What Makes the “Smart” Money so Dumb? Hedge – def: an investment to reduce the risk of adverse price movements in an asset. Fund – def: a supply of capital belonging to numerous investors that provides a broader selection of investment opportunities, lower fees, and greater management expertise than investors might be able to obtain Read more about Why Following Hedge Funds is a Terrible Investment Strategy[…]
Like millions of Americans, I was sad to see the Mythbusters show go off the air this year. I’ve been watching them since the very beginning and was thrilled over the past couple years to see my kids get into the show. If you are unfamiliar with the setup, they take common urban myths and Read more about Myth Busting the Wealth Management Industry[…]
Last weekend, Warren Buffett released his annual letter to shareholders. I look forward to this event every year. It is a lot like if your favorite author released a new book every year, or your favorite band released a new album. This letter is one of the purest and most consistent sources of great investment wisdom, and is available Read more about Lessons You Can Learn from Warren Buffett’s Letter[…]
“So Keith, should I buy stocks now or is the market going lower?” “What should I invest in if the stock market is going to go down further? I heard it could drop another 20%.” “My brother-in-law said that gold is going to skyrocket this year. He sold out of stocks back in November. He said we Read more about Playing with Buckets – The Current Market in Context[…]
First of all, I was thrilled to see a very thorough response to my story from Jeff Ptak. I admittedly have not read a lot of his stuff outside of recent twitter postings, but I certainly will from now on. To catch everyone up who may just be tuning in:
Ben Carlson posted an article on his great blog, A Wealth of Common Sense, using data published by Jeff. Its titled “Uncle Sam Loves Active Mutual Funds” and can be found here.
I took some issue with a few of the assumptions made on the study, so I wrote a rebuttal, which can be found here.
Jeff then wrote an excellent defense of his methods and assumptions in a follow up, found here.
I only have a few things to continue this discussion. First of all, Jeff is right in that he and I are not […]
Actively managed mutual funds have experienced a steady decline in popularity. There is a large and growing crowd of finance professionals who confidently claim that these funds are better at enriching the fund companies than they are at benefitting the investor. They charge too high of fees, and do not provide sufficient investment performance in return. It is said that investors are better off putting their money in a low cost index fund and calling it a day.
A recent article I came across on Twitter was yet another example of this growing chorus. The article, titled “Uncle Sam Loves Actively Managed Mutual Funds” by Ben Carlson, from the blog A Wealth of Common Sense, uses data from Morningstar’s Jeffery Ptak to make this point. While it does not come out and explicitly state, its conclusion is that actively managed mutual funds are a terrible choice for investors, and a complete disaster if used in taxable accounts. Ben’s article can be found here. The chart below is the lead graphic and paints an ugly picture for active management.
Being in the money management profession, here is a conversation that I have on a not-infrequent basis.
Friend – “Keith, what is the best investment I can make right now?”
Me – “Books”
Friend – “What, like Amazon.com or Barnes & Noble stock or something?
Me – “No, like the books you read.”
Friend (now with confused look on face) – “Books on investing?”
Me – “If that’s what your interested in, sure.” […]
After another seven months on hiatus, I am attempting again to get back to a more regular writing schedule. I had intended to start writing again after my exam in June (I did pass, thank you for silently asking), however, as is often the case, life got in the way.
And, a lot has happened in that time (more on that later), but now I want to get into discussing what is going on in the world as it pertains to the economy and the markets. This will be a short (hopefully) account, focusing on translating the headlines and soundbites you may be hearing on the news, followed up by some personal developments just to get everyone up to speed.
Cliff Diving
The last few months of business news this year has been all about cliffs. The most popular one being the Fiscal Cliff. For those of you who may not know what this is, its a series of tax increases and government spending cuts scheduled to take place on the first of the year unless the President and Congress can agree to pass legislation which says otherwise. […]
It has a been a long time in between posts, and I fear it will be even longer from now until my next post. Life has a funny way of getting in the way of the more fun, interesting, and thoughtful pursuits. I did however, feel compelled to write a prediction piece, just so I Read more about The Year 2011 – a look into the Crystal Ball[…]
I am not here to pick any fights this week. Nor to tell my readers how all the more famous investors and economists of the world are getting it wrong (they must be doing something right since they are famous, and I am not quite so much). Instead I want to focus on some interesting statistics about markets and economies that can help frame a perspective about markets. The size of different markets, along with the size of different market participants, is something that is little talked about in the main stream investment mediums. This is what I am calling the Mass of Markets, and in some future post may be so brave as to try and detail these relationships; but first, a primer. […]