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A big mistake investors make is expecting more than what’s possible in the time allowed. In other words, they expect too much or too little in too short a time. The internet boom was built on this. The housing bubble was too.
But this condition isn’t specific to bubbles. Rather, two bubbles in 10 years raised our expectation of asset bubbles. Now we’re constantly looking for bubbles.
Which gets me to my point. Continue Reading…
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I ran across an interesting article in The Atlantic on the advantages of being a jerk versus being nice and how both fit into the business world. The author covers several case studies before boiling it down to what works best between the two.
But it got me thinking about how it relates to investing, like the prediction sideshow that drives financial media and why some people hang on every word. Continue Reading…
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Last week I broke down a 60/40 portfolio’s performance by decade. I was curious what drove performance in a diversified portfolio – stocks or bonds – and decades were a quick way to find out. But not the best way. It was pointed out that using economic cycles was a better way to break it down.
Thanks to some help finding the dates to changes in the economic cycle, and scrounging up monthly performance data, I was able to get a 60/40 portfolio’s performance during recessions and expansions. Continue Reading…
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Marketwatch published a scare tactic this week loading up several targets for the average investor to blame when they fail. It’s the typical one-sided drivel that’s heavy on noise and light on help.
By the end, the authors served up Wall Street, institutional investors, high frequency trading, regulations, CEOs, financial advisers salespeople, high fee funds, active managed funds, IPOs, M & A, the SEC, and computers.
Oh yeah. Don’t forget the wealthy. Somehow it’s their fault too: Continue Reading…
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How much does each stock and bond allocation actually contribute to the total return of a portfolio? The easy assumption is that stocks do most of the work, since stocks outperform bonds historically.
To find out, I used the S&P 500 returns for stocks, 10 year Treasury returns for bonds, and rebalanced annually.
I threw all the data into a spreadsheet to get results for every allocation. To keep things simple, I’m only showing the 60/40 portfolio since that’s the typical allocation cited in most examples. Continue Reading…
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Richard Thaler wrote an article in the N.Y. Times about how our behavior doesn’t always mesh with economic theory. Basically, our behavior conflicts with their math.
Thaler studies the idea of using nudges to get people to do something they wouldn’t normally do. Really, nudges lower or remove the friction that’s holding us back. These are things we know we should do. We know it’s a good idea. We just don’t want to do it…yet. Friction, of course, is whatever is stopping us from doing all the things we should do. Continue Reading…