Rick Kahler: Even Experts Can’t Successfully Time the Market | Financial Awakenings

Theoretically, timing the market could give you a huge payoff. At a recent conference I attended sponsored by Dimensional Fund Advisors, Walton Wellington, Vice President of Investment Strategies, gave the following numbers.

Suppose, 70 years ago, you put $1000 in a savings account. It would have grown to $16,000. If you had invested in the S&P Index and left it alone, you would have $1.8 million. If your holdings included an index with over 3,000 companies, you would have $13.4 million.

However, had you perfectly timed the market, buying at the start of every bull market and selling at the top, you would have $7.2 billion. Conversely, had you sold before every bull market and bought at the top, you would have $3.40, enough for a cup of coffee at Starbucks.

No one can reliably predict the market. That includes the experts who are supposed to be able to do so. The stock-picking hall of shame is a crowded place.

via Rick Kahler: Even Experts Can’t Successfully Time the Market | Financial Awakenings.

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Upton Sinclair’s Insight for Improving Your 401(k) Returns – YouTube

By Dan Solin – “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”

Employers need to appreciate their potential exposure as fiduciaries to plan participants. It’s only a matter of time before an enlightened court reviews the studies and concludes the inclusion of any actively managed fund in a 401(k) plan violates the duty of prudence.

Brokers and insurance companies will never “understand” this evidence. Their salaries depend on their not understanding it.

http://www.youtube.com/watch?v=KXP2Atkuof8

Text version:

http://ifa.com/emailcampaign/QOW/Upton_Sinclairs_Insight.aspx

Lessons from the Fallen

by Dennis Stearns, CFP®, ChFC

Dennis Stearns, CFP®, ChFC, is president of Stearns Financial, a fee-only wealth management firm based in Greensboro, North Carolina. His company was named one of the 2008 Top 100 businesses in North Carolina, the only financial services business to receive this award. He can be reached at dstearns@sfsg.net.

“Organizational decline is largely self-inflicted, and recovery largely within our control.”

—Jim Collins

The storm from the “Great Recession” is easing and many tough lessons have already been indelibly etched into those of us who run a financial planning business. Jim Collins’s latest book, How the Mighty Fall, would have been a great roadmap for the leaders of many now-defunct companies on what minefields to avoid and how to turn a company around when it is in a freefall. Few have studied business success and failure deeper and with more texture than Jim Collins.

This is the perfect time to be studying those lessons and making sure that our businesses have been vaccinated against the perils that lie ahead in the rebound. In my work in the “super trend” areas (technology accelerators, globalization, and the global age wave), I’ve become convinced that the changes that lie just ahead will dwarf anything we’ve seen in the past. This massive change holds great opportunities but also means the “creative destruction” that is the backbone of capitalism will be magnified many times over. Making mistakes will have more rapid consequences, so learning what to avoid has never been more important, for our businesses and for helping educate our business and executive clients.

via Lessons from the Fallen.

Investment Pornography

Every once in a while a new word or phrase is coined that becomes accepted in the financial vernacular. With the rapid evolution of internet investing, on-line financial journalism, and stock bulletin boards, Investor Home believes the time is ripe to officially recognize and offer a loose definition for the term “Investment Pornography” (or “Financial Pornography”).

Two respected investment professionals are credited with coining the phrase, although it’s not perfectly clear which began using the term first. It is clear however, that both Rex Sinquefield of Dimensional Fund Advisors and columnist Jane Bryant Quinn have been using the terms for many years. And recently half a dozen or more journalists and professionals have also started using the terms regularly. The phrase is even listed at the Word Spy Web site which highlights recently-coined and interesting words and phrases. Paul Merriman also does entire seminars on the topic of “How to Protect Yourself from Investment Pornography.”

So what is investment pornography? There is no precise definition and some people disagree on what exactly qualifies as investment pornography, but let’s start with one of Webster’s definitions of “pornography.”

Pornography: The depiction of acts in a sensational manner so as to arouse a quick intense emotional reaction.

Jane Bryant Quinn has offered a number of explanations for the term in various articles (see also Newsweek, “The Big Tease” 8/7/95).

You know the stories: The Top Ten Mutual Funds to Buy Now, How to Double Your Money This Year, personality profiles that read like fan magazines. Stock-touting pieces that praise any path to profits. We’ve all done these stories, in one form or another. It’s investment pornography — soft core, not hard core, but pornography all the same.

When Business Writing Becomes Soft Porn from Columbia Journalism Review (March/April 1998)

When asked about the term in an August 1998 interview with abcnews.com titled Good Investing Isn’t Sexy, Quinn responded with the following.

see the complete article here: Investor Home – Financial Pornography and Investment Pornography.

`Investment Porn’ Panned by DFA Funds Preaching Fama’s Gospel – Bloomberg

March 27 (Bloomberg) — Weston Wellington looks out at his new recruits and warns them of one of the great evils of Wall Street: “investment pornography.”

Wellington, a vice president at Dimensional Fund Advisors Inc., flashes slides of magazine headlines such as “The Next Microsoft” and “Tech Stocks, Everyone’s Getting Rich.” Investors who read this stuff and scour stock research are deluding themselves, he tells the packed conference. DFA, which manages $123 billion, doesn’t worry about what a company does or how much money it makes before buying its stock.

“We walk in blindfolded,” Wellington says.

Wellington and his colleagues at Santa Monica, California- based DFA preach that no one can predict which way stock prices will go. Their creed is rooted in the efficient-market hypothesis espoused by economist Eugene Fama. A University of Chicago finance professor and DFA director, Fama, 68, maintains that securities prices reflect the collective wisdom of all the participants in a market. Active investors — people who actually pick stocks — rarely beat the market over the long haul, his theory goes.

via `Investment Porn’ Panned by DFA Funds Preaching Fama’s Gospel – Bloomberg.

Larry E. Swedroe

Larry E. Swedroe

The Only Guide to a Winning Investment Strategy Youll Ever Need: The Way Smart Money Preserves Wealth Today Buy On Amazon

“The first risk factor in the three-factor equity model is the amount of exposure of a portfolio to the risk factor of the overall stock market.”

The Only Guide to a Winning Investment Strategy You’ll Ever Need: The Way Smart Money Preserves Wealth Today

Larry E. Swedroe

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The Only Guide to a Winning Investment Strategy Youll Ever Need: The Way Smart Money Preserves Wealth Today Buy On Amazon

“The second risk factor is the size of a company as determined by market capitalization.”

The Only Guide to a Winning Investment Strategy You’ll Ever Need: The Way Smart Money Preserves Wealth Today

Larry E. Swedroe

tadas Found by tadas 23 hours ago from Amazon Kindle

The Only Guide to a Winning Investment Strategy Youll Ever Need: The Way Smart Money Preserves Wealth Today Buy On Amazon

“The third risk factor takes value into consideration. High book-to-market (BtM) (value) stocks are intuitively riskier than low BtM (growth) stocks.”

The Only Guide to a Winning Investment Strategy You’ll Ever Need: The Way Smart Money Preserves Wealth Today

Larry E. Swedroe

tadas Found by tadas 23 hours ago from Amazon Kindle

via Larry E. Swedroe.

What will stocks earn in the future?

(MoneyWatch) PIMCO founder Bill Gross’s recent missive about the death of stocks may have been off the mark in several areas, but he was right about one thing: You shouldn’t rely on historical returns to predict future returns. Here’s one way to look at what investors can expect on stock returns.

Studies have found that relying on past returns when predicting future returns is likely a mistake. In fact, New York University finance professor Aswath Damodaran examined the period 1960-2011 and found that if past returns were higher than average, future returns were more likely to be lower, and vice versa. However, Damodaran did find that forward-looking metrics like the earnings-to-price ratio (the inverse of the price-to-earnings ratio) actually had predictive value.

(NL)

What will stocks earn in the future? – CBS News.