• 12-Steps:
  • Chart Index
  • The 12-Step Introduction
  • The 12-Step Overview
  • About the Author
  • Preface
  • Short Book on Investing
  • IFA 12-Step Brochure [PDF]
  • Intro Print Version [PDF]
  • PowerPoint Presenation
  • PowerPoint [PDF]
  • Art Gallery
  • FAQ
  • IFA Store
  • Buy the Book
  • Backtested Disclosures
• Step 1
  

  Step 1: Active Investors

  • • Page: 
    • page 1
    • page 2
    • page 3

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  • 1.2.1 Active Investors
  • 1.2.2 Index Funds Investors
  • 1.2.3 Beating the Market
  • 1.2.4 Risk Measurements

  Problems

  • 1.3.1 Active Investors are Everywhere
  • 1.3.2 Active Investors are Gamblers
  • 1.3.3 Active Investors Lose
  • 1.3.4 The Poor Accounting of Active Investors
  • 1.3.5 Stock Market Prices are Random
  • 1.3.6 Stock Markets are Efficient
  • 1.3.7 When Risk Capacity is not Matched with Risk Exposure
  • 1.3.8 The High Cost of Turnover
  • 1.3.9 The Emotional Stress of Active Investing
  • 1.3.10 More than 1,500 Investors can be Wrong

  Solutions

  • 1.4.1 Active Investors Anonymous
  • 1.4.2 The Ulysses Pact
  • 1.4.3 The History of 12-Step Recovery Programs
  • 1.4.4 The Big Book of Investing
  • 1.4.5 Top Investors Agree
  • 1.4.6 Index Funds Investors Win
• Step 2
  

  Step 2: Nobel Laureates

  • • Page: 
    • page 1
    • page 2
    • page 3

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Fee Page
  • Backtested Disclosures

  Definitions

  • 2.2.1 Nobel Prize in Economic Sciences
  • 2.2.2 The University of Chicago, Center for Research in Security Prices, and the Stock Market Database

  Problems

  • 2.3.1 Investors Rely on Lady Luck
  • 2.3.2 Active Investors are Unaware of Academic Studies

  Solutions

  • Alfred Nobel
  • Blaise Pascal
  • Edmund Halley
  • Adam Smith
  • Louis Bachelier
  • Alfred Cowles
  • Harry Markowitz
  • James Tobin
  • Frank Modigliani
  • Merton Miller
  • William Sharpe
  • Paul Samuelson
  • Eugene Fama
  • Michael Jensen
  • Rex Sinquefield
  • Friedrich von Hayek
  • Burton Malkiel
  • John Bogle
  • David Booth
  • Kenneth French
  • Who Do You Trust?
  • Market Forces: May They Be With You
• Step 3
  

  Step 3: Stock Pickers

  • • Page: 
    • page 1
    • page 2
    • page 3
    • page 4
    • page 5
    • page 6
    • page 7
    • page 8
    • page 9

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  • 3.2.1 Stock Pickers
  • 3.2.2 Adjusted Performance

  Problems

  • 3.3.1 Why Stock Pickers Fail
  • 3.3.2 The Stock Picker’s Graveyard
  • 3.3.3 Incubator Funds
  • 3.3.4 Studies and Observations that Show the Daunting Odds of Stock Picking
  • 3.3.5 Stock Pickers and Coin Flippers
  • 3.3.6 Stock Pickers are Focused on Short Term
  • 3.3.7 Stock Pickers are Style Drifters
  • 3.3.8 Stock Pickers are Looking for a Needle in a Haystack
  • 3.3.9 Stock Pickers Play a Zero Sum Game
  • 3.3.10 Stock Pickers in International Markets
  • 3.3.11 Stock Pickers in Small-Cap Markets
  • 3.3.12 Stock Pickers Pay More Taxes
  • 3.3.13 Stock Picking Gurus and Their Real Records
  • 3.3.14 Stock Pickers Don’t Want You to Know the Truth

  Solutions

• Step 4
  

  Step 4: Time Pickers

  • • Page: 
    • page 1
    • page 2
    • page 3

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  • 4.2.1 Random Walk Theory
  • 4.2.2 Efficient Market Hypothesis

  Problems

  • 4.3.1 Pickers are Fooled by Randomness
  • 4.3.2 Academic Studies Prove that Time Picking doesn’t Work
  • 4.3.3 Time Picking Gurus
  • 4.3.4 Gains and Losses are Impossible to Identify in Advance
  • 4.3.5 Time Pickers Pay More Taxes

  Solutions
• Step 5
  

  Step 5: Manager Pickers

  • • Page: 
    • page 1
    • page 2
    • page 3

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  Problems

  • 5.3.1 Past Performance is No Guarantee of Future Results
  • 5.3.2 Persistence in Track Records
  • 5.3.3 Sources of Information Used by Manager Pickers
  • Is a Highly Rated Fund a Good Thing?
  • The Forbes Mutual Fund Honor Roll
  • Mutual Fund Advertisements
  • 5.3.4 Markets Make Managers
  • 5.3.5 Irrelevant Benchmarks

  Solutions
• Step 6
  

  Step 6: Style Drifters

  • • Page: 
    • page 1
    • page 2
    • page 3

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  • 6.2.1 Investment Style
  • 6.2.2 Style Drift

  Problems

  • 6.3.1 Style Drift Alters Risk Exposure
  • 6.3.2 Style Drifters
  • 6.3.3 Style Drift and the Fama/French Risk Factors

  Solutions
• Step 7
  

  Step 7: Silent Partners

  • • Page: 
    • page 1
    • page 2
    • page 3

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  Problems

  • 7.3.1 Active Investors are Unaware of All the Costs
  • 7.3.2 Taxes
  • 7.3.3 Inflation

  Solutions

  • 7.4.1 Index Funds and Tax-Managed Index Funds
  • 7.4.2 Reduce Taxes and Turnover Costs with Index Funds
• Step 8
  

  Step 8: Riskese

  • • Page: 
    • page 1
    • page 2
    • page 3
    • page 4
    • page 5

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  • 8.2.1 Standard Deviation
  • 8.2.2 Probability Distributions and Histograms
  • 8.2.3 Mean Reversion
  • 8.2.4 Expected Return
  • 8.2.5 Rolling Period Returns
  • 8.2.6 Risk
  • 8.2.7 The Dimensions of Stock Return
  • Market Risk Factor
  • Size Risk Factor
  • Value Risk Factor
  • Term Risk Factor
  • Default Risk Factor
  • 8.2.8 Implications of the Fama/French Three-Factor Model
  • 8.2.9 Time Diversification of Risk

  Problems

  • 8.3.1 Active Investors don’t Understand Risk and Return
  • 8.3.2 Investors Like Comfort and Dislike Uncertainty
  • 8.3.3 Stock Pickers Dilute the Two Important Risk Factors
  • 8.3.4 The Myth of the Ideal Investment

  Solutions
• Step 9
  

  Step 9: History

  • • Page: 
    • page 1
    • page 2
    • page 3

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  • 9.2.1 Historical Databases and Studies
  • 9.2.2 Time Series Construction

  Problems

  Solutions

  • 9.4.1 Long-term History Characterizes Risk and Return
  • 9.4.1a Probability of Portfolio Recovery
  • 9.4.2 Cross Correlation among Indexes
  • A Comparative History of Several Indexes
    using Rolling Periods
  • A Comparative History of Market Cap Deciles
  • The Returns Matrix
• Step 10
  

  Step 10: Risk Capacity

  • • Page: 
    • page 1
    • page 2
    • page 3

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  • Dimension One: Time Horizon and Liquidity Needs
  • Dimension Two: Attitude Toward Risk
  • Dimension Three: Net Worth
  • Dimension Four: Income and Savings Rate
  • Dimension Five: Investment Knowledge

  Problems

  • 10.3.1 Investors do not Properly Assess Risk Capacity
  • 10.3.2 Risk Capacity Changes over Time

  Solutions

  • 10.4.1 The Risk Capacity Survey
  • 10.4.2 The Ten Dimensions of Risk
  • 10.4.3 The Color of Risk Spectrum
  • 10.4.4 Twenty Risk Capacities
  • 10.4.5 Capacity Adjusted Risk
• Step 11
  

  Step 11: Risk Exposure

  • • Page: 
    • page 1
    • page 2
    • page 3
    • page 4
    • page 5
    • page 6

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  • 11.2.1 Modern Portfolio Theory
  • 11.2.2 Diversification
  • 11.2.3 Global Diversification
  • 11.2.4 Portfolio Rebalancing
  • 11.2.5 Whole Portfolios
  • 11.2.6 The Prudent Investor Act
  • Five Principles of Prudence

  Problems

  • 11.3.1 How Much Risk is There?
  • 11.3.2 Where is the Data?
  • 11.3.3 Investors Want to Avoid Risk
  • 11.3.4 Risk is Good in Proper Doses
  • 11.3.5 Portfolios Get Out of Balance
  • 11.3.6 Selecting Index Funds

  Solutions

  • 11.4.2 Index Mutual Funds Earn more Return and Eliminate more Risk
  • 11.4.3 The Most Efficient Funds on the Market
  • Small Cap Strategy
  • U.S. Small-Cap Strategy
  • U.S. Micro-Cap Strategy
  • Value Strategies
  • U.S. Small-Cap Value Strategy
  • U.S. Large-Cap Value Strategy
  • Real Estate Securities Strategy
  • U.S. Large Company Strategy
  • Developed International Markets
  • Emerging Markets
  • Fixed Income
  • 11.4.4 Are Commodities Worth the Risk?
  • 11.4.5 Matching People with Portfolios
• Step 12
  

  Step 12: Invest and Relax

  • • Page: 
    • page 1
    • page 2
    • page 3

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Fees
  • Backtested Disclosures

  Definitions

  • 12.2.1 Registered Investment Advisers
  • 12.2.2 Dimensional Fund Advisors
  • 12.2.3 Rebalancing Portfolios
  • 12.2.4 Rebalancing Formula
  • 12.2.5 Tax Loss Harvesting
  • 12.2.5a Mutual Fund Distributions
  • 12.2.5b Cash Withdrawal Considerations
  • 12.2.6 Financial Advice
  • Estate Planning
  • Insurance
  • Accounting and Tax Advice
  • Investment Advisors
  • Life Planning
  • The Glide Path of Life and Your IFA Index Portfolio
  • Retirement Planner

  Problems

  • 12.3.1 Active Investors Procrastinate
  • 12.3.2 Active Investors "Go It Alone"
  • 12.3.3 The Media Wants Investors to Worry
  • Asset Allocation
  • Minimization of Investment Costs
  • Minimization of Taxes
  • Reliable Investment Performance
  • A Simple and Understandable Investment Strategy
  • An Easier Way to Track Investment Performance
  • Increased Leverage and Compounding
    of Investment Wealth
  • Invest like Institutional Investors

  Solutions

Articles from Rex Sinquefield

See More Articles

• 12-Steps:
  • Chart Index
  • The 12-Step Introduction
  • The 12-Step Overview
  • About the Author
  • Preface
  • Short Book on Investing
  • IFA 12-Step Brochure [PDF]
  • Intro Print Version [PDF]
  • PowerPoint Presenation
  • PowerPoint [PDF]
  • Art Gallery
  • FAQ
  • IFA Store
  • Buy the Book
  • Backtested Disclosures
• Step 1
  

  Step 1: Active Investors

  • • Page: 
    • page 1
    • page 2
    • page 3

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  • 1.2.1 Active Investors
  • 1.2.2 Index Funds Investors
  • 1.2.3 Beating the Market
  • 1.2.4 Risk Measurements

  Problems

  • 1.3.1 Active Investors are Everywhere
  • 1.3.2 Active Investors are Gamblers
  • 1.3.3 Active Investors Lose
  • 1.3.4 The Poor Accounting of Active Investors
  • 1.3.5 Stock Market Prices are Random
  • 1.3.6 Stock Markets are Efficient
  • 1.3.7 When Risk Capacity is not Matched with Risk Exposure
  • 1.3.8 The High Cost of Turnover
  • 1.3.9 The Emotional Stress of Active Investing
  • 1.3.10 More than 1,500 Investors can be Wrong

  Solutions

  • 1.4.1 Active Investors Anonymous
  • 1.4.2 The Ulysses Pact
  • 1.4.3 The History of 12-Step Recovery Programs
  • 1.4.4 The Big Book of Investing
  • 1.4.5 Top Investors Agree
  • 1.4.6 Index Funds Investors Win
• Step 2
  

  Step 2: Nobel Laureates

  • • Page: 
    • page 1
    • page 2
    • page 3

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Fee Page
  • Backtested Disclosures

  Definitions

  • 2.2.1 Nobel Prize in Economic Sciences
  • 2.2.2 The University of Chicago, Center for Research in Security Prices, and the Stock Market Database

  Problems

  • 2.3.1 Investors Rely on Lady Luck
  • 2.3.2 Active Investors are Unaware of Academic Studies

  Solutions

  • Alfred Nobel
  • Blaise Pascal
  • Edmund Halley
  • Adam Smith
  • Louis Bachelier
  • Alfred Cowles
  • Harry Markowitz
  • James Tobin
  • Frank Modigliani
  • Merton Miller
  • William Sharpe
  • Paul Samuelson
  • Eugene Fama
  • Michael Jensen
  • Rex Sinquefield
  • Friedrich von Hayek
  • Burton Malkiel
  • John Bogle
  • David Booth
  • Kenneth French
  • Who Do You Trust?
  • Market Forces: May They Be With You
• Step 3
  

  Step 3: Stock Pickers

  • • Page: 
    • page 1
    • page 2
    • page 3
    • page 4
    • page 5
    • page 6
    • page 7
    • page 8
    • page 9

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  • 3.2.1 Stock Pickers
  • 3.2.2 Adjusted Performance

  Problems

  • 3.3.1 Why Stock Pickers Fail
  • 3.3.2 The Stock Picker’s Graveyard
  • 3.3.3 Incubator Funds
  • 3.3.4 Studies and Observations that Show the Daunting Odds of Stock Picking
  • 3.3.5 Stock Pickers and Coin Flippers
  • 3.3.6 Stock Pickers are Focused on Short Term
  • 3.3.7 Stock Pickers are Style Drifters
  • 3.3.8 Stock Pickers are Looking for a Needle in a Haystack
  • 3.3.9 Stock Pickers Play a Zero Sum Game
  • 3.3.10 Stock Pickers in International Markets
  • 3.3.11 Stock Pickers in Small-Cap Markets
  • 3.3.12 Stock Pickers Pay More Taxes
  • 3.3.13 Stock Picking Gurus and Their Real Records
  • 3.3.14 Stock Pickers Don’t Want You to Know the Truth

  Solutions

• Step 4
  

  Step 4: Time Pickers

  • • Page: 
    • page 1
    • page 2
    • page 3

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  • 4.2.1 Random Walk Theory
  • 4.2.2 Efficient Market Hypothesis

  Problems

  • 4.3.1 Pickers are Fooled by Randomness
  • 4.3.2 Academic Studies Prove that Time Picking doesn’t Work
  • 4.3.3 Time Picking Gurus
  • 4.3.4 Gains and Losses are Impossible to Identify in Advance
  • 4.3.5 Time Pickers Pay More Taxes

  Solutions
• Step 5
  

  Step 5: Manager Pickers

  • • Page: 
    • page 1
    • page 2
    • page 3

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  Problems

  • 5.3.1 Past Performance is No Guarantee of Future Results
  • 5.3.2 Persistence in Track Records
  • 5.3.3 Sources of Information Used by Manager Pickers
  • Is a Highly Rated Fund a Good Thing?
  • The Forbes Mutual Fund Honor Roll
  • Mutual Fund Advertisements
  • 5.3.4 Markets Make Managers
  • 5.3.5 Irrelevant Benchmarks

  Solutions
• Step 6
  

  Step 6: Style Drifters

  • • Page: 
    • page 1
    • page 2
    • page 3

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  • 6.2.1 Investment Style
  • 6.2.2 Style Drift

  Problems

  • 6.3.1 Style Drift Alters Risk Exposure
  • 6.3.2 Style Drifters
  • 6.3.3 Style Drift and the Fama/French Risk Factors

  Solutions
• Step 7
  

  Step 7: Silent Partners

  • • Page: 
    • page 1
    • page 2
    • page 3

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  Problems

  • 7.3.1 Active Investors are Unaware of All the Costs
  • 7.3.2 Taxes
  • 7.3.3 Inflation

  Solutions

  • 7.4.1 Index Funds and Tax-Managed Index Funds
  • 7.4.2 Reduce Taxes and Turnover Costs with Index Funds
• Step 8
  

  Step 8: Riskese

  • • Page: 
    • page 1
    • page 2
    • page 3
    • page 4
    • page 5

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  • 8.2.1 Standard Deviation
  • 8.2.2 Probability Distributions and Histograms
  • 8.2.3 Mean Reversion
  • 8.2.4 Expected Return
  • 8.2.5 Rolling Period Returns
  • 8.2.6 Risk
  • 8.2.7 The Dimensions of Stock Return
  • Market Risk Factor
  • Size Risk Factor
  • Value Risk Factor
  • Term Risk Factor
  • Default Risk Factor
  • 8.2.8 Implications of the Fama/French Three-Factor Model
  • 8.2.9 Time Diversification of Risk

  Problems

  • 8.3.1 Active Investors don’t Understand Risk and Return
  • 8.3.2 Investors Like Comfort and Dislike Uncertainty
  • 8.3.3 Stock Pickers Dilute the Two Important Risk Factors
  • 8.3.4 The Myth of the Ideal Investment

  Solutions
• Step 9
  

  Step 9: History

  • • Page: 
    • page 1
    • page 2
    • page 3

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  • 9.2.1 Historical Databases and Studies
  • 9.2.2 Time Series Construction

  Problems

  Solutions

  • 9.4.1 Long-term History Characterizes Risk and Return
  • 9.4.1a Probability of Portfolio Recovery
  • 9.4.2 Cross Correlation among Indexes
  • A Comparative History of Several Indexes
    using Rolling Periods
  • A Comparative History of Market Cap Deciles
  • The Returns Matrix
• Step 10
  

  Step 10: Risk Capacity

  • • Page: 
    • page 1
    • page 2
    • page 3

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  • Dimension One: Time Horizon and Liquidity Needs
  • Dimension Two: Attitude Toward Risk
  • Dimension Three: Net Worth
  • Dimension Four: Income and Savings Rate
  • Dimension Five: Investment Knowledge

  Problems

  • 10.3.1 Investors do not Properly Assess Risk Capacity
  • 10.3.2 Risk Capacity Changes over Time

  Solutions

  • 10.4.1 The Risk Capacity Survey
  • 10.4.2 The Ten Dimensions of Risk
  • 10.4.3 The Color of Risk Spectrum
  • 10.4.4 Twenty Risk Capacities
  • 10.4.5 Capacity Adjusted Risk
• Step 11
  

  Step 11: Risk Exposure

  • • Page: 
    • page 1
    • page 2
    • page 3
    • page 4
    • page 5
    • page 6

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Backtested Disclosures

  Definitions

  • 11.2.1 Modern Portfolio Theory
  • 11.2.2 Diversification
  • 11.2.3 Global Diversification
  • 11.2.4 Portfolio Rebalancing
  • 11.2.5 Whole Portfolios
  • 11.2.6 The Prudent Investor Act
  • Five Principles of Prudence

  Problems

  • 11.3.1 How Much Risk is There?
  • 11.3.2 Where is the Data?
  • 11.3.3 Investors Want to Avoid Risk
  • 11.3.4 Risk is Good in Proper Doses
  • 11.3.5 Portfolios Get Out of Balance
  • 11.3.6 Selecting Index Funds

  Solutions

  • 11.4.2 Index Mutual Funds Earn more Return and Eliminate more Risk
  • 11.4.3 The Most Efficient Funds on the Market
  • Small Cap Strategy
  • U.S. Small-Cap Strategy
  • U.S. Micro-Cap Strategy
  • Value Strategies
  • U.S. Small-Cap Value Strategy
  • U.S. Large-Cap Value Strategy
  • Real Estate Securities Strategy
  • U.S. Large Company Strategy
  • Developed International Markets
  • Emerging Markets
  • Fixed Income
  • 11.4.4 Are Commodities Worth the Risk?
  • 11.4.5 Matching People with Portfolios
• Step 12
  

  Step 12: Invest and Relax

  • • Page: 
    • page 1
    • page 2
    • page 3

  • Introduction
  • Quotes
  • Summary
  • Review Questions
  • Fees
  • Backtested Disclosures

  Definitions

  • 12.2.1 Registered Investment Advisers
  • 12.2.2 Dimensional Fund Advisors
  • 12.2.3 Rebalancing Portfolios
  • 12.2.4 Rebalancing Formula
  • 12.2.5 Tax Loss Harvesting
  • 12.2.5a Mutual Fund Distributions
  • 12.2.5b Cash Withdrawal Considerations
  • 12.2.6 Financial Advice
  • Estate Planning
  • Insurance
  • Accounting and Tax Advice
  • Investment Advisors
  • Life Planning
  • The Glide Path of Life and Your IFA Index Portfolio
  • Retirement Planner

  Problems

  • 12.3.1 Active Investors Procrastinate
  • 12.3.2 Active Investors "Go It Alone"
  • 12.3.3 The Media Wants Investors to Worry
  • Asset Allocation
  • Minimization of Investment Costs
  • Minimization of Taxes
  • Reliable Investment Performance
  • A Simple and Understandable Investment Strategy
  • An Easier Way to Track Investment Performance
  • Increased Leverage and Compounding
    of Investment Wealth
  • Invest like Institutional Investors

  Solutions