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Home 2017-07-19T13:34:18+00:00

A Durable Future (Part 2)

By | July 5th, 2017|

Do durable assets create durable returns? Jason and the Golden Fleece, c. 340 BCE. Source: Wikipedia Gold and silver are often touted as “alternative” investments. That is, their returns aren’t highly correlated with other, more typical, investments. So they have the potential to diversify an investment portfolio while providing return in their own right. Gold and silver served as a monetary standard for millennia. Are [...]

A Durable Future (Part 1)

By | July 3rd, 2017|

Do durable assets make sense as investments? Gold Roman Aureus. Source: Wikipedia Some things have been around a long time: silver and gold were currencies and a store of value for millennia; fine jewelry has always been a sign of status; and housing and land are always in demand—everyone has to live and world somewhere. But do they make sense in an investment portfolio? A [...]

The Future of Factors

By | June 30th, 2017|

What is factor investing?     Photo: Kanenori: Source: Pixabay Investment factors are a way to understand why stocks or bonds perform the way they do. Investments are driven by risks of various kinds. Bond returns are driven by duration, credit, prepayments, the yield curve, and – for global portfolios – currency risk. Stock returns are affected by their size, industry, quality, and country. Real [...]

Little Problems, Big Problems

By | June 29th, 2017|

What makes small stocks so volatile? “Breezing Up” By Winslow Homer. Source: National Gallery of Art Small stocks are generally much more volatile than big stocks. They can jump or drop by up to 20% in a day, while it’s big news if a giant firm like Microsoft or Exxon moves 3%. And their aggregate indices are more volatile as well. Over the past decade, [...]

Skewed for Success (Part 3)

By | June 28th, 2017|

Small is beautiful. Illustration: Erin O’Leary Brown. Source: Web-esl.com Positive skewness makes it hard to beat large cap stock indices, especially in bull markets. You have to hitch your wagon to a rising star and keep going—ignoring all those nasty risk-management nannies that say diversify, diversify. The growth darlings seem to defy gravity, and it appears that there is almost nothing that can stop them. [...]

Skewed for Success (Part 2)

By | June 27th, 2017|

Does skewness affect everything? Illustration: John Chase (1932). Source: Plymouth State University Large cap stocks are skewed to the upside, over the long run. That is, the bulk of their returns are provided by a few successful companies. This makes intuitive sense: these are the largest companies in the world, and their leadership is constantly shifting. But when a small company makes it big, it [...]

Skewed for Success (Part 1)

By | June 26th, 2017|

Why is it so hard to beat the market? Photo: Skirenn i Trysil. Source: Wikipedia I’m pretty competitive. I grew up ski racing, and kept racing after college. I like the discipline and personal excellence that competition demands. So it’s frustrating when I see the market move up more rapidly than my portfolio. I get buyer’s remorse: why didn’t I just buy the index and [...]

Bigger or Beggar?

By | June 23rd, 2017|

Since they can have so many internal issues, why do we have big companies at all? Pabst Brewery, Milwaukee, Wisconsin. Source: American Gardening It’s not a trivial question. In theory, we could all be independent contractors, offering our labor in a great big market, with no bureaucracy. But we would have to devote a lot of time to finding markets for our work, negotiating prices, [...]

Online Monopoly?

By | June 22nd, 2017|

Is Amazon a monopoly? Source: Amazon A monopoly exists when there is effectively only one supplier of a good or service. They can set the price, and anyone who wants what they’re selling has to pay it. There’s really no alternative. This was the case with Standard Oil in the late 19th century. They were an innovative oil refinery that bought out competitors in the [...]