A Cautionary Tale of “Chasing Returns” Just over five years ago, the New York Times published an article in which the author made the argument – successfully – that professional mutual fund managers cannot beat the market with any consistency or predictability. Old news, right? Yes, if you’ve been reading these blogs. But the article, which took into account the previous five years (March 2009-March 2014), pointed out that two funds had produced consistent, high-level returns during that timeframe, with both funds placing in the top quartile of returns each year. Of 2862 funds, no other funds accomplished that. …
Frequently “Oaked” Questions
You Asked, So We’ll Answer FOQ: They say the “yield curve inverted”? What does that mean? Short: Short-term bonds had higher interest rates than long-term bonds. Long: In particular, last Wednesday morning, the interest rate of the 2-year Treasury note very briefly exceeded the rate of the 10-year note. Think of these notes as CDs at the bank. You’d surely expect to get a higher interest rate from a 10-year CD than a 2-year CD, since you’re locking the money up for so much longer. But for a hot minute, that was not the case. FOQ: Does it matter …
Randomness: Why We Diversify
Can you guess what this represents? This table illustrates 20 years of annual equity returns for developed markets. Each color represents a different country. Each column is sorted top down, from the highest-performing country to the lowest. Here’s how the colors match to the countries: Why is this important? Pick a color in the first column and follow it through to the right. Does any country seem to follow a pattern that gives clues about its future performance? Not at all. But that won’t stop us from trying to find one. It’s in our blood. Psychologists call it the “Gambler’s …
Patience in Investing: 2019 Update
Recency Bias. It affects us all, particularly in investing. It’s the observation that we tend to give recent information greater weight than the long-term evidence warrants. And it’s certainly rearing its ugly head these days. We hit a peak last January and have been just meandering since. And the world is ending, or so you’d think. The four most dangerous words in investing are bubbling to the surface. This time it’s different. That’s what a sixteen-month span of not seeing any growth will do. Look below. Does it look any different? Nope. The market goes up, meanders, goes up, meanders…wash, …