If your portfolio loses 1% today and gains 1% tomorrow, are you back to even? Not quite, but you’re awfully close. You actually need a gain of 1.01% to get back to where you started. While that difference seems trivial, it gets magnified when the ups and down of your portfolio get larger. A loss [...]
Q: The Global Couch Potato has one-third of the equity allocation in Canadian stocks, but Canada makes up only about 4% of the world markets. Aren’t you guilty of home country bias? – Jeremy D. I’m actually pleased that I’ve received this question several times in the last few months. Not long ago, it wasn’t [...]
Earlier this week I described the market timing strategy outlined in Mebane Faber’s book The Ivy Portfolio. I chose not to editorialize too much, preferring instead to simply explain the strategy to readers who may have been unfamiliar with it. So let me make my opinion on this clear now: I do not recommend this [...]
In recent years, the so-called Yale Model has been extremely popular with investors. The model is an attempt to mimic the investment strategy used by Ivy League endowment funds, which have an outstanding track record of beating the market indexes. David Swensen, the superstar manager of the Yale endowment fund, delivered returns of 10.1% annually [...]
When we consider the risk in investing, we’re often thinking about volatility: that is, the sometimes dramatic movements in equity prices. But as Alan Fustey explains in his book, Risk, Financial Markets & You, there’s a big problem with equating volatility with risk. One of the biggest shortcomings in financial models is the reliance on standard [...]
If you’ve researched the theoretical foundations of index investing, you’ve no doubt come across Modern Portfolio Theory and the Efficient Markets Hypothesis. And if you read the commentaries of active money managers and the financial media, you’ve probably seen countless articles that dismiss both as obsolete. Modern Portfolio Theory is declared dead after every market [...]
I once went to an investment seminar at my local library. It was attended by a handful of folks who had little or no experience with investing and were looking for someone to put them on the right track. The guy leading the session held up a copy of the Globe and Mail business section [...]
As loyal readers will know, I’ve been critical of the zeal with which some investors approach dividends. Based on countless blog posts, emails and conversations, I feel that many investors’ preference for dividends is often irrational. And that’s not simply my opinion—the dividend puzzle has been a popular topic in financial theory for decades. There [...]
Tracking error—the difference between the performance of a fund and that of its benchmark—is the best way to measure an index fund’s true cost. While many investors focus on MERs, a low fee means little if an ETF lags its index by an additional 30 or 40 basis points. A couple of weeks ago, I [...]
I haven’t watched Saturday Night Live for a long time, but I’ve been thinking about a classic line from the show’s Weekend Update sketch. Back in 1988, during the Winter Olympics, Dennis Miller opened his sportscast like this: “In Calgary tonight, Katarina Witt won the gold medal in figure skating, prompting Yankees owner George Steinbrenner [...]
Critics of index investing often argue that the strategy is not sensitive to valuation. They feel that a simple strategy of buy, hold and rebalance is folly: there are times when the market is cheap or overvalued, and it makes sense to shift toward or away from equities accordingly. It’s hard to argue with that [...]
