Investing

Why settle for average

Settling for Average

Settling for Average Capital Group is pushing back hard against the passive investing crowd.  They make the case that some basic screens (low expenses, manager investing in their own fund, etc) can reveal good managers.  I agree with that.  The screens I use at Fairway are kind of hilariously basic relative to the universe of modern portfolio theory statistics and Greek symbols I could choose from.  You really don’t need to layer on too many filters before you get a list of a dozen or so good managers in any particular asset class.  What I do take exception to is the ‘Why settle for average?‘ argument they put forward.  The Capital Group folks are some of the brightest folks around and yet this is the tagline?  I tackled this last year here and here.  I also posted a direct response to the Capital Group marketing here. The latest Capital Group marketing…


No Picture

Don’t Buy the Next Amazon

THIS STOCK COULD BE LIKE BUYING AMAZON IN 1997!  So reads the ad disguised as a headline on Yahoo Finance.  Here’s the thing: you don’t want to buy the next Amazon. Clicking on the ad takes you to a wall of text.  The performance is stellar.  The method is so easy an idiot could do it.  Two idiots say as much in quoted testimonials.  This is a no-brainer.  Then comes the catch – just subscribe to the newsletter. Disguising ads as news headlines is what finally pushed me off of Yahoo Finance.  I clicked the ad today (google took me to the site while looking for news on a company) because I’ve seen this same ad for years.  Either there’s a new Amazon every week or maybe, just maybe these guys are full of it. Don’t Buy The Next Amazon Amazon is up 43,000% (for real) since IPO.  Why wouldn’t…


An Anniversary and Some Words on Garbage

This week marks the anniversary of the bull market whether you measure from the intraday bottom on 3/6/2009 or the day’s closing bottom on 3/9/2009.  It’s not as simple as all that, though. After a 19% annualized gain or over 300% cumulative, it’s hard to ignore claims that the market is over-valued.  Sure, the doom and gloom folks have been saying that all the way up, but it’s getting harder to find statistics that don’t show the market at least fairly valued.  JP Morgan’s David Kelly shows P/Es slightly above historic averages, but the Shiller CAPE is really elevated. Some things to keep in mind After a long run, it feels like we are due for calamity or at least a pullback.  We’ve already had a pullback – four of them, in fact.  And we only need to look at last year to remind ourselves that the market’s rise was…


Trump Portfolio

We’ve witnessed the peaceful exchange of power in the most powerful country on the planet.  Now, how do we create a “Trump Portfolio” of only the best, really the greatest, everybody says so securities?  Does it make sense to overweight small cap manufacturing stocks that might benefit from a strong dollar or perhaps bank stocks to take advantage of rising rates? Here’s a better question: What’s more important, the person in the White House or the person who owns the portfolio?  It doesn’t make sense to put Grandma in volatile small cap stocks if what she really needs is income.  Likewise, it wouldn’t be prudent for a 20-something to move everything to cash because they don’t agree with the President’s politics.  I hope you already knew this, but there is no optimal “Trump Portfolio”.  Rather than rebuilding their portfolio every time the winds change in Washington, D.C., investors should build around their personal needs…


No Picture

HBTM: 12/12/2016

How ‘Bout That Market?  This is a question I hear at social gatherings often enough that it makes sense to make it a regular entry on this website. The Market The stock markets have been going up since the election.  Is this a Trump rally?  I hesitate to say so as the election still looms large in the rear view mirror.  It’s also worth noting that this gets filed under Obama’s record.  The markets seem to be adjusting quickly to what they expect under a Trump administration.  There is a shift in sentiment from the tech sector to what I’d call Make America Great Again (#MAGA) stocks (industrial and manufacturing – financials, too).  This makes sense from the standpoint that the President-elect focused on these types of businesses during the campaign, but if protectionist policies are implemented, I would expect a negative impact on these companies.  But really, who knows?  What’s…


Filthy Casual

Filthy Casual

I am a gamer.  I like role-playing games like Fallout and Final Fantasy as well as real-time strategy games like Starcraft.  However, according to the internet, I play these games all wrong.  I like to take my time and get lost in the story.  This is not the fastest or most efficient way to beat a game which puts me dangerously close to being a ‘Filthy Casual’ in internet-speak.  That is, my goal is not to optimize my playthrough like a ‘Hardcore’ player might.  It could be worse.  I could be a n3wb. This really does tie back to investing, I swear. There are countless blog posts dedicated to crafting the most efficient portfolio.  Finance Twitter is full of people who will argue asset allocations past the decimal point.  Advisor forums are almost toxic with folks who belabor semantics, dredge up endless white papers, and worship at the altar of Modern…


No Picture

Certain Predictions

I’m tired of hearing the predictions. The people who were certain Brexit would fail were certain Trump couldn’t get elected President.  These same people are certain of how the market will move going forward.  Paul Krugman pulled the fire alarm the night of the election when market futures were down huge saying the market would never recover.  Citigroup and Goldman Sachs predicted the possibility of every scenario except the one that happened (a market rally post-election). These folks wear their authority like a crown and revel in lording it over the masses.  Perhaps once upon a time this authority derived from real, actionable knowledge, but today that crown has been pawned in exchange for pageviews, CNBC appearances, and perfect hindsight.  They are desperate for your cash, but even more desperate for your attention.  There is a fear underlying the headlines.  It is not fear of political change or market turmoil….


Donald Trump

Donald Trump is President-elect of the United States of America.  This election reminded me of the Brexit vote across the pond earlier this year.  An entrenched power bloc assumed it had already won, but woke up the day after the election to a powerful reminder of the world outside of their ivory towers.  I voted and I hope you did, too. So What Does Donald Trump Mean For The Markets? It means the uncertainty over who will be President is over.  No kidding, right?  It is cliche by now, but the market does hate uncertainty and knowing who will be in the White House allows companies to eliminate a variable from their business calculus.  You don’t need to be a genius to navigate your portfolio through an election cycle; you need patience and informed optimism.  Even smart people screw up and overreact to short-term blips.  Nobel laureate Paul Krugman of the New…


Pick Good Funds

Pick Good Funds

The Wall Street Journal and the financial community have been abuzz about passive investing.  I wrote about settling for average and outrunning a bear via active management previously.  The newest argument for choosing active management over passive is that investors should choose ‘good’ managers, not average or bad managers. Why didn’t anyone think of that before?  Choosing a good manager sounds like common sense, but really this is an attempted rebuttal of the fact that benchmarks outperform 70-80% of actively managed funds.  Capital Group (parent company of American Funds) even published a scorecard in a sort of homage to S&P’s SPIVA report that touts the performance of ‘good’ funds.  Tim Armour, chairman of Capital Group, asks why an investor would buy Blockbuster stock in the early 2000s when they could have bought Netflix – the assumption being that a good manager would have bought Netflix while an index would have been forced…


Passive Investing

Active Versus Passive in a Down Market

The Wall Street Journal has been publishing articles about passive investing recently.  Many of these articles look like they are pro-passive, but are written by active management shops looking to damn passive with faint praise.  My last post addressed the ‘settle for average returns’ fallacy.  The second argument I often see in support of active management is that it outperforms in down markets. I’m not sold on the data behind this assertion, but let’s assume it’s true and active managers outperform during down markets.  Maybe they aren’t completely invested and hold cash or maybe they just pick the stocks that don’t go down as much.  Whatever the secret, CONGRATULATIONS!  YOU BEAT THE MARKET DURING DOWNTURNS!!! Now you just need to know when the next downturn starts and ends so you can go active at the right time.  That’s where the argument starts to break down.  It’s difficult/impossible to predict what…