A Conversation from the Pit

This column is called, Echoes from the Pit, not Conversations from the Pit, but I thought you would be enlightened by an actual email string from last week regarding Fed intervention in financial markets. This kind of conversation happens daily as Pinnacle analysts try to reach consensus on how to tactically allocate our strategies. I…

Three Ways to Evaluate Portfolio Returns

Consumers of investment management might consider three different methods to analyze investment returns. The first method is to look at absolute returns in the context of your financial plan. If the portfolio return was 7% annualized for ten years, was that return high enough for you to achieve your financial goals? What about 3% annualized…

Fixed Income 101 (or maybe 201)

The duration of a bond portfolio tells you how much the price of your bonds will change for each percentage change in interest rates. A high duration means more sensitivity or price volatility as interest rates change. Duration tells you virtually everything you want to know about the price sensitivity of U.S. government bonds, which…

How Bulls and Bears See Fed Policy

Bearish investors look at the chart below and immediately notice that Fed intervention in the form of QE1 and QE2 (quantitative easing program 1 and 2, or perhaps more accurately, money printing programs 1 and 2) occurred after substantial market declines. QE1 is announced after the Lehman Brothers collapse in 2008 and QE2 is hinted…

Exploiting Logical Errors of Inference

In my book, Buy and Hold is Dead (Again), I discuss in some detail Woody Brock’s views on the logical justification for active portfolio management. Brock lays out three ways active managers can outperform. First, they can better forecast structural changes in the economy. Second, they can better forecast how investors will react to changes…

Managing Different Kinds of Risk

Buy and Hold investors tend to view risk as ‘tame’ rather than wild, and often believe it can’t be managed. In this view, risk (defined as volatility) can be measured by a standard bell curve or normal probability distribution, where unexpected events are highly unlikely. Also, market movements are assumed to be completely random, so…