Opinion

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…

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…