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Here, we share our thoughts on a variety of investment issues and explain why we believe emotion is the critical variable in determining investment success or failure. Please visit our Print Center for a 2-page selection of blog summaries by category.

 

Friday, August 4, 2017

Has any financial adviser ever offered to provide you with “comprehensive financial services?” What exactly does that mean? Consider some of the mystifying jargon that has entered the financial services lexicon in just the...

 

Tuesday, June 6, 2017

Which of the two stocks described below would you rather have owned? Stock #1 This company went public 20 years ago. For most of its public life, the company has been “investing for growth,” otherwise known as generating...

 

Monday, May 1, 2017

What’s the optimal strategy to maximize investment returns over a multidecade time horizon? Answer: Buy and hold equities. The case for equities over bonds is straightforward and noncontroversial. Over time, equities have been...

 

Monday, March 27, 2017

Recently, Warren Buffett reminded us that in Berkshire Hathaway’s 2005 annual report he had “argued that active investment management by professionals—in aggregate—would over a period of years underperform the returns achieved by rank...

 

Sunday, February 26, 2017

The “volatility equals risk” movement was born in academia with the advent of modern portfolio theory. Out went the quaint notion of defining risk as the erosion or permanent loss of capital, and in came the quantification of risk as...

 

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Monday, February 6, 2017

The correlation between earnings and stock prices since 1935 has been 95%. Since 1975, earnings have compounded at about 7% per year, and the S&P 500 price (excluding dividends) has compounded at about 8% a year. The earnings recession...

 

Tuesday, December 6, 2016

Did 2016 seem like an unusually volatile year? We experienced the worst first five days of any year ever, Brexit, and an unprecedented presidential election. But from a stock market perspective, it was only ordinary—with a...

 

Tuesday, November 1, 2016

Nobel laureate Robert Shiller’s cyclically adjusted price earnings (CAPE) ratio has been flashing a warning sign that the stock market is severely overvalued. Between 1981 and 2015, the CAPE ratio signaled that equities were overvalued...

 

Tuesday, October 11, 2016

Once upon a time, private equity was called leveraged buyouts, and the practitioners were known as LBO artists. The art form was acquiring a company with a small equity investment and lots of debt, providing management expertise to...

 

Tuesday, September 27, 2016

Harvard’s $36 billion endowment—the world’s largest—has had humbling investment returns relative to its peers at Yale, Princeton and Columbia over the past 10 years. Part of the reason is that Harvard Management Co., which oversees the...

 

Tuesday, September 20, 2016

The index mutual fund recently turned 40, and right on cue came a catastrophist research note arguing that passive investing is worse than Marxism. To explore the active vs. passive debate more seriously, we summarize Nobel laureate...

 

Tuesday, September 13, 2016

Regardless of the methodology used for valuing equities, there is always some measure or stream of cash flows—such as dividends or earnings—that must be discounted by some interest rate. In its simplest form, it’s a two-factor model....

 

Tuesday, August 30, 2016

The new mantra on Wall Street is that you buy stocks for income and bonds for capital gains. This is, of course, backward. Money has been pouring into stocks that pay above average dividend yields, resulting in pumped up prices and...

 

Tuesday, August 23, 2016

Hedge funds have had a lot of bad press lately, and it’s coming from all quarters. First, there is disappointment in the category from high-profile investors such as public pension funds. The most recent headline-grabbing news...

 

Tuesday, August 16, 2016

When it comes to diversifying a portfolio, many professional advisers follow Noah’s approach by including two of every type of fund in client portfolios. At best, you end up with a crowded ark. At worst, you end up with a lot of extra...

 

Tuesday, August 9, 2016

Buy land, the saying goes, because they’re not making it anymore and prices must rise as a result. There’s only one small problem with this thesis: It turns out to be wrong. Over the last century, real farmland and home prices have...

 

Tuesday, August 2, 2016

Research shows that people typically regret financial losses about twice as much as they appreciate similarly sized financial gains. This natural tendency to try to avoid losses can hamper the growth of your investment portfolio,...

 

Tuesday, July 26, 2016

Investors are afraid and are pulling back. They don’t know what to do with their money as they wrestle with historically low interest rates, the uncertainty surrounding the next presidential election, and the disintegration in world...

 

Tuesday, July 12, 2016

Even at its recent record closing high, the S&P 500 provides (i) a dividend yield that is over 50% higher than the current 10-year Treasury yield (2.17% vs. 1.37% as of July 8) and (ii) an earnings yield of 5.6%, which is four times...

 

Friday, May 27, 2016

On May 21, 2015, the S&P 500 had a record close of 2,130.82. On May 20, 2016, the S&P 500 closed at 2,052.32—3.7% below the record close of a year ago. The financial media is searching for reasons: valuations (high), corporate earnings...

 

Friday, May 27, 2016

How would you feel if your bond portfolio declined in value by a third? Can’t happen, you might think. Think again. A two percentage-point increase in interest rates would cause the price of the 30-year U.S. Treasury bond to decline by...

 

Tuesday, May 3, 2016

As of the end of April, 62% of the companies in the S&P 500 have now reported Q1 earnings. And the headline is: “Earnings Skid Worst Since Financial Crisis.” Assuming there is a decline in Q1 earnings, this will mark four consecutive...

 

Tuesday, April 19, 2016

In an attempt by policy makers to reflate their stagnant economies, the result is that about a quarter of government bonds in Europe and Japan now have nominal yields below zero. With a recent 10-year U.S. Treasury yield of 1.75% and...

 

Tuesday, April 5, 2016

The best way to sum up stock market performance in the first quarter of 2016: much ado about nothing. The S&P 500 Index closed at 2,043.94 on December 31, 2015. As of the end of the first quarter, the Index finished at 2,059...

 

Monday, March 21, 2016

Dividends tend to get short shrift these days. They are almost an afterthought to the capital appreciation potential of common stocks. And unfairly so, since, as of recently, the dividend yield of the S&P 500 exceeds the 10-year...

 

Friday, March 11, 2016

In his 2015 letter to Berkshire Hathaway stockholders, Warren Buffett—America’s most admired and least imitated investor—once again intellectually demolishes the conventional wisdom with a few simple numbers and some...

 

Monday, February 22, 2016

As of February 19, 2016, the 10-year Treasury yields 1.75%, and the S&P 500 dividend yield is 2.34%.—a difference of 0.59%. In other words, the S&P 500 is paying you 60 basis points more in income annually than the 10-year Treasury. So...

 

Wednesday, February 10, 2016

In January, we experienced the worst first five days of any year ever, and the month ended with a -5% total return for the S&P 500. In response, January’s outflow from domestic equity mutual funds was just about $20 billion. As a...

 

Tuesday, January 12, 2016

We take a look at some arbitrarily selected population, GDP, earnings and dividend statistics for five observation points during the past four decades (1975-2015), namely the years ending in 5. We think you might be pleasantly...

 

Tuesday, January 5, 2016

By applying Sir William of Occam’s “razor” (the simplest solution to a problem is the one most likely to be correct) to the challenge of projecting stock and bond returns over the next decade, Vanguard founder John Bogle developed a...

 

Monday, January 4, 2016

Keating Wealth Management, LLC, a fee-only investment adviser that provides investment counsel to affluent individual investors and their families, is now open for business and accepting clients who seek advice, delivered with clarity...