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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 amateurs who simply sat still.” The culprit: fees. In 2008, Buffett wagered $1 million that, over a 10-year period, the S&P 500 would outperform a portfolio of funds of hedge funds. While there is still a year remaining in the bet’s term, it’s clearly all over—the S&P 500 won by a mile. Here, then, are some lessons from America’s most admired—but least imitated—investor. Read more
One Year Later. Keating Wealth Management just completed its first year in business, and it proved to be an interesting one, including: the worst ever start to a year for the stock market, Brexit, and a most unusual presidential election. Read more
Perspective from the Past Four Decades. It’s hard to read a newspaper or watch the news and not be depressed. Bad news seems to be the order of the day, every day. Throw in the financial media’s tendency to magnify every normal wiggle of the market to grandiose proportions, along with the uncertainty associated with any upcoming presidential election (especially this one), and it would be inhuman not to be worried about staying invested in common stocks during such turbulent times. Read more
The Year in Review. We launched Keating Wealth Management in January 2016 with the goal of providing a select group of affluent families with the highest level of advice and service. As we enter the final quarter of our first year in business, we thought it would be helpful to recap who we are, what we believe, and what we can and can’t do. We also articulate our value promise. Read more
The Behavioral Investor: Blog Summaries Selection. Our weekly blog includes thoughts on a variety of investment issues and explains why we believe emotion is the critical variable in determining investment success or failure. Here we include a selection of summaries, organized by category. Read more
With Yields this Low, the Risk to Bondholders is High. 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 about a third. With yields this low, the risk to bondholders is high. Why lend your money to already highly indebted countries with such paltry yields on their government bonds when there is a compelling alternative in the form of owning the leading businesses of the world (i.e., large cap equities)? If you avoid stocks because you think they are “risky”, you should check your premises.
The 5 Iron Rules of Investing. The second quarter public company earnings season is now upon us. Get ready for the headlines: “Earnings Skid Worst Since Financial Crisis,” or “A Year Later, Record Still Eludes S&P 500.” At times like this, it is especially helpful to step back and add some perspective to think about what really matters for the typical investor with a multi-decade time horizon. In fact, a sound investment plan has nothing to do with current events but is instead grounded in a handful of timeless, bedrock principles, which we think about as the 5 iron laws of investing. Read more
The Behavior Gap: Buy High, Sell Low. The average investor in an equity mutual fund has consistently earned less than either the performance of the fund or the S&P 500…by a wide margin. How bad is it? Shockingly bad. Over the 20-year period from 1995-2014, the annualized return of the S&P 500 Index was 9.9% compared to an annualized return of 5.2% for the average equity mutual fund investor—a difference of 4.7% annually. We explain this “behavior gap” and, drawing upon lessons from behavioral finance, explore the underlying causes.
Exercise the Free Dividend Option. Stocks currently yield more than the 10-year Treasury, dividends grow over time while interest income is fixed to a bond’s coupon level; and over 10- to 20-year time horizons, the historical evidence suggests that stocks nearly always appreciate in value. Given the choice between stocks and bonds, and since stocks currently yield more than the 10-year Treasury, why not exercise the free option on 10 years of earnings growth, dividend growth and capital appreciation by owning equities? Read more