The financial media is pleased to report that the best performing mutual fund of the decade is Ken Heebner’s CGM Focus fund.
Through the end of January, 2010, the fund annualized 18.03%, easily outpacing the S&P 500’s annualized return of -0.55%.
Did you miss these returns? Not to worry, because the typical investor in CGM Focus also missed out on the returns. Unfortunately, there is a big difference between investment returns and investor returns. [click to continue…]
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With the dawn of a new decade arrives the financial media’s advice about where to invest your money.
Articles with attention grabbing titles such as “10 Stocks for the Next Decade” entice readers with promises of market beating returns.
But should you bet your financial success by following media’s advice? Consider the following articles published a decade ago. [click to continue…]
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There is a difference between luck and skill and knowing when you are just lucky and when you are successful due to skill is of paramount importance as an investor.
For instance, let’s say you correctly called the flip of a coin five times in a row. What are the odds that you will correctly call the next flip? [click to continue…]
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One outcome of the financial crisis is we have to “live with messiness.”
Instead of a neat and tidy explanation for everything that happens in the markets, humans are sometimes irrational and, as emotional creatures, we occasionally let fear and greed cloud our financial decisions.
After witnessing the current financial crisis, the tech stock bubble and burst from a decade ago, and numerous other financial storms over the past 20 years, it seems that when it comes to money, humans continue to make mistakes with their money and investments. [click to continue…]
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Rarely do you see a headline in a mainstream newspaper containing the three words, “Yale,” “Harvard,” and “Losers,” but that’s exactly what happened last week in The Wall Street Journal.
The Journal certainly wasn’t talking about the Universities’ academic prowess or even their athletic exploits; rather, it was the disappointing performance of their once invincible endowment funds. [click to continue…]
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A recent Wall Street Journal article epitomizes the new “conventional wisdom” that asset allocation failed in 2008.
It is true that correlations among major asset classes have increased in recent years.
During the 2008 financial crisis all major equity asset classes experienced severe declines. Even commodities, which historically had exhibited low correlations to equities, dropped dramatically. [click to continue…]
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This question has been coming up a lot lately in the media and some academic journals. But thinking that MPT died last year is based on the misconception that MPT will guarantee against a loss.
That is simply not the case. What MPT believes is diversification to a portfolio, which over the long term can potentially reduce a portfolio’s volatility versus a single asset portfolio.
According to a recent article in Investment News:
Remember, when investing in a diversified portfolio, you will experience negative returns periodically.
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Investors are driven by the fear of losing and losing out.
Last winter, as the financial markets were seemingly in a free fall, panic and fear reigned. There was a sense that the worldwide financial system could collapse and that the problem was bigger than the government’s ability to solve it. This fear of losing spurred more selling and it became a vicious cycle – until it stopped.
Today, it’s a completely different picture. [click to continue…]
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How will we know when the market hits rock bottom and starts a new secular bull market?
This is one of those questions where if we knew the exact answer we could probably make a fortune. Unfortunately, no one cannot pinpoint the bottom of a bear market in real time, but according to money manager John Hussman, there’s an anecdotal measure that might help us narrow the timeframe. [click to continue…]
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According to a recent article in CNN Money, only if you attempt to sort out the handful of winners from the rest of the market.
As the article points out, the majority of individual securities tend to post negative returns over the long run.
In fact, research by Dimensional Fund Advisors found that from 1980 to 2008, the top-performing 25% of stocks were responsible for all the gains in the broad market, as represented by the University of Chicago’s CRSP total equity market database. [click to continue…]
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