Is Modern Investing Still in the Dark Ages?
I began my investment career in 1974 when investing was still in the dark ages. There was no online trading. All orders were placed by phone with a stockbroker (or trading desk, for institutions). Commissions were fixed and high, and investors traded too much, as seen here. As per the disposition effect, investors sold their […]
Why Investors Underperform and How Not To
Even with top performing mutual funds, investors can be their own worst enemies and find ways to underperform. Fidelity’s Magellan had an average annual return of 29% and was the best-performing mutual fund from 1977 to 1990. During that same period, the average investor in that fund lost 9% according to Fidelity. Ken Heebner’s CGM […]
How to Select and Combine Trading Approaches
The most common way people invest is with strategic asset allocations to stocks and bonds, with perhaps a small allocation to alternatives. This approach passes for prudent diversification but is sub-optimal nonetheless. It is what Warren Buffett had in mind when he said diversification makes little sense if you know what you are doing. You […]
Trend Following Done Right
My last article, “The Trend Is Your Best Friend – Here Is Why”, showed how investors can benefit from applying trend following to all investment assets. This article will explain the best ways to do that. A common but flawed approach is to add a modest amount of trend following to one’s portfolio using managed […]
The Trend is Your Best Friend – Here Is Why
Most investors believe they should buy and hold stocks and bonds. They might add modest allocations to alternatives such as foreign stocks, managed futures, gold, or factor tilts. Only a few investors refuse to follow the crowd and go beyond their familiarity biases. Instead, we try to use “First Principles.” This is the ability to […]
An Attractive Alternative to Bitcoin
Bitcoin (BTC) is becoming more and more mainstream. Over 50 million in the U.S. now own it. After a long wait for regulatory approval, there are ten U.S. spot Bitcoin ETFs. After one month of trading, they have attracted over $4 billion in new investment capital. Seventy-seven percent of advisors say they will buy Bitcoin […]
How Bonds Can Outperform Stocks Long Term
I have never been a big fan of the bond market. From 1900 through 2022, the annualized real return of long-term U.S. government bonds was 1.7%, while the return of U.S. stocks was 6.4% [1]. Having bonds as a large part of one’s portfolio would have created a substantial drag on long-term performance and substantially […]
Tail Risk Mitigation
Tail risk is the probability that an asset performs far below or far above its average past performance. Tail risk is an investor’s worst enemy. Extreme market moves can lead to changes in our risk preferences and cause us to act based on emotion rather than reason. Investors tend to buy when they would be […]
Bitcoin Becomes More Investable
In my last blog post, “A Sensible Approach to Bitcoin”, I reviewed the pros and cons of bitcoin. For reasons given in that article, I regard bitcoin as a high risk, high potential reward trading vehicle rather than as a permanent investment. Academic research here and here supports trading bitcoin based on its strong price momentum. Source: Yang (2019), “Behavioral […]
A Sensible Approach to Bitcoin
Last year when bitcoin had its fourth drawdown of 80% in the past ten years, I thought It might be a good time to reenter that market. Having traded digital assets in 2017 and 2018, I was familiar with the reasons for owning bitcoin. I won’t reiterate them here. You can find information on bitcoin, […]