Unlike bond prices, which tend to go down when yields go up, stock prices might rise or fall with changes in interest rates. Should stock investors worry about changes in interest rates? Research shows that, like stock prices, changes in interest rates and bond prices are largely unpredictable. It follows that an investment strategy based upon attempting to exploit these sorts of changes isn't likely to be a fruitful endeavor. Despite the unpredictable nature of interest rate changes, … [Read more...] about When Rates Go Up, Do Stocks Go Down?
Doubt is not a pleasant condition, but certainty is an absurd one. —Voltaire "The market hates uncertainty" has been a common enough saying in recent years, but how logical is it? There are many different aspects to uncertainty, some that can be measured and some that cannot. Uncertainty is an unchangeable condition of existence. As individuals, we can feel more or less uncertain, but that is a distinctly human phenomenon. Rather than ebbing and flowing with investor sentiment, … [Read more...] about The Uncertainty Paradox
Since the 1950s, there have been numerous breakthroughs in the field of financial economics that have benefited both society and investors. One early example, resulting from research in the 1950s, is the insight that diversification can increase an investor's wealth. Another example, resulting from research in the 1960s, is that market prices contain up-to-the-minute, relevant information about an investment's expected return and risk. This means that market prices provide our best estimate of … [Read more...] about Evolution of Financial Research: The Profitability Premium
Trivia time: how many stocks make up the Wilshire 5000 Total Market Index (a widely used benchmark for the US equity market)? While the logical guess might be 5,000, as of December 31, 2016, the index actually contained around 3,600 names. In fact, the last time this index contained 5,000 or more companies was at the end of 2005. This mirrors the overall trend in the US stock market. In the past two decades there has been a decline in the number of US-listed, publicly traded companies. … [Read more...] about Going Global: A Look at Public Company Listings
Ever ridden in a car with worn-out shock absorbers? Every bump is jarring, every corner stomach-churning, and every red light an excuse to assume the brace position. Owning an undiversified portfolio can trigger similar reactions. Explore how spreading your portfolio across different securities, sectors, and countries can smooth the bumpy and unpredictable ride that lies between you and your long-term investment goals, with Dimensional Funds VP Jim Parker in the attached article "Investment … [Read more...] about Investment Shock Absorbers
Checking the weather? Looking at a map of the world to plan your next vacation? Guess what—you're using a model. While models can be useful for gaining insights that can help us make good decisions, they are simplifications of reality. One example of a model is a weather forecast. Using data on current and past weather conditions, a meteorologist makes a number of assumptions and attempts to approximate what the weather will be in the future. This model may help you decide if you … [Read more...] about The Reality of Models