Determining the characteristics of superior investing is not a new idea. We hazard a guess that since the first dollar went into the public markets, individuals have spent considerable effort determining short cuts and tricks to identify the items that drive outperformance. Within the modern investment world, both academic and industry attention has been focused on finding those measurable items across large swaths of the market that can help in predicting or explaining both return and the risk present to achieve superior returns.
“Equity investing is about what could happen, not what has” – Michael Goldstein
We have highlighted on many occasions the three facets of investing that most impact performance: market participation, asset allocation, and cost. We can further segment costs into three areas:
Direct costs of management fees and investment vehicle fees that we attempt to contain through the use of low cost ETF’s.
The general and consistent underperformance of active stock selection techniques that we eliminate through the use of index-based investing.
The last, and potentially most impactful, cost is making the wrong decisions at the wrong time to enter or exit the market.
“A person saving for retirement who chooses low-cost investments could have a standard of living throughout retirement more than 20% higher than that of a comparable investor in high-cost investments.”
– William Sharpe
Mutual funds that rely on stock-based investing where once a great idea. However, this investment vehicle’s time has come and gone. Their structure allowed the small investor to invest in a diverse portfolio of companies that was overseen by dedicated professionals. With time, however, things changed and markets evolved. Though mutual funds continue to be used by the public, they no
“And the wild things roared their terrible roars and gnashed their terrible teeth and rolled their terrible eyes and showed their terrible claws.”
– Where the Wild Things Are
Inflation, and our fear of it, is a highly debated topic these days. It is worthy of attention given the role it plays in our economy. With our economy’s dependency on credit, the economic system needs to be concerned about the direction of interest rates and inflation.
Milton Friedman, a great economist, once said that “inflation is always and everywhere a monetary phenomenon.” The more money
“The boiling frog story is a wide spread anecdote describing a frog slowly being boiled alive. The premise is that if a frog is placed in boiling water, it will jump out, but if it is placed in cold water that is slowly heated, it will not perceive the danger and will be cooked to death. The story is often used as a metaphor for the inability or unwillingness of people to react to significant changes that occur gradually.” – Wikipedia
“Sell in May and go away” is a phrase heard by many as a common belief that the