read More.
Quick Take on Fixed Income November 2015 Question: What are corporate bonds? Answer: Corporate bonds are debt securities issued by corporations. The bonds have a maturity greater than one year, and interest income is taxable at local, state and federal levels. These bonds are the obligation of the issuing company, which can issue many bonds …Read More.
Imagine a hypothetical guy who lives a responsible financial life. He’s focused on meeting his obligations, even though he doesn’t have a big cushion when it comes to his take-home pay. Things are tight. He’s not quite living paycheck-to-paycheck, but it’s close. Then one day, an external shock completely outside his control occurs, and it …Read More.
In a recent discussion on the Advisor Perspectives website (it was in response to an article I wrote on the performance of Third Avenue Management’s actively managed funds), someone commented: “I am, for the most part, a proponent of passive investing, especially in asset classes (such as domestic equity) where the great majority of active …Read More.
“It was totally worth it.” In this case, “it” referred to a Vitamix blender that a friend recently had purchased. He wasn’t the first. Indeed, I don’t know anyone who has purchased a Vitamix blender and didn’t share my friend’s effusive sentiment, even after spending between $429 and $719 (for the new line of G-Series …Read More.
You know what’s crazy? The key to getting people to think you’re smart is to stop talking and to start listening. Let me share a little story to demonstrate. Recently, I attended a dinner party with my friend and colleague Dan Solin. We were in a group of 12 sitting at a rather large table. …Read More.
Are you a value investor or a growth investor? Could your preference be influenced by a biological predisposition partially ingrained from birth? Is it possible that your choice of investment could be explained by your personal experiences, both early on and later in life? The field of behavioral finance advances psychology-based theories to explain investor …Read More.