There are many investors who have a hard time accepting the fact that when a company pays a dividend the payment results in a permanent relatively lower price (relative to what the price would have been the dividend had not been paid), not just a lower price on the day it makes the distribution. The problem results …Read More.
One of the more persistent investment myths is that the winning strategy is to sell stocks in May and wait to buy back until November. While it is true that stocks have provided greater returns from November through April than they have from May through October, since 1926 there has still been an equity risk …Read More.
While there are many studies demonstrating a link between the value premium and risk, the empirical evidence draws inconsistent conclusions on whether distress risk is a systematic risk factor that is priced in the cross section of stock returns. There are studies that conclude that default risk is positively priced in the stock market, and …Read More.
The efficient market hypothesis asserts that financial markets are “informationally efficient”; that is, investors shouldn’t expect to consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made. However, we know that the market isn’t perfectly efficient. In fact, as I explained in my Seeking Alpha series on …Read More.
A June 2012 study by Robert Novy-Marx, “The Other Side of Value: The Gross Profitability Premium,” provides investors with new insights into the cross section of stock returns. Among the important findings were: Profitability, as measured by gross profits-to-assets—gross profits being sales minus cost of goods sold—has roughly the same power as book-to-market (a value …Read More.
You may be all too familiar with commercials featuring folksy celebrities explaining how everyone tells him that reverse mortgages sound “too good to be true,” but there isn’t a catch this time. You can have the best of both worlds: You can stay in your home and get cash for the equity you have built …Read More.
In his new book, “Negotiating Your Investments,” Steven G. Blum discusses some of the traps investors confront when they seek financial advice. This book contains a wealth of helpful information, but I am going to focus on two areas of particular interest: conflicts of interest and asymmetric information. They are inextricably intertwined and present formidable …Read More.
This is a tale of two fictional investors, Paul and Mary. They approach investing very differently. I suspect you will be able to identify with one of them, and perhaps learn something from both. Both Paul and Mary are deeply troubled by market volatility. They are still scarred by the market crash in 2008-2009. They …Read More.
Individual investors have been busy the last few months. TD Ameritrade saw a 30 percent jump in daily trading volume compared with the same period last year. Other discount brokers reported a similar increase in daily trading volume. I spoke to TD Ameritrade, and it said this number represented a broad-based increase in trading. The number of …Read More.
Last week, I wrote about the documented evidence that trading activity results in lower returns to investors. This is equally true for those people we think of as professional investors and for people day trading in their parents’ basements. As far as I’m aware, there’s no peer-reviewed, academic study that shows any evidence that active trading will …Read More.
When it comes to vacation planning, many vacationers tend to forget the planning part. Carl Richards, director of investor education for the BAM ALLIANCE, writes the “Sketch Guy” column for The New York Times. He offers a two-step process for planning for not only your vacation but for your happier vacation: “First, pick your trip, …Read More.
Overview: A typical vacation planning checklist is bound to include the usual considerations: booking a rental car, making hotel reservations and testing how much can really fit into that carry-on luggage. But not as many travelers consider what they would do if a health crisis were to occur on their trip. Following is advice on …Read More.
Investors’ behavior can be heavily influenced by their experiences. For example, the financial crash of 1929 and the ensuing Great Depression permanently shattered many investors’ belief in buying stocks. A whole cohort of potential investors stayed away from equities for a very long time, if not permanently. Similarly, the “lost decade” of 2000-2009, when the …Read More.
This is the first of a two part series that aims to define risk. Since we live in a world without crystal balls that allow us to clearly see the future, prudent investing is all about the management of risk and expected returns. A problem that both investors and investment advisors face is defining what exactly risk …Read More.
Today concludes our two-part feature that aims to define risk. Not being able to do so is a problem for both advisors and investors. Alternative Definition of Risk Risk can also be defined as the probability of not achieving your financial objective – with the objective generally being not the accumulation of the greatest wealth, but instead, …Read More.
