Investors often raise concerns when the stock market is near an all-time high. I’ve discussed previously why it’s not generally a good idea to sell simply because the market attains a new high, since, if anything, historic evidence points to returns going forward from a market high being superior to average market returns. But the rising 2017 US stock market...
Blog
Can Optimizers Think?
In a recent article, French (2017) describes an intriguing property of Markowitz (1959) optimization. He notes that the Markowitz optimizer (nearly) always populates the efficient frontier with a relatively small subset of the securities in the optimization universe. Is the optimizer telling us something important about the investment value of the...
Passive vs. Intelligent Investing
It is a common academic mantra, and of many respected investment professionals, that investing in an index fund is best for the majority of investors. There are two reasons for this view: 1) Experience has shown that active investment strategies charge more and perform less well on average relative to many common index funds; 2) Twentieth century financial...
Strategic Investing in ETFs
Our January commentary (1/3/17) discussed some critiques of index-fund ETFs topical in the investment community. The argument was that ETFs, because they trade like stocks, tend to encourage investors to trade actively as opposed to traditional mutual fund investing. But it is always true that anything can be misused however otherwise beneficial. In our view...
Upside and Downside Capture Ratio Statistics: Caveats and Cautions
Widespread investment wisdom dictates that there are two “irrational” tendencies of human behavior that harm investment performance when acted on excessively: greed and fear. In a simple sense, “greedy” investors want maximum participation in rising markets and “fearful” investors want minimum participation in falling markets. Upside and downside capture...
The Statistical Oddity of the Dow and 20,000
The Dow finally hit 20,000. I wouldn’t ordinarily put much importance on an arbitrary milestone (see The Dow 20,000...Should We Care?), but the long hover just below this level was extraordinary. This is not to say that markets need behave in any predictable manner. Daily movements of the market tend to behave like random walks, and random walks commonly...
The Dow 20,000...Should We Care?
“Dow 20,000”
Those two words encapsulate three concepts: 1) the Dow is a relevant economic indicator; 2) 20,000 is a noteworthy milestone; 3) special consideration should be given to investing at all-time highs. I’ll examine each in turn...
Viewing Your Client's Portfolio As a Whole
New Frontier Advisors creates and maintains diversified investment solutions for long-term wealth accumulation and preservation. Clients and advisors often raise concerns about individual assets or asset classes held in these portfolios – concerns that are based on looking at the performance, or attempting to assess the potential dangers, of those...
Risk Models, Factors, and Smart Beta
Factor models are hugely important to the finance industry. These risk models provide tremendously useful information to investors and managers by estimating the risk of any portfolio of stocks, and the models have also been extended to other asset classes such as bonds and commodities. The consensus of most current econometric thinking is that a sizable part of...
Initial Reactions to the Brexit: What it means for Probability, Markets, and the English Language
There has been much discussion and speculation of the political and economic consequences of yesterday’s vote for the UK to leave the European Union. Ignoring politics altogether, and anything speculative about economics or financial markets, what can be said based on probability, financial theory, and an...
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