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…

The Real Clowns

I was recently quoted in a Diana Britton article in Registered Rep. magazine entitled, “Is Tactical Investing Wall Street’s Next Clown Act?” As you might guess from the unfortunate title, the writer trots out the familiar and tired arguments for buy and hold investing. In a nutshell, you should buy and hold because:

Don’t Try This At Home

When I was a young man, about the time that man discovered fire, it was considered something of a rite of passage to work on your own car. Father and son would pop the hood and pull spark plugs, change the oil, and do other ‘manly’ work on the automobile. My first car happened to…