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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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