| Why diversification is difficult |
| 04/21/25 | | Indexing |
"Diversification isn't about return, it's about risk. It's about smoothing out the financial ride over your lifetime. You know this already. That's the easy part. The hard part is sticking with it even as you underperform in most years. As Brian Portnoy brilliantly stated, 'Diversification means always having to say you're sorry.' And it's true. Most of the time you will feel sorry that you didn't do as well as your best asset class. You'll feel sorry that one (or more) of your positions lost money. And so forth. But this is to be expected. This is what we pay for the benefits of diversification. This is the price of peace."
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| School is in |
| 04/21/25 | | Indexing |
"These policy shifts are a reminder that, even when everyone seems to agree, things can change. That's why I believe it's best never to go too far out on a limb with investment choices. Nothing is guaranteed."
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| A quantum of confusion |
| 04/21/25 | | Markets |
"My view is that the quantum confusion of 2024 is a symptom of the general degradation of U.S. stock market quality, part of the 'Koreafication' process where the market becomes more retail dominated. I don't want to overstate the quantitative significance of this trend, because as shown in Figure 2, it's mostly confined to small-cap stocks. But it appears that bizarre pricing previously confined to pink sheet stocks is now visible in listed smaller names."
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| Why a 4.4% yield might barely deliver |
| 04/21/25 | | Bonds |
"At first glance, a 4.4% bond yield seems attractive, especially after years of near-zero interest rates. But hidden beneath the surface, taxes and inflation are silently eroding your returns. By the time they take their cut, that 'safe' yield could leave you with nothing- or worse, less than you started with."
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| Buy the bottomless pit |
| 04/13/25 | | Markets |
"A basic property of optimal decision-making is that you should act more conservatively when you have less accurate information. As of April 2025, we're confronted with a situation where we have very little historical precedent and the outcomes we observe are extremely volatile. As a logical consequence, we should be cautious in responding to events."
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| Housel on the decline |
| 04/13/25 | | Behaviour |
"Napoleon's definition of a military genius was quote, the man who can do the average thing when everyone else around him is losing his mind. I'm gonna repeat that because it is such a ridiculously good quote. A military genius is the man who can do the average thing when everyone else around him is losing his mind. It is the exact same in investing to be a good investor over time. You don't need to make a lot of genius decisions. You just need to be merely average when everyone else is making bad decisions, as many people are."
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| Here we go |
| 04/13/25 | | Markets |
"But whatever you are focused on, and whichever region you choose to invest in, our best advice is to chill. Don't panic. Don't overreact. Don't pretend like you know where things are immediately going. Don't think that you need to. You don't."
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| When does the market recover? |
| 04/13/25 | | Markets |
"it's the perfect time to examine how long U.S. stocks typically take to recover from such a decline. Knowing this information can help you set the right expectations about what might happen next in the stock market. And, with the right expectations, it's much easier to stay invested for the long term."
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| Don't push it |
| 04/13/25 | | Behaviour |
"We can control how much risk we take, the investment costs we incur, and our own buying and selling. But we can't control the behavior of other investors, as reflected in ever-fluctuating stock and bond prices."
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| War on the world |
| 04/04/25 | | World |
"Dr. Rob Shapiro talks about Trump's trade war on the world." [video]
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| Back to the bronze age |
| 04/04/25 | | World |
"Advanced economies, even those, such as Germany, with large trade surpluses, have seen a steadily declining factory share. Advanced economies do better focusing on higher-value jobs such as AI, and on the requisite education for their workers, not on repressing their strengths in a futile effort to return to a proto-Bronze Age. Moreover, manufacturers are customers for a large share of US imports, thus the Trump tariffs punish the sectors he imagines he is helping."
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| US value trading at a discount |
| 04/04/25 | | Value Investing |
"While the future is unknowable, the best investors can do is to put the odds in their favor. And current valuations suggest the likelihood that value stocks will outperform over the long term."
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| The acquirer |
| 04/04/25 | | Management |
"The story of how Hiroshi Nojima turned a sleepy family business into one of the top performers on the Tokyo Stock Exchange"
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| Set for life? |
| 04/04/25 | | Retirement |
"Under what circumstances could you be 'set for life' with $2M at age 23, and under which circumstances would you not be. Let's dig in."
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| Courageously losing your money |
| 03/30/25 | | Markets |
"I explain why concentration is bad and diversification is good. I start by assessing the arguments in favor of concentrated portfolios, including the deluded belief that concentration brings both high return and low risk. I review the extensive record of client wealth destroyed by overconfident concentrators, and then discuss the conceptual errors underlying the enduring appeal of concentration."
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| Trend following is harder |
| 03/30/25 | | Markets |
"Trend following is not for the faint of heart. While it can reduce the overall volatility of your portfolio during extended declines, it can also create anxiety and stress with its constant false positives, missed recoveries, and delayed outperformance. Whether such a strategy fits into your portfolio and lifestyle is up to you."
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| Just inside the zone |
| 03/30/25 | | Value Investing |
"In our opinion, the best time to buy a cyclical stock is when the company's profits are in decline and its industry is in recession. In effect, buy during the bust, not the boom. Of course, this is much easier said than done."
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| Mad King Trump |
| 03/30/25 | | World |
"They expected a replay of the laissez-faire policies of Trump's first term - a lot of bombastic rhetoric but few real policy changes and a lot of small, quiet deregulatory moves. Instead, they got a very different Trump this time - one who's intent on breaking the American economy in the service of ideology."
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| Waymos crash less than humans |
| 03/30/25 | | Tech |
"Based on insurance industry records, Waymo and Swiss Re estimate that human drivers in San Francisco and Phoenix would generate about 26 successful bodily injury claims over 25 million miles of driving. So even if both of the pending claims against Waymo succeed, two injuries represent a more than 90 percent reduction in successful injury claims relative to typical human drivers."
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| Paying your tuition |
| 03/30/25 | | Indexing |
"The one thing about the stock market that's predictable is its unpredictability. New crises frequently come along, and each is different enough to give investors renewed anxiety. In dealing with these crises, what's most important? In my opinion, it's perspective. Good investors have a sense of market history that can help them navigate crises better than other investors."
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| Rebuffed: options-based strategies |
| 03/24/25 | | Funds |
"By and large, options-based strategies have not been effective tools to achieve better risk/return outcomes. And this is unlikely some fluke of the past five years. Economic theory would argue investors should have expected this result, and that they should going forward, too."
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| How bubbles grow |
| 03/24/25 | | Markets |
"As hedge fund manager Cliff Asness has commented about short sale constraints, 'Our problem wasn't that we couldn't short NASDAQ in 1999, our problem was that we could and did.'"
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| Index three ways |
| 03/24/25 | | Indexing |
"What percentages make sense? I've long relied on research which finds that investors can pick up most of the diversification benefit of international stocks with an allocation as small as 20%. Thus, my preferred allocation to international stocks is just 20%. It's a matter of perspective, though, and there isn't one right answer." [US Based]
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| Fairfax Week 2025 |
| 03/19/25 | | Value Investing |
"Check out this year's Canadian carnival for capitalists."
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| Never root for a recession |
| 03/15/25 | | Retirement |
"Ultimately, recessions aren't opportunities to celebrate, they're challenges to overcome. And while such events can provide unique investment opportunities, the broader economic damage they typically cause outweighs such benefits. Therefore, instead of hoping for a market crash, make sure you are prepared for one."
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| The Squid Game market |
| 03/15/25 | | Behaviour |
"I view Korean retail investors today as similar to Robinhood investors in 2021. While quantitatively insignificant relative to the whole stock market, in narrow areas they are a danger to themselves and possibly to others. And even if they don't impact prices, they might provide useful contrarian signals."
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| The index inclusion effect is dead |
| 03/15/25 | | Markets |
"The index inclusion effect is being arbitraged away by the companies themselves and all that is left is for traders to speculate on what kind of announcements the index provider could make, which is much more uncertain and a far cry from the original arbitrage opportunity."
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| The high-yield spread signal |
| 03/10/25 | | Markets |
"In previous research, we have cited 6.0% on the high-yield spread as the break point that defines a crisis. That level might now be slightly lower, given the ratings shift in the market since 2015. We estimate that the adjusted level would be 5.6%. But students of the high-yield spread will note that when the high-yield spread reaches that level, it usually does not hover there but moves right through on its way much higher."
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| Why analyst forecasts are optimistic |
| 03/10/25 | | Markets |
"The result of this common practice is that the terminal value typically accounts for about 75% of the total fair value. And that share is remarkably stable, indicating that analysts really don't change their approach to modelling over time."
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| UBS Yearbook 2025 |
| 03/10/25 | | World |
"With rising market concentration, the latest Global Investment Returns Yearbook reappraises the importance of diversification across asset classes to reduce portfolio risk."
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| Valuations reflect exceptionalism |
| 03/10/25 | | World |
"US exceptionalism provided the same explanation for the outperformance of US stocks in the 1990s. However, that regime changed. From 2000-2007, while the S&P 500 Index returned just 1.9% per annum (underperforming riskless one-month Treasury bills by 1.3% per annum), the MSCI EAFE Index returned 5.6% per annum, and the MSCI Emerging Markets Index returned 15.3% per annum."
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| The Globe's Dividend All-Stars 2025 |
| 03/02/25 | | Stingy Investing |
"Dividend stocks are loved by Canadians because they have a pleasant habit of paying tax-advantaged income that tends to grow over time with the possibility of capital gains along the way. But the Canadian stock market is stuffed full of dividend stocks and it can be hard to find the best it has to offer. That's why we're pleased to present the Globe's Dividend All-Stars for 2025. It provides a wealth of data and analysis on the largest 200 dividend-paying stocks on the Toronto Stock Exchange and includes a star rating for each one. The top 20 stocks get a full five out of five stars and make it into the team of Dividend All-Stars. We're happy to say that last year's team outperformed with gains of 29.4 per cent, including reinvested dividends."
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| Massive spending: a red flag |
| 03/01/25 | | Markets |
"The ideal measure of forward-looking returns is not past capex, but future expected capex. As shown in Lamont (2000), if your goal is to predict aggregate U.S. stock returns in the coming year, capex plans work better than trailing capex. Thus as of February 2025, we expect low stock returns over the next 12 months. You could say that stocks are 'overpriced' or you could say they are 'fairly priced to deliver low returns,' but either way the forecast is for below-average returns."
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| Four thoughts |
| 03/01/25 | | Behaviour |
"The unfortunate reality is, we'll never stop worrying. But perhaps we can at least deal with our big fears, so our stress level isn't quite so high, and sweat less over the small stuff. No, it doesn't much matter whether we rebalance every year or every two years, or whether we have 75% in stocks rather than 70%, or whether our credit card pays 2% cash back on restaurant spending instead of 1.5%."
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| Hidden tail risks beyond the bell curve |
| 03/01/25 | | Markets |
"Measures like skewness and kurtosis can be helpful supplements to average return and volatility when thinking about the role that diversifying assets can play in a portfolio. Delving into skewness and kurtosis enables investors to uncover these nuances and build portfolios that are more resilient to unexpected market swings."
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| Bubbleitis |
| 02/23/25 | | Markets |
"Well, let's see. Stock valuations are insanely expensive. Home prices are through the roof. ... Credit spreads are tight as a drum. And don't even get me started about zero-day stock options and leveraged ETFs! Oh, and with all this going on, the Fed says monetary policy is restrictive. You can't make this stuff up, Doc!"
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| Why higher egg prices are painful |
| 02/23/25 | | Behaviour |
"Since 1947, the price of eggs has grown at an annual rate of 2.4%, more than one percent lower than the overall annual inflation rate of 3.5%. But over the last five years egg prices have gone up an en extraordinary 15.5% versus the overall inflation rate of 4.1%. Egg prices have more or less doubled in the past year."
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| Trend-following still works |
| 02/23/25 | | Momentum Investing |
"These core statistics hold up out-of-sample (2005"2024), maintaining strong returns despite a modest decline in average trade profitability following the original publication."
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| Never enough |
| 02/15/25 | | Behaviour |
"Accepting that we have enough and done enough might seem like worthy goals, a serene acceptance that's possible for those at peace with themselves and the world around them. Indeed, for many, “retirement” and “enough” seem to be pretty much synonymous, a declaration that the pursuit of “more” is over. But that isn't where my head is. Even now, I'm not sure I'll ever declare “I'm done,” which is weird, because I sure don't have the time to do much about it."
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| Turn-of-the-month strategies |
| 02/15/25 | | Markets |
"As with many published anomalies, the classical Turn-of-the-Month (TOM) effect, originally defined as the period from the last trading day of the month to three days after, appears to have largely disappeared in the past decade."
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| If you get a takeover offer, fight |
| 02/15/25 | | Markets |
"In short, if you are a company that is approached with a takeover bid, rule number one is to fight for a better deal. The chance of the bidder walking away is very low indeed and if the deal is modified, there is an 80% chance you get more money for the business."
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| Still a lot of money |
| 02/15/25 | | Wealth |
"Whether we are looking at changes in prices or overall wealth, $1 million isn't what it used to be. Today, you'd need anywhere from $2 million to $4 million to have the same buying power as millionaires around the turn of the century."
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| The unintended consequences of rebalancing |
| 02/15/25 | | Markets |
"Institutional investors engage in trillions of dollars of regular portfolio rebalancing, often based on calendar schedules or deviations from allocation targets. We document that such rebalancing has a market impact and generates predictable price patterns. When stocks are overweight, funds sell stocks and buy bonds, leading to a decrease in equity returns of 17 basis points over the next day. Our results are robust to controls for momentum, reversals, and macroeconomic information. Importantly, we estimate that current rebalancing practices cost investors about $16 billion annually-or $200 per U.S. household. Moreover, the predictability of these trades enables certain market participants to profit by front-running the orders of large institutional funds."
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| Don't freak out |
| 02/10/25 | | Behaviour |
"If social media sentiment translated into market moves we would have seen a 1987-like crash on Monday. You had crypto prices crashing, equity futures falling, currencies moving and tons of speculation on what it all means. I don't know what it all means. No one does because we have no idea how long these tariffs will last or how punitive they will be. Investing would be a lot easier if there were no uncertainty."
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| Bubbles might be likely to repeat today |
| 02/10/25 | | Markets |
"Bubbles do sometimes repeat within the span of a few years. Historically, the Mississippi Bubble in France ended around 1720 just as the South Sea Bubble appeared in Britain. And in the past few decades we've often see blatant overpricing that appears, gets corrected, and then promptly re-appears. In the lab, we can observe bubbles that occur in repeated experiments run with the same participants. All these facts are consistent with theoretical models that can produce recurring waves of bubbles."
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| Taking it personally |
| 02/10/25 | | Behaviour |
"Today's discussions of risk are more nuanced, reflecting an awareness that the danger from misfortune is matched by the damage that can be done by our own behavior. Consider the typical stock-market cycle. Thanks to research by behavioral-finance experts, we now have a pretty good idea of how investors' thinking changes along with the market."
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| The hidden costs of volatility drag |
| 02/10/25 | | Markets |
"Leveraged concentrated or non-diversified ETFs can be useful for short-term trading, but they are generally ill-suited for long-term investing. Their underperformance is primarily due to volatility drag - a natural result of compounding returns in volatile markets. This issue is amplified when leveraging highly volatile assets, as the drag increases disproportionately with higher leverage."
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| AI and the Mag 7 |
| 02/10/25 | | Markets |
"a lot of investors have done very poorly betting against the scrappy innovators of Silicon Valley. But now that they are mega-cap behemoths run by mega-billionaires trying to outspend each other, maybe the Mag 7 will be outmaneuvered by their true heirs, another group of as-yet-unknown young innovators who are toiling away all over the world in garages far less expensive than the $1,700/square foot you have to pay to live in the cushy confines of Silicon Valley."
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| When are tariffs good? |
| 02/10/25 | | World |
"Tariffs help domestic manufacturers by protecting them from foreign competition, but they hurt them by driving up the cost of their imported components. This is one of the two big problems with tariffs - the other one being that they drive up consumer prices.But does this mean tariffs are always bad?"
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| U.S. floats idea of defaulting on treasuries |
| 02/10/25 | | Bonds |
"imagine thinking that by downloading a ton of data and having a few days to analyze it you could make the determination that a significant amount of the U.S. national debt wasn't real and didn't have to be paid."
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| Tariffs on Canada and Mexico are bad news |
| 02/02/25 | | World |
"it's certainly America's dumbest trade war in living memory. There's really no upside for the country here - it's not going to help domestic manufacturing, it's not going to make Americans better off, it's not going to materially affect the fentanyl problem, and on top of all the economic risks it's going to piss off U.S. allies and make America look terrible. I still hold out hope that the tariffs will be quickly revoked after some sort of symbolic concessions. But if not, then we'll know that we've left the era where Trump just blustered and preened, and entered a more frightening era where he starts lashing out and breaking things."
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| Trump gone soft |
| 02/02/25 | | World |
"Trump is imposing destructive (and self-destructive) tariffs on an ally that has done nothing wrong, while handling a rival and potential enemy with kid gloves. It is hard to believe that sheer stupidity - although there's plenty of that going on - can explain it."
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| The fartcoin stage of the market |
| 02/01/25 | | Markets |
"I can't believe I'm saying this, but the current meme coin mania makes the bubble of 2021 seem like a relatively sober exercise in rational valuation. At least back then, Roaring Kitty talked about earnings, and crypto enthusiasts rhapsodized about use cases. They might have been delusional, but at least they were delusional about the right things."
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| Shameless robber barons |
| 02/01/25 | | World |
"If swindling pays, then it will not stop. The definition of the good society is one in which virtue pays. I can now add a slight variation to this; you cannot have a good society unless virtue pays."
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| International stocks |
| 02/01/25 | | World |
"This is why some have argued that U.S. stocks are experiencing DotCom Bubble 2.0. The euphoria surrounding AI today parallels that of internet companies in the late 1990s. While I see the similarities, the difference is that the earnings are much bigger this time."
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| The inflation gamble |
| 02/01/25 | | Behaviour |
"we find that high inflation lowers risk aversion, strengthens skewness preference, and increases demand for investments that resemble lotteries. Due to increased gambling demand, lottery-type stocks become more overpriced and earn lower returns in the future. This negative relation is stronger for lottery-type stocks that have greater sensitivity to inflation and are harder to arbitrage."
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| There is no fear priced into anything |
| 01/27/25 | | Markets |
"Valuations tell the tale. The current market's price-earnings ratio is top decile for last few decades. Credit-spreads are near record tights. There is no fear priced into anything at the present moment."
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| Tariffs will not make america great |
| 01/27/25 | | Taxes |
"Unfortunately cutting taxes and replacing them with higher tariffs simply will not work. The only fiscally sustainable way to reduce the tax burden on working Americans is through spending cuts. Hiking tariffs in order to slash other taxes will do nothing to improve the plight of ordinary Americans and will almost certainly exacerbate their problems. Tariffs did not make America great and they will not make America great again."
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| Explaining international valuations |
| 01/27/25 | | World |
"Were a larger percentage of the valuation gap explained by fundamentals, we'd expect such a gap to persist. But given that the valuation gap is primarily explained simply by the location of listing, we think there's a strong reason to expect a convergence - and therefore to favor international over US-listed stocks, despite their terrible relative performance over the past decade."
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| Taking center stage |
| 01/27/25 | | Behaviour |
"It's the one asset we're all born with, and it pretty much defines our financial life. I'm talking here about our human capital, our ability to pull in a paycheck. That paycheck - or the lack thereof - drives our ability to save, service debt and take investment risk. It also dictates our insurance needs and how much emergency money we should hold. Put it all together, and our human capital should arguably determine how we manage our money over our lifetime."
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| A recession is coming |
| 01/27/25 | | Markets |
"The 1960-61 and 1990-91 recessions are missed (although a 10yr-2yr disinversion might catch the latter), while a recession is predicted for April 2025. Of course, if the inversion failed to predict the 2024 recession, is there reason to believe the disinversion will predict well?"
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| Valuation indicators to ignore |
| 01/19/25 | | Markets |
"Here I review four commonly used measures of market overvaluation that you can safely ignore. All four measures say the U.S. stock market is overvalued today. The market might well be overvalued today, but these measures are not good reasons to say so."
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| Wealth or inflation |
| 01/19/25 | | Value Investing |
"Assuming financial assets remain inflated, we expect more companies will discover the rewards associated with higher-margin premium offerings. As businesses shift their mix to accommodate the higher end, we believe wealthy consumers will increasingly become the economy's price setters. Moreover, additional gains in household financial assets could lead to further increases in home prices and shelter inflation. If the bond market didn't have enough to worry about, we believe the days of booming asset prices coexisting with tame consumer prices are long gone. Asset inflation is leaking."
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| Problems with passive investing |
| 01/19/25 | | Indexing |
"Passive investing has absolutely revolutionized the investment landscape for individual investors. Not only has it dramatically lowered the costs of asset ownership, but it has done so while delivering strong returns. What began as a radical idea to buy the overall market without worrying about picking the winners now accounts for 57% of all equity fund assets and over $13 trillion."
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| 2024 in factors |
| 01/19/25 | | Markets |
"Looking at some of the biggest drivers of returns, the global equity factor had higher returns and lower volatility versus the historical average. Similarly, the large size factor, high-investment (AI-driven), and high turnover (lots of trading activity) all did quite well for style factors. Momentum and quality did well but were largely in line with history while value lagged."
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| Trudeau was a poor steward |
| 01/13/25 | | Government |
"The fact is, no one seems to really know what's behind Canada's low productivity growth. Observers agree that low rates of corporate investment, including investment in R&D, are the problem, but no one seems to have a good explanation for why companies aren't investing. And no one seems to know whether Canada's especially bad performance since the pandemic is just an exacerbation of the existing negative trends, or whether some new problem has cropped up in addition."
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| Seven pillars of market bubbles |
| 01/13/25 | | Behaviour |
"Charles Mackay wrote the lurid bestseller Extraordinary Popular Delusions and the Madness of Crowds, which discussed many historical bubbles. Despite publishing his book in 1841 decrying bubbles, in 1845 Mackay himself was caught up in the British railway bubble and advocated buying shares."
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| Spending it |
| 01/13/25 | | Retirement |
"Retirees can pick from a host of withdrawal strategies, including the five popular choices listed below. You'd likely fare just fine with any of the five strategies - but that doesn't mean you shouldn't pick carefully."
|
| Stock market history, illuminated |
| 01/13/25 | | Markets |
"What particularly interests us is that - until the last decade - European and US stock markets behaved very similarly over many, many years. Given that many constituents in both markets are global businesses selling many similar products and services multi‐nationally to similar regions, countries and customers, this made sense."
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| The TSX's gains over almost 69 years |
| 01/13/25 | | Stingy Investing |
"When pondering the future, I like to set my expectations by looking to the past, because it offers clues to the rewards, and risks, associated with investing in stocks."
|
| Looking back from 2035 |
| 01/05/25 | | Fun |
"Well, sitting here in the year 2035 and looking back at our endowment's returns for the last decade is not a pleasant task. World markets have been subpar and our performance relative to world markets has been simply terrible. Hard times are never pleasant."
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| Simple formulaic investing |
| 01/05/25 | | Value Investing |
"Schwartz and Hanauer demonstrated that simple, easy-to-implement, systematic formula-based investing can still generate market outperformance, providing investors with efficient exposure to well-documented factor premiums."
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| Why we struggle |
| 01/05/25 | | Behaviour |
"Why do some financial situations scare us, while others leave us unperturbed? Why do we spend time and money in ways we later regret? Why do we find our bad habits so difficult to change? Why do we admire some folks, while being jealous of others?"
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| Self defense |
| 01/05/25 | | Behaviour |
"Using the 4% rule as a benchmark for a reasonable portfolio spending rate, Blanchett found that retirees spend, on average, just 2.1%. The upshot: They could afford to double their spending without materially jeopardizing their plans."
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