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News articles about IFA and DFA:

- Really Smart Money - Is the Market Rational? - Investors Can't Beat Market, Scholar Says - Brain Trust - Bankrate.com - The Best Fund Family..TheStreet.com - CBS MarketWatch - Motley Fool - MSN Money on DFA - London's Financial Times

- All About Hedge Funds and Private Equity - BusinessWeek on Index Funds - 2002 - DFA: Leader of the Pack - WSJ, Only Fools... - DFA Dalbar Ranking - Probability of Success - Explaining Stock Returns - Magellan Rip-Off - Capitalism and Index Funds

IFA Audio in Pop Up Window Listen while you surf IFA.com.   IFA - Podcast (iTunes) IFA - Podcast (FeedBurner) Mad Money Machine - Web Site

All About Hedge Funds and Private Equity

Annuity Articles: Money for life: The hidden costs - What's Wrong With Variable Annuities -

Beware of the annuity salesman's scare tactics

Bogle Podcast--58 minutes with the Master - A Classic from 1997
The Efficient Markets - Burton Malkiel - Audio Interview

- Warren Buffett says, "Just buy an index fund... sit back and relax"
Listen to Buffett, from Paul Boyer -

Read about the Number 1 rated mutual fund company, DFA
also see

1. DFA Brochure

2. 1999 Distinguished Entrepreneurial Alumni

1. Eugene Fama:

Eugene Fama, (Univ. of Chicago)
One of the Investment Community’s Brightest Thinkers

1. Interviews with Eugene Fama, University of Chicago Finance Professor and Dimensional Fund Advisor`s Director of Research. (Fama Bio) 2. Risk and Cost of Capital (ia-mag.com). New article on cost of capital. 3. For a 20 minute video taped interview , click HERE. 4 . Read his view of how the market works. Click HERE

5. Fama is rated Number 2 of 120,000 authors in the research paper downloads at ssrn.com. He is the number one Business Author and author of the number 1 downloaded paper of 30 million downloads. 6. Fama Classic Papers 7. Tuft University Honors Eugene Fama 8. Debate with Thaler

2. Eugene F. Fama Jr
Vice President
Dimensional Fund Advisors

"The EMH does not claim markets are always perfectly rational or that the information reflected in prices is always correct. The consensus view of investors can temporarily result in prices well above or well below stock's intrinsic value. The only condition efficient markets require is that a disproportionate number of market participants does not consistently profit over other participants.

After taking risk into account, do more managers than you'd see by chance outperform with persistence? Virtually every economist who studied this question answers with a resounding "no." Mike Jensen in the Sixties and Mark Carhart in the Nineties both conduct exhaustive studies of professional investors. They each conclude that in general a manager's fee, and not his skill, plays the biggest role in performance. Since mutual funds report performance after deducting fees, the bigger the fee, the worse the performance. Aside from that, expert investors with nearly unlimited resources working around the clock can't seem to out predict the market."

 

Markets Don't Have to be Right.

What Makes an Asset Class? Sometimes NASDAQ is referred to as an asset class, but it's not. It's an exchange that contains several asset classes. A partial index of NASDAQ stocks might proxy for a tech stock "asset class"—but there's little theoretical reason to think tech stocks are an asset class either.

The New Face of Indexing Old school indexers claim the market portfolio is the only legitimate stock investment. Tilting a portfolio toward a particular piece of the market like small company stocks or value stocks is seen as stock picking, which in turn is seen as gambling (see the June 20, 2000, Wall Street Journal article by Jonathan Clements: "Don`t Use Index Funds as Sector Bets") .

Index Funds Advisors Inc. explains how investors can relax and make more money
By Ken Garner

Buy low, sell high, pick a winner ... the mantra of the active investor. Investing as art, at best, and fortune-telling at worst.

But it doesn't`t have to be that way, according to one online investment advisor. Index Funds Advisors Inc. (IFA), based in Newport Beach, Calif., has created a web site to spread the gospel of index funds investing, which has been scientifically proven to outperform active investing. IFA President Mark Hebner has developed a 12-Step Program, "Active Investors Anonymous™," to help investors understand how they can earn better returns on their investments by trusting the market, not the managers. More...

4. Dalbar

UPDATED DALBAR

Study Finds Investor Behavior Responsible for Investor Return Shortfalls

Equity fund investors earned average returns 5-1/2 times lower than a simple buy-and-hold strategy, due to their attempts to time the market and investing too late.  While the average equity mutual fund investor beat inflation and Treasury bill returns, the small return margin was not enough to justify the much higher risk they incurred. UPDATED DALBAR

5. The Trillion Dollar Bet Transcript

This is the story of risk and returns in the stock market, with a central focus on the failure of the Long Term Capital investment firm. Source: Nova

6. The Man Your Fund Manager Hates

Burton Malkiel has been saying since 1973 that professional money managers can`t beat the market. Today his words are accepted wisdom. But a few questions remain. Like: how come international stock pickers are whipping their indexes?

Anna Bernasek interviews Burton Malkiel

FORTUNE: Most fund investors have learned the hard way that the past tells you nothing about the future. Why are you so sure that index funds will continue to outperform?

Malkiel: Here`s why. All investors as a group have to own all the stocks in the market. As a group, they can`t have a gross return different from the market`s, because they have to own the market. Now, the average mutual fund charges expenses of 1.5% per year, while low-cost index funds charge 0.18%. If all investors are going to have the same gross rate of return as the index fund, no better and no worse, the expense ratio difference is going to give index funds an advantage year after year.

And let me give you a second reason: the tax advantages. The index fund just buys and holds, while a regular fund turns over its portfolio as much as once a year. As long as there is an upward trend in the market, you`ll have to pay more tax with a regular fund. And that`s why I`m convinced indexing is going to continue to be a winning strategy. It`s logical.

7. THE INDEXER

Interview with Patricia Dunn
Past Chairman, Barclays Global Investors ($1 Tillion of primarily Index Funds under management), one of the world`s largest investment firms.
By Suzanne Woolley

She`d rather bet on an index than on a coin toss.

"BGI believes that good investing, most of the time and for most people, is more about engineering than intuition," she says. "Our products are linked by a philosophy that science rather than art is best for investing."

Q. Under what circumstances might active managers as a group top the index?

A. "When small stocks perform better than big stocks, the active manager will almost certainly outperform the S&P 500 and we`ll see headlines like "Indexing Is Dead." But that misses the point, because the S&P 500 reflects only one part of the market--large-cap stocks. When small-caps start doing well, you`ll want to be in either a broad market index or a small-cap index. They will have the same advantage over active managers as an S&P 500 index has over large-cap managers."

"...the more you know about how markets work, the more compelling the case for indexing becomes."

1.Fortune Magazine bears down on Active Management 10/11/99 Issue
	Where Have All the Geniuses Gone? The brilliant mutual fund managers of yore are nearly extinct. The less brilliant are in danger of losing their jobs. Because in today`s hot market, index funds are golden. by David Whitford Text Bite: "Where once we saw wizards, artists, financial Michelangelos, now all we see are charlatans."

2.
Darts and Dow Jones A review of the 1992 20/20 Program (read transcript ), that was way ahead of it`s time.
By Ken Garner

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3. Merrrill Lynch & Co. fined $ 750,000, but broker loses $36.3 MILLION for clients!! 5/16/2000 (more scandals)

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4.

Live from the Fourth Annual Superbowl of Indexing, Phoenix, AZ Dateline: 12-5-99

Text Bite: from John Bogle

In John Bogle`s Keynote Speech here on Sunday night, he noted next year`s 25th Anniversary of the "First Index Investment Trust", which was incorporated on Dec 31, 1975.

On November 16, 1999 the Vanguard 500 Index Fund crossed the $100 Billion milestone, after starting with $11 million. A remarkable compounded growth rate of 50% per year. It is now only $1 Billion away from taking the Total Asset Crown away from Fidelity`s Magellan Fund.

"The search to identify, in advance, the few winning funds is like looking for a needle in a haystack. Why bother looking for the needle, when you can own the haystack?"

"The fact is that indexers always win.... that is in any financial market-and in any segment of any financial market-indexers owning all of the securities in that market at low cost must provide better returns than the other investors in the market in the aggregate."

"And when the day comes that active managers seem to win, remember that it is only because the data either fails to capture the results of all active managers; or because of statistical errors, such as ignoring survivor bias, sales charges, taxes or data anomalies, of which the most notable is calculating fund returns based on the number of funds rather than assets of funds.

"So, fellow indexers, be of stout heart: Active managers as a group never win"

"...in the stock market casino, it is the croupiers who win"

"Nobel Laureate Paul Samuelson said that indexing is trivially obvious and remarkably sweeping. The secret of success in investing is an obvious one; The Haystack trumps the Needle, almost every time."

Your Roving Index Reporter, Mark Hebner

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5. In the End, Stock Funds Just Don`t Measure Up
(no link available, unless you subscribe to Interactive WSJ)
Wall Street Journal, 10/5/99, by Jonathan Clements

Text Bite:
It`s time to settle the question once and for all.

Should you buy actively managed stock funds in an effort to earn market-beating returns, or should you abandon this quest and instead plunk your money in market-tracking index funds? It`s a question that goes to the heart of stock-fund investing.

To get at the answer, I turned to Ira Weiss, an accounting professor at Columbia Business School. Mr. Weiss, in turn, tapped into a database maintained by the Center for Research in Security Prices at the University of Chicago`s Graduate School of Business.......The bottom line? After adjusting for size and survivorship bias, Mr. Weiss found that funds trailed the S&P 500 by some 1.4 percentage points a year. As it happens, that is what diversified U.S. stock funds currently charge in average annual expenses.......Moreover, in his calculations, Mr. Weiss ignored both fund sales commissions and taxes, which would have made fund returns seem even more bleak. Historically, funds have been far less tax efficient than index funds, which don`t trade actively but instead simply buy and hold the stocks that constitute a market index.

......"If you earn 11.6% for 36 years, a dollar grows to $52," Mr. Bogle notes. "If you earn 10.2%, the dollar grows to $33. Which would you rather have, $52 or $33? To ask the question is to answer it."

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6. Index Funds Display Enormous Influence , (no link available)
by Bridget O`Brian, Wall Street Journal, 10/4/99

Text Bite:
New money flowing into index funds for this year through Aug. 30 hit $44.59 billion, according to Financial Research of Boston; that`s already ahead of such sales for all of 1998, when index funds attracted $42.47 billion. And this year`s sales numbers show that 37.6% of all net new money is going into index funds -- that`s nearly $4 of every $10 invested, twice the rate in 1998. A decade ago, only 2.1% of fund sales landed in index portfolios.

5 year performance:

Average Index Fund = 24.45% annualized returns
Avg. Dvsfd. Stock Fund = 17.85% annual returns
Source: Lipper, Financial Research Corp.

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7. Twenty-Five Years of Indexing This study by PricewaterhouseCoopers confirms the value of indexing; August 1998 Twenty-Five Years of Indexing

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8. Barclay Global Investors Predict Market Could be 70-80% Indexed ; March, 1998

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9. The Guide to Ultimate Indexing , Cover Story, To make the most of a growing array of index investments, you need to look beyond the obvious. (requires subscription)
By Daniel McGinn, September 1999, Bloomberg Personal FinanceBy Daniel McGinn, September 1999, Bloomberg Personal Finance

Text Bite:
...But whatever is drawing people in, many will stay put even if the market slides, other experts say. "My guess is that indexing will have a larger role if you call me 10 years from now than it does now," says MIT economist and Nobel laureate Paul Samuelson, an early fan of the technique. "But it will still be a minority mode of investing. "Why? "There`s something in people, you might even call it a little bit of a gambling instinct," Samuelson says. "They want to be interested in the process of investing," and it`s traditionally been difficult to get too jazzed up about indexing. "I tell people [investing] should be dull. It shouldn`t be exciting. Investing should be more like watching paint dry or watching grass grow," he says. "If you want excitement, take $800 and go to Las Vegas."...But whatever is drawing people in, many will stay put even if the market slides, other experts say. "My guess is that indexing will have a larger role if you call me 10 years from now than it does now," says MIT economist and Nobel laureate Paul Samuelson, an early fan of the technique. "But it will still be a minority mode of investing. "Why? "There`s something in people, you might even call it a little bit of a gambling instinct," Samuelson says. "They want to be interested in the process of investing," and it`s traditionally been difficult to get too jazzed up about indexing. "I tell people [investing] should be dull. It shouldn`t be exciting. Investing should be more like watching paint dry or watching grass grow," he says. "If you want excitement, take $800 and go to Las Vegas."

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10. LA Times Article on Indexing 9/26/99

Text Bite:
...today, indexing is one of the few "hot" segments of a tepid fund industry. In July, nearly one of every two new dollars invested in stock and bond funds went into an index fund, according to Financial Research Corp. in Boston.
.....A Blossoming of Index Funds: Indexing is surging in popularity, as evidenced by the proliferation of funds that track all sorts of market benchmarks, from the Standard & Poor`s 500 index of blue chip stocks to the Internet.com index of Net shares.

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11.

The Real Decision , The crucial art of allocating assets hinges on the right index funds. www.businessweek.com

12. Academic Research from the University of Chicago (advanced reading)

The Center for Research in Security Prices maintains the most comprehensive and accurate databases of standard and derived historical data for NYSE, AMEX and Nasdaq common stocks, Indices data, US Treasury data, and Mutual Fund data. CRSP also provides Proxy Graphs for 10K SEC Filing, and custom data sets.Key Strengths of Stock DataExtensive Name History
We trace changes in company name, CUSIP, ticker, SIC code, exchange, share class and code. This allows for seamless time-series analysis.Complete Corporate Actions
We record distributions, mergers, acquisitions, spin-offs, and splits.Accurate Prices and Total Returns
Since 1960, we have had a hands-on approach to research which is reflected in the high quality of our data.

Depth of History
Our month-end data begins in December 1925 for NYSE. Our end-of-day data begins in 1962 for NYSE and AMEX and 1972 for Nasdaq.

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13. Other academic papers for advanced reading: Cowles Foundation for Research in Economics

Glucksman Institute for Research in Securities Markets

UC Davis, Terrance Odean

The Top Achievements, Challenges, and Failures of Finance
by Ivo Welsh also see here. Welsh is also the recepient of the Fama-DFA Award.Comprehensive Finance Web Sites List from Ohio StateSocial Science Electronic Publishing Database of 20,000 authors. This is the most comprehensive database of academic studies.
Finance Professor.com Interesting academic site. Online Trading: Dream vs. RealityThe History of Economic Thought

The Historical Behavior of Asset Returns

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14. CHARACTERISTICS, COVARIANCES, AND AVERAGE RETURNS: 1929-97
James L. Davis, Eugene F. Fama, and Kenneth R. French

A draft of an upublished research paper (February 1999) discussing the statistics of average returns. The authors continue the development, begun by various authors in earlier papers, of the three-factor risk model that is the foundation for the analysis of return/risk ratios for index fund investment portfolios. This paper is for readers with some knowledge of statistics and especially the statistics of investing.AUTHOR`S ABSTRACT: The value premium in U.S. stock returns is robust. The positive relation between average return and book-to-market equity is as strong for the period 1929-63 as it is for the period 1963-97 studied in earlier papers. A three-factor risk model explains the value premium better than the hypothesis that the book-to-market characteristic is compensated irrespective of risk loadings.

The document is in Adobe Acrobat® (PDF) format and the Acrobat Reader is required to view it. If you do not have the free Acrobat Viewer, it may be downloaded from the Adobe Website .

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15. AN INTRODUCTION TO INVESTMENT THEORY
William N. Goetzmann

This hyper-text book introduces the foundations of investment decision-making. Beginning with portfolio theory and the tradeoff between risk and return, it shows how the definition of investor risk depends crucially upon diversification. It explains modern asset pricing models currently used to determine the expected rate of return on investments and finally it presents evidence about what information can be used for strategic investment advantage. The book is designed for use in a four-week teaching module for master`s students studying introductory Finance. It assumes some knowledge of statistics and a familiarity with the concepts of net present value.

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16. For academic articles on finance, see this site. Search on "Eugene Fama" to see his papers.

Journal of Financial Economics

Sample Abstract:
Journal Of Financial Economics Vol. 33 (1) pp. 3-56
© Elsevier Science B.V.

Common risk factors in the returns on stocks and bonds

E.F. Fama
K.R. French, University of Chicago, Chicago, IL 60637, USA
Received 1 July 1992; Revised 1 September 1992

Abstract

This paper identifies five common risk factors in the returns on stocks and bonds. There are three stock-market factors: an overall market factor and factors related to firm size and book-to-market equity. There are two bond-market factors, related to maturity and default risks. Stock returns have shared variation due to the stock-market factors, and they are linked to bond returns through shared variation in the bond-market factors. Except for low-grade corporates, the bond-market factors capture the common variation in bond returns. Most important, the five factors seem to explain average returns on stocks and bonds.

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17. Performance of UK Equity Unit Trusts

Evidence that indexing works even better in International and International Small Cap markets.
More evidence indexing works in Australia.

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18. The Arithmetic of Active Management, William Sharpe

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19. STOCKS, HORSES, CHAOS AND EFFICIENT MARKETS

20. Dot Coms Shut Downs, Low cost of capital companies

21. U.S. House of Representatives Committee on Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises Hearing on "Analyzing the Analysts: Are Investors Getting Unbiased Research from Wall Street?" June 14, 2001

22. Aug. 2, 2008: Lessons from Bill Miller: Don't concentrate, don't style drift, and nobody can beat a risk adjusted market over long periods. Invest right, sit tight. - More on Miller.

23. Aug 19, 2008: Read Dan and Chip Heath’s article: Made to Stick: The Myth of Mutual Funds

24. Oct 26, 2008 - "What we do know is that trying to time the market is a loser's game. And most of the time investors simply get it wrong, selling AFTER market drops and only buying well after it recovers. That results in the dollar weighted returns they earn being well below the market's time weighted returns." - My Take on This Market, by Larry Swedroe - 10/26/08

25. Oct 17, 2008 - From Warren Buffett: "Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. .. "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful." - Buy American, I Am. NYT.com

26. Aug 2, 2008: Mutual Fund Performance, Nitzsche, Dirk, Cuthbertson, Keith and O'Sullivan, Niall, (2006): A Devastating Conclusion: Essentially No Skill, just Luck: "Sensible advice for most investors would be to hold low cost index funds..." Another study: Mutual Fund Performance and Manager Style - A Devastating Conclusion: Essentially No Skill, Just Luck. A new study from Fama & French: Mutual Fund Performance No persistence of Luck.