"I have found that the importance of having an investment philosophy—one that is robust and that you can stick with— cannot be overstated. David Booth The US stock market has delivered an average annual return of around 10% since 1926.[1] But short-term results may vary, and in any given period stock returns can be positive, negative, or flat. When setting expectations, it's helpful to see the range of outcomes experienced by investors historically. For example, how often … [Read more...] about The Uncommon Average
The Index Bogeyman
The argument that increased usage of index funds may be distorting market prices hinges on the premise that indexing reduces the efficacy of price discovery. But should the rise of index funds be a cause of concern for investors? Over the last several years, index funds have received increased attention from investors and the financial media. Some have even made claims that the increased usage of index funds may be distorting market prices. For many, this argument hinges on the premise … [Read more...] about The Index Bogeyman
Getting to the Point of a Point
While the Dow and other indices are frequently interpreted as indicators of broader market performance, the stocks composing these indices may not be representative of an investor's total portfolio. A quick online search for "Dow rallies 500 points" yields a cascade of news stories with similar titles, as does a similar search for "Dow drops 500 points." These types of headlines may make little sense to some investors, given that a "point" for the Dow and what it means to an individual's … [Read more...] about Getting to the Point of a Point
The Uncommon Average
I have found that the importance of having an investment philosophy—one that is robust and that you can stick with— cannot be overstated." —David Booth The US stock market has delivered an average annual return of around 10% since 1926.[1] But short-term results may vary, and in any given period stock returns can be positive, negative, or flat. When setting expectations, it's helpful to see the range of outcomes experienced by investors historically. For example, how often … [Read more...] about The Uncommon Average
2016 Market Review
In 2016, the US market reached new highs and stocks in a majority of developed and emerging market countries delivered positive returns. The year began with anxiety over China's stock market and economy, falling oil prices, a potential US recession, and negative interest rates in Japan. US equity markets were in steep decline and had the worst start of any year on record. The markets began improving in mid-February through midyear. Investors also faced uncertainty from the Brexit vote in June … [Read more...] about 2016 Market Review
New Market Highs and Positive Expected Returns
There has been much discussion in the news recently about new nominal highs in stock indices like the Dow Jones Industrial Average and the S&P 500. When markets hit new highs, is that an indication that it's time for investors to cash out? History tells us that a market index being at an all-time high generally does not provide actionable information for investors. For evidence, we can look at the S&P 500 Index for the better part of the last century. Exhibit 1 shows that from 1926 … [Read more...] about New Market Highs and Positive Expected Returns