The Making of Dreams

By |2014-09-18T09:54:18-04:00July 31st, 2014|Global Market Update|

Are market changes real? There’s a common understanding that market gains or losses aren’t real gains or losses—they’re only “on paper” until the investor sells the stock, making them “real.” But that’s a cognitive error—a kind of egocentric bias that says that something is only real if it affects me. In fact, price changes are real changes. When IBM goes from $100 to $200 per share, that gain is real. And when it drops to $170, that loss is real. The portfolio’s total value [...]

Burned Out By The List

By |2017-07-17T12:34:16-04:00July 30th, 2014|Global Market Update|

Are you burned out? When the to-do list is filled with urgent items that are underlined and have stars and exclamation points next to them, it’s tempting to throw up our hands and curl into a ball. The to-do list is an inescapable part of modern life. Sometimes we make lists of our lists just to keep them straight. And these lists are usually filled with things that we do to avoid criticism, that we have to do to avoid some negative consequence, but [...]

Fortune Favors Who?

By |2014-09-18T09:55:26-04:00July 29th, 2014|Global Market Update|

Is it safe to go slow? That’s what our instincts tell us. Whether we see a market running away, or an accident on the highway, our first instinct usually is to slow down, look around, and see what else is going on. “Haste makes waste,” goes the saying. But slower isn’t always safer. When something truly new has been introduced, it’s important to take advantage of the changes. Watching and waiting may seem prudent, but often it’s just an excuse for procrastination and indecision. [...]

Building Finance?

By |2014-09-18T09:55:54-04:00July 25th, 2014|Global Market Update|

What is investing like? Many people believe that modern finance began in 1952 when Harry Markowitz published his paper, “Portfolio Selection,” for which he was later awarded the Nobel Prize. His work lays out the mathematical basis for diversification. By combining uncorrelated securities, investors can reduce the riskiness of their portfolios without lowering returns. But Markowitz had a problem. When he sat before his dissertation committee to defend his thesis, they didn’t know how to classify his work. “It’s not economics,” they objected. “It’s [...]

The Very Model of a Tax Deal

By |2014-09-18T09:56:38-04:00July 24th, 2014|Global Market Update|

What is tax inversion? A tax inversion happens when a corporation relocates its headquarters from a high-tax country to a low-tax country. The company doesn’t change where it makes and sells its products, just where the head office sits. It’s a way for companies to reduce their tax bill. The practice has gotten into the news lately because some prominent US firms have acquired foreign firms, and one financial incentive has been reducing their taxes through corporate restructuring. Recent examples include Chiquita bananas moving [...]

Future Shocks?

By |2017-07-17T12:34:16-04:00July 23rd, 2014|Global Market Update|

What’s next for the economy? One of the most important inputs into any investing process is an understanding of where the economy is going. After all, bonds are a contractual claim on future cashflows. If inflation picks up, their value depreciates. Stocks are a residual claim. They benefit from growth. An improving economy should help the stock market, while an increase in inflation hurts bonds. So market analysts spend lots of time and effort trying to understand the future. But predicting the economy is [...]

King Lear: The Importance of Settlement

By |2014-09-18T09:57:32-04:00July 22nd, 2014|Global Market Update|

Who do you trust? When people make an estate plan, they need to decide what to do with their money. One of the most important decisions is choosing a trustee. Because a trustee will control the assets—usually for a long time—making the right choice will have far-reaching consequences. Shakespeare writes about just such a choice in King Lear. At the beginning of the play, Lear states his intention to retire and divide his possessions among his three daughters. The elder two flatter him, while [...]

Finding Financial Fraud

By |2014-09-18T09:57:48-04:00July 21st, 2014|Global Market Update|

How do you smell a rat? Detecting financial fraud can be challenging. We know there are lots of people who want our money. It’s taken us decades, sometimes a lifetime, to build a nest egg. It’s important to safeguard it. But in the real world people lie, cheat, and steal. Financial products are especially prone to distortion and deception, with complex legal provisions and mind-bending mathematical formulas. How can we protect ourselves? First, be suspicious. Ask questions. Double-check the answers. If it’s taken years [...]

Emotional (un)Intelligence

By |2017-07-17T12:34:16-04:00July 18th, 2014|Global Market Update|

Do our emotions work against us? They can with investing. Put off planning and you’ll never start saving. It’s impossible to invest what you don’t have, and most people don’t save nearly enough. Of course the government doesn’t help—there are all sorts of disincentives, from negative short-term real interest rates to marginal income tax rates of almost 50% for many retirees. If the government is just going to take my savings anyway, why bother? Nevertheless, it’s important to get started. Saving gives us options. [...]

Crowd Control

By |2014-09-18T09:58:24-04:00July 17th, 2014|Global Market Update|

Don’t follow the crowd. Not if you want good investment returns. There are times when an investment mania sweeps through the market, lifting anything with a particular niche or name. The internet boom of the late ‘90s was one such time, as was the biotech boom of the late ‘80s, and, recently, the mobile-social-web 2.0 boom, where companies like Twitter or LinkedIn have nosebleed valuations. These levels rarely last. Conversely the mob can turn on sound stocks and depress their valuations just because they [...]