There are three truisms that keep finding new confirmation and that investors should ignore at their own risk: Buy and hold the market, don’t try to beat it. Index fund investors will beat most other investors. Stodgy value stocks usually beat sexy growth stocks. Two new real-world studies covering the U.S.market since 1957 dramatically illustrate these points. In one, the […]
Client Letter – Q2 2006
During the last quarter, investors experienced a lot of volatility in the markets. Although the markets recovered considerably by the end of the quarter, most diversified portfolios are still down slightly for the quarter (but remain positive for the year). Fortunately, the last 2-3 years have had such strong returns (for internationally diversified portfolios) that you may have started to […]
How to avoid seven big cognitive biases
Human beings seem to come ready-equipped with cognitive biases related to their perceptual equipment and adaptations to the world throughout evolution. Investors who want to do better in the markets and feel better about what they are doing must learn to recognize these states of mind. Here is a summary of the major biases covered in previous articles in this […]
Inflation creates a ‘money illusion’
Inflation is one of the hardest concepts for an investor to internalize. We tend to think naturally in nominal prices—that is, the price on the sales sticker—rather than the inflation adjusted price. For instance, which “feels” like the cheaper one-pound loaf of white bread—the one that cost 51 cents in October 1980, or the one that cost $1.04 in October […]
Client Letter – Q1 2006
I have some very important news to share. I recently purchased a property in the Town Center district of Macungie (just south of Allentown), and I am almost finished renovating this two-story Colonial home (originally built in 1936). I am planning to move Keystone Financial Planning to its “new home” on April 24th, assuming that everything goes as planned. I […]
Best mutual funds operated cheaply and invest passively
Expenses and investment style matter to investors looking for the highest gains on stock mutual funds, according to a recent survey by Investment News. Dimensional Fund Advisors (DFA) of Santa Monica, California, turned in the best overall stock mutual fund performance among its peer group of the largest 25 mutual fund companies, the trade publication reported. Investment News weighted the returns of individual […]
Client Letter – Q4 2005
Happy New Year! We had a pretty good year in 2005, with regards to overall portfolio returns, which were more in line with historical averages than the past two years. Unfortunately, for the typical U.S. investor who is overweighted in U.S. large stocks (as measured by the S&P 500 Index below), 2005 was not a very good year. Also, bonds […]
Honey, I’m home: Inflation makes its comeback
If you’ve been to a gas pump lately or paid your heating bill, you have a pretty good sense that energy costs more today than it did a year ago. A trip to the grocery story will add to your growing store of anecdotal evidence that prices are rising appreciably. Recently the statistics confirmed your worries: the inflation rate has […]
It’s time to make peace with capital gains tax
The average investor hates paying taxes—who doesn’t? And yet, long-term investors get some great tax breaks on both their profits and losses. The tax breaks make investing a better after-tax proposition than working for paid income. And at this time of year, investors should be looking at their capital gains totals because they may want to make some moves before […]
Familiarity does not breed investing knowledge
Shortly after Hurricane Katrina devastated New Orleans, insurers reported higher interest from clients in other parts of the country in homeowner’s coverage for catastrophes like floods and earthquakes. In early 2003, following three years of big losses in the U.S. stock market and just as the market was about to take off on a renewed bull run, investors were dumping […]
