Opinion

Why Settle for Average?

With the recent flood of Wall Street Journal articles about passive investing, now is a good time to review the space.  Money is pouring into firms like Vanguard and iShares, the leaders in the indexing revolution.  Investors are seeing that despite perennial declarations of a “stock-picker’s market”, active managers consistently trail their benchmarks and charge large fees for the privilege of doing so.   You’ll see below that I am an advocate of passive investing, but only when it’s done correctly.  There are plenty of opportunities to use passive incorrectly or to get ripped off by a non-fiduciary product seller. What is passive?  A passive investment is just a rules-based strategy.  Technically, there should be a corresponding index.  For example, if the rule is to weight the investment based on the number of vowels in the company’s name, there should be a high-vowel index that the strategy would use as a…


Harvard’s Endowment

Fairway’s third quarter commentary has been published.  Keeping up with the Joneses has distracted Harvard’s endowment from its true mission.  Here is some background on what happened: First, the actual endowment report.  Harvard lost 2% over the last year, driven into the ground by what I call conspicuous sophistication. The Harvard Crimson leads the charge on reporting the results here. There is a pile-on by the WSJ (some good reporting here), NYT, and CNBC among others. Then the students weigh in via the school newspaper.  If there’s one constant Harvard’s endowment can count on, it’s that the students will be vocal critics no matter what.  The horror of their $36 billion endowment lagging peers “is unacceptable”.  When the endowment was blowing the doors off of its peers, students felt that management was getting paid too much.  Now that performance is lagging, students are re-thinking this – maybe it makes sense…


The Bull and the Swan

Preparing for the swan, it’s possible to miss out on the bull.  In my monthly commentary for Fairway, I asked “What does a 20% gain feel like?”  Spoiler alert: it feels like right now.  The S&P 500 is up about 20% since the bottom in February.  However, no sales people were calling my office 6 months ago to pitch me on how to make the most of the next 20%+ market move to the upside.  Pitches were framed entirely around disaster scenarios or worse… a sideways market (heaven forbid investing turn boring).  The financial product industry has spent the last 7 years pitching products to survive the next Black Swan event (or more accurately, to beat the previous Black Swan), but what happens when the next Black Swan turns out to be a Bull? What is a Black Swan, anyway?  It’s an unexpected event as outlined in Nicholas Taleb’s book…


Saint Patrick's Day

I Want to Know Where the Gold At

Happy Saint Patrick’s Day! It seems like reporters go out of their way to find the craziest people to put on camera for a story.  It certainly seems to be the case in the financial entertainment community where you can find perma-bear hucksters given the same regard as respected economists and CEOs.  When I see one of these jokers on CNBC I think of this video: I lump people calling for an audit of the Fed, urging a hand-count of gold ETF bullion holdings, and gold salesmen on AM radio in the “I want to know where the gold at” camp. Then there are the chartists who show a Hindenburg Omen or a Death Cross or a chart with labels on three axes or an overlap of today’s market over a chart of 1929 or 1987.  These are the amateur sketch artists of CNBC. Contributors like Josh Brown do their…


January Effect

By now, you’ve heard that the US stock market is off to the worst start to a calendar year ever.  This is the sort of news that is trumpeted far and wide as humans are wired to value and pass along bad news (and to elevate the status of those who sound the alarm).  This undoubtedly helped our ancestors warn each other about saber-toothed tigers, but can trip us up as investors today, leaving us easy prey for today’s investment product-selling predators.  I even heard a local economics professor talking about the ‘January Effect’ on the radio this morning.  The ‘January Effect’ is the superstition that as January goes, so goes the rest of the year.  So if the month of January is positive, then so will the rest of the year.  If the month of January is down, the rest of the year will be negative, too.  It’s so easy…


1.21 Gigawatts

On October 21st, 1985, Marty McFly went back in time 30 years to escape Libyans, save Doc Brown’s life, and turn his dad from a weenie into a hero.  He also wound up with a rad 4×4, but before he could take it for a spin, Doc Brown stopped by in a flying DeLorean to whisk him 30 years into the future, to 2015.  Hijinks ensued as bully Biff Tannen got ahold of a sports almanac from the future and made a fortune betting on sports, but Marty saved the day with skateboarding, 1980s pop culture references, and a soundtrack provided by Huey Lewis and the News. Since this month marks the date that Marty and Doc Brown arrived in the future, it provides us with a convenient frame of reference for what a 30 year time period feels like.  From 1985’s perspective, 30 years into the future felt like…