Articles From Mark Hebner and IFA Contributors (297)

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  • Mark Hebner and IFA Contributors

    The Never-Ending Pursuit of Manager Alpha – Updated

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    by Mark Hebner and IFA Contributors — Thursday, August 24, 2017

    As we have pointed out on many occasions, both stock picking and hiring an active manager to pick stocks on your behalf are mug’s games. While some investors diligently study individual stocks and other investors handsomely pay active managers to deliver alpha (an ...Read More

  • The Matrix Book: A DFA Tradition [VIDEO]

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    by Mark Hebner and IFA Contributors — Friday, May 6, 2016

    "Data! Data! Data!" he cried impatiently, "I cannot make bricks without clay!" — The Adventures of Sherlock Holmes, The Adventure of the Copper Beeches - Sir Arthur Conan Doyle, ...Read More

  • A Look Back at Eugene Fama's 2013 Nobel Prize in Economics

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    by Mark Hebner and IFA Contributors — Sunday, April 24, 2016

    As we approach the three year anniversary of Professor Eugene Fama winning the Nobel Prize in Economic Sciences, we thought it worthwhile to call attention to this article by his colleague at the University of Chicago Booth School of Business and son-in-law, Professor John H. ...Read More

  • Key Man Risk: Yet Another Reason to Avoid Active Funds

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    by Mark Hebner and IFA Contributors — Monday, March 30, 2015

    When discussing the risks of investing in actively managed funds, we have focused on issues related to timing and selection.  Recently, we had a chance to view a report from a prominent investment consultant that was prepared for a major institutional client in our very own ...Read More

  • The Power of Market Returns

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    by Mark Hebner and IFA Contributors — Thursday, March 26, 2015

    “Compound interest is the most powerful force in the universe.”    - Albert Einstein While perusing the Wall Street Journal, we came across this delightful article about a retired janitor (Ronald Read) in Brattleboro, Vermont who passed away at the age ...Read More

  • 12b-1 Fees/Revenue Sharing Come Under Increased Scrutiny

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    by Mark Hebner and IFA Contributors — Wednesday, March 25, 2015

    In the wake of a recent Presidential announcement, mutual fund 12b-1 fees/revenue sharing known as “backdoor payments” as the White House calls them, are under investigation by the Securities and Exchange Commissions (SEC) and the Department of Labor (DOL). ...Read More

  • Did Bloomberg Find Another Bill Miller?

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    by Mark Hebner and IFA Contributors — Tuesday, March 24, 2015

    You may recall that Bill Miller was the fund manager who enjoyed the unparalleled winning streak of beating the S&P 500 Index for fifteen consecutive years ending in 2005. Of course, investors who came late to this party severely regretted it as Miller’s ...Read More

  • Yet Another Sign that the Tipping Point Has Arrived

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    by Mark Hebner and IFA Contributors — Friday, March 20, 2015

    We have spoken several times (see here and here) about the tipping point in the long-term migration from active to passive management. While perusing InvestmentNews, we encountered this article about investors shunning stock pickers in favor of index funds which have been ...Read More

  • Vanguard Wades Deeper into Alternative Investments

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    by Mark Hebner and IFA Contributors — Thursday, March 19, 2015

    If you find the above title puzzling, then you may not be aware that Vanguard offers a market neutral fund (VMNFX) that engages in a long/short equity strategy. Among all the Vanguard funds, it has far and away the highest expense ratio at 1.60%. Setting the minimum investment ...Read More

  • One More Nail in the Coffin of Active Management

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    by Mark Hebner and IFA Contributors — Tuesday, March 17, 2015

    “The only consistent data point we have observed over a five-year horizon is that a majority of active equity and bond managers in most categories lag comparable benchmark indices.”               ...Read More

  • Addressing Some Misconceptions about Indexing

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    by Mark Hebner and IFA Contributors — Wednesday, March 11, 2015

    While Forbes magazine has often carried excellent articles about investing such as this one, we found a recent column from Pamela Rosenau to be disappointing. She begins by noting the mass migration from active management to passive and quotes Jack Bogle who said, “About ...Read More

  • Pension-Gate — More Good News from Pennsylvania

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    by Mark Hebner and IFA Contributors — Tuesday, March 10, 2015

    A little more than a year ago, we reported on how the stewards of the pension fund for Montgomery County, Pennsylvania came to the wise decision of moving away from high-cost actively managed funds in favor of low-cost index funds from Vanguard, whose founder Jack Bogle played a ...Read More

  • Yet More Wisdom from the Oracle of Omaha

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    by Mark Hebner and IFA Contributors — Friday, March 6, 2015

    One of the things we look forward to at this time of year is the release of Warren Buffett’s annual letter to the shareholders of Berkshire Hathaway, and his 2014 letter (which marks the 50th anniversary of the leadership of Warren Buffett and Charlie Munger) did not ...Read More

  • Is Skill Dead? Perhaps It Was Never Alive

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    by Mark Hebner and IFA Contributors — Wednesday, March 4, 2015

    A recently released white paper from GMO titled “Is Skill Dead?” begins with this excellent quote from Jeremy Grantham: “90% of what passes for brilliance or incompetence in investing is the ebb and flow of investment style.” Our only argument with that ...Read More

  • The Emotional Investor: An Interesting New Website

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    by Mark Hebner and IFA Contributors — Tuesday, March 3, 2015

    Recently, we came across theemotionalinvestor.org which is run by Jay Mooreland who, like Joshua Brown, can be described as a reformed broker. As a holder of the Certified Financial Planner (CFP) designation and a Master’s Degree in Applied Economics, Mr. Mooreland now ...Read More

  • Q&A with IFA: Momentum at the Asset Class Level

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    by Mark Hebner and IFA Contributors — Monday, March 2, 2015

    Question: I understand that there is evidence that momentum is one contributing factor to long term performance (in addition to the size and value factors). There is a current advisory service (Fundx) that purports to capture the momentum factor and improve long term performance ...Read More

  • A Presidential Announcement that Should Give Brokers Pause

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    by Mark Hebner and IFA Contributors — Thursday, February 26, 2015

    A few weeks ago, we published this article about a White House memo in which the Chairman of the Council of Economic Advisers (Jason Furman) recommended that brokers who service retirement accounts be legally required to apply a fiduciary standard of care. On Monday (2/23/2015), ...Read More

  • Why Does This Machine Simulate Monthly Market Returns?

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    by Mark Hebner and IFA Contributors — Wednesday, February 25, 2015

    Anyone who has visited IFA’s office in Irvine will likely have a fond memory of Francis, IFA’s probability machine, named after Francis Galton, an English mathematician who was an expert in many scientific fields. For those needing a refresher or a first ...Read More

  • More Bad News on the State of Retirement Readiness

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    by Mark Hebner and IFA Contributors — Tuesday, February 24, 2015

    A few months ago, we published this article addressing the woefully inadequate level of American financial literacy as it relates to retirement saving and investing. This newly released issue brief from EBRI (Employee Benefit Research Institute) highlights the consequences that ...Read More

  • Should Hedge Funds Get Away With It? Not on Our Watch!

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    by Mark Hebner and IFA Contributors — Thursday, February 19, 2015

    The title above is a play on the title of this excellent article from the venerable New Yorker magazine which offers eight possible explanations for what Barry Ritholtz brilliantly calls The Most Fascinating Investing Paradox—that qualified investors keep pouring money ...Read More

  • Cramer Weighs in on Mutual Funds

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    by Mark Hebner and IFA Contributors — Wednesday, February 18, 2015

    As you may have guessed or perhaps already have known from articles such as this one or this one, we at Index Fund Advisors, Inc. are not fans of CNBC’s Jim Cramer. While some may claim that he has helped to educate his viewers who would otherwise know next ...Read More

  • About Those Bulls and Bears

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    by Mark Hebner and IFA Contributors — Tuesday, February 17, 2015

    In the IFA Library of rare and antique finance-related books, we recently acquired a first edition from 1838 of Sketches of Imposture, Deception and Credulity. Although the author is officially anonymous, he was identified by Christopher Dennistoun as Richard Alfred Davenport. ...Read More

  • Tips for Protecting Your Online Brokerage Accounts from Fraud

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    by Mark Hebner and IFA Contributors — Friday, February 13, 2015

    We recently came across this Investor Bulletin from the U.S. Securities and Exchange Commission that provides valuable information to investors who are looking to minimize the chances of having their accounts hacked. We have summarized the most important tips below. Pick a ...Read More

  • Are Stock Pickers Getting Desperate?

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    by Mark Hebner and IFA Contributors — Wednesday, February 11, 2015

    We ask this question after reading this interesting article by David Randall from the Daily Mail. We believe the author was being polite in his word choice of “creative” rather than “desperate?” In prior articles such as this one, we have noted how 2014 ...Read More

  • The Analysts Underestimate Apple Again

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    by Mark Hebner and IFA Contributors — Monday, February 9, 2015

    On 1/27/2015, Apple released a spectacular earnings report for the first quarter of its 2015 fiscal year. Once again, it smashed through the analysts’ predictions, earning $3.06 per share vs. a consensus estimate of $2.60. Powered by the newly introduced iPhone 6 and 6 ...Read More

  • Some Sage Advice from the Guardian

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    by Mark Hebner and IFA Contributors — Monday, February 2, 2015

    The title of this Guardian article by Kira Brecht (“How Highly Paid Wall Street Guys Could Be a Threat to Your Retirement Money”) perfectly summarizes the situation of today’s individual investors. Brecht begins with the decision of Washington DC entrepreneur ...Read More

  • A Memo that Should Give Brokers Pause

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    by Mark Hebner and IFA Contributors — Friday, January 30, 2015

    Recently, a White House memo dated 1/13/2015 from the Chairman of the Council of Economic Advisers (Jason Furman) came to our attention. Co-authored with fellow Council member Betsey Stevenson, it calls out abusive trading practices that cost retirement savers billions of ...Read More

  • Understanding Administrative Trustee Services

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    by Mark Hebner and IFA Contributors — Wednesday, January 28, 2015

    If you have a trust, you are probably familiar with the idea of trustee (which could be yourself) who oversees the administration of the trust and has a fiduciary duty to act in the best interests of the beneficiary(s) of the trust. However, you may not be aware that ...Read More

  • Mark Hebner and IFA Contributors

    Is a Donor Advised Fund Right for You?

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    by Mark Hebner and IFA Contributors — Tuesday, January 27, 2015

    A donor advised fund (DAF) is a charitable giving vehicle administered by a public charity created to manage charitable contributions on behalf of organizations, families, or individuals. The giver opens an account in the fund which can be held at a major brokerage firm such as ...Read More

  • Q&A with IFA: Equally-Weighted S&P 500 Index

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    by Mark Hebner and IFA Contributors — Monday, January 26, 2015

    Question: I have heard that an equally-weighted version (as opposed to the standard market cap-weighted version) of the S&P 500 Index achieves a higher return without additional risk. Should I not use this for the U.S. large cap component of my portfolio? Our data on the ...Read More

  • A Look Back at Some Good Articles from 2014

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    by Mark Hebner and IFA Contributors — Friday, January 23, 2015

    At Index Fund Advisors, we consider 2014 to have been a tipping point year in the migration from active to passive management. Here are some of the articles that helped to convince us of this idea. Please enjoy. Will Invest for Food (The Economist, 5/3/2014) This insightful ...Read More

  • Another View of Smart Beta

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    by Mark Hebner and IFA Contributors — Thursday, January 22, 2015

    As we have stated in prior articles such as this one, smart beta is primarily a marketing term that refers to the attempt to capture risk and return factors beyond beta (overall exposure to the market). The best known examples are fundamentally-weighted index funds which also ...Read More

  • It's Now Official: Invest and Relax

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    by Mark Hebner and IFA Contributors — Wednesday, January 21, 2015

    As we say in Step 12 of IFA’s 12-Step Recovery Program for Active Investors, “Invest and Relax.” We just received confirmation of our advice from Assistant Professor Michaela Pagel of Columbia Business School who posted this working paper which is nicely ...Read More

  • The Paper that Formalized the Size Premium

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    by Mark Hebner and IFA Contributors — Friday, January 16, 2015

    At Index Fund Advisors, we implement portfolios for our clients that are tilted towards the compensated risk and return factors of small cap, value, and profitability. In this article, we will review the paper1 published in 1981 that formally identified the size premium, The ...Read More

  • The Small Cap Tilt: Is It Still a Reliable Source of Higher Returns?

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    by Mark Hebner and IFA Contributors — Thursday, January 15, 2015

    There is no arguing the fact that 2014 has been a difficult year for small cap stocks around the world (with the exception of emerging markets) and particularly in the U.S., as shown in the table below: For the U.S., 2014 has been the worst year for small cap ...Read More

  • The Sharks Are Biting: Wall Street's Structured Products

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    by Mark Hebner and IFA Contributors — Wednesday, January 14, 2015

    “Wall Street is a place where anything that can be sold will be sold”  – Warren Buffett “You are just a buyer of Wall Street’s dreck” – Robert Soros “They [structured products] are horrible investments for retail ...Read More

  • When the Law Takes a Dim View of Cherry-Picking

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    by Mark Hebner and IFA Contributors — Tuesday, January 13, 2015

    As the Securities and Exchange Commission admonishes newly-registered investment advisers on its Website, “As an investment adviser, you are a ‘fiduciary’ to your advisory clients. This means that you have a fundamental obligation to act in the best interests ...Read More

  • FINRA Promises 2015 Will Be a Year of Scrutiny for Brokerage Firms

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    by Mark Hebner and IFA Contributors — Monday, January 12, 2015

    A few days ago, the Financial Industry Regulatory Authority (FINRA) released its 2015 Regulatory and Examination Priorities letter highlighting significant risks and issues that, if not properly addressed, could affect investors and market integrity. Although it comes in a bit ...Read More

  • IFA Index Portfolio 100 vs. the S&P 500 Index [VIDEO]

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    by Mark Hebner and IFA Contributors — Thursday, January 8, 2015

    There is no arguing the fact that compared to U.S. large company stocks, 2014 was a difficult year globally diversified portfolios tilted towards small cap and value stocks. The table below shows the 2014 difference between IFA Index Portfolio 100 (which is the equity component ...Read More

  • The Fourth Quarter of 2014 in Review

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    by Mark Hebner and IFA Contributors — Friday, January 2, 2015

    In the fourth quarter of 2014, domestic equities had a strong showing, but foreign equities pulled back for both international developed and emerging markets. One major market-related story was the steep drop in oil prices, which decreased by about 41% for the quarter. Even ...Read More

  • Is a Health Savings Account Right for You?

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    by Mark Hebner and IFA Contributors — Thursday, January 1, 2015

    A health savings account (HSA) is a tax-advantaged medical savings account for people who are enrolled in a high-deductible health plan (HDHP). For this purpose, an HDHP must have a minimum deductible of $1,250 for individuals or $2,500 for families. When used for its intended ...Read More

  • A Foundational Paper in Finance

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    by Mark Hebner and IFA Contributors — Wednesday, December 31, 2014

    At Index Fund Advisors, we often talk about the risk factors that explain the returns of diversified portfolios. In this article, we will explore the technique pioneered1 by Nobel Laureate Eugene Fama and James Macbeth for establishing the existence of a risk factor and ...Read More

  • Q&A with IFA: Bond Funds vs. Individual Bonds

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    by Mark Hebner and IFA Contributors — Friday, December 26, 2014

    Question: Should the bond portion of my portfolio be in bond funds or in a ladder of individual bonds? Answer: Like many things with respect to investing, a case can be made for either side. Any proposed bond allocation decision is simply a trade-off among the objectives of low ...Read More

  • No Virginia, There Is No Stock Picking Santa Claus

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    by Mark Hebner and IFA Contributors — Wednesday, December 24, 2014

    There is no denying it; we Americans love an underdog, and what better underdog than a 17-year-old high school kid who beats Wall Street at its own game? Or so it seemed according to this fluff piece carried in New York magazine which claimed that the student (whom we ...Read More

  • IFA Introduces a New Interactive Chart on the Predictability of Returns

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    by Mark Hebner and IFA Contributors — Tuesday, December 23, 2014

    Does knowing what happened in the recent past with returns of index funds help you predict the future? We explore that question in the new interactive chart below. It allows you to choose one of four IFA Index Portfolios and one of six time period lengths for a total ...Read More

  • When a Chinese Wall Is Not Something to Toy With

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    by Mark Hebner and IFA Contributors — Monday, December 22, 2014

    In the wake of the dot-com bust of the early 2000s, you may recall how we were promised that going forward there would be a “Chinese wall” or a “firewall” between the research and investment banking departments of the Wall Street investment banks that so ...Read More

  • Americans Continue to Get Failing Grades on Retirement Readiness

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    by Mark Hebner and IFA Contributors — Friday, December 19, 2014

    We have published many articles about the woeful state of financial literacy in America. Just when we thought it could not get any worse, along comes this story from the American College of Financial Services. A little over 1,000 people age 60-75 with at least $100,000 of ...Read More

  • Some Interesting New Data on 401(k) Plans

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    by Mark Hebner and IFA Contributors — Thursday, December 18, 2014

    BrightScope and the Investment Company Institute recently collaborated to produce this report on the current state of 401(k) plans based on BrightScope’s database of over 35,500 plans. As of 6/30/2014, of the $24.0 trillion of U.S. retirement plan assets, 401(k) plans ...Read More

  • A Golden Age for Active Investing? We Think Not!

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    by Mark Hebner and IFA Contributors — Wednesday, December 17, 2014

    Alexander Friedman of GAM Holding AG recently opined on CNBC.com that (to paraphrase Mark Twain) the recent reports of the demise of active managers are greatly exaggerated. Friedman acknowledges the mass migration from active to passive, noting that passive funds now account ...Read More

  • A Respectful Disagreement with St. Jack

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    by Mark Hebner and IFA Contributors — Tuesday, December 16, 2014

    Anyone who has spent a significant amount of time on our Website will know that we have nothing but the highest respect for Jack Bogle, the Father of Indexing for Retail Investors. Recently, however, we saw this Bloomberg article where Bogle said that he would not risk investing ...Read More

  • Mark Hebner and IFA Contributors

    What the Cap Rate from Real Estate Teaches Us about Investing

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    by Mark Hebner and IFA Contributors — Monday, December 15, 2014

    The capitalization rate (or cap rate) on a real estate investment property is defined as its yearly net income divided by its price. For example, suppose we have two apartment buildings, both of which have net rental income of $1 million. The first one (which we will call ...Read More

  • What Can We Read into the Increase in the VIX Index?

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    by Mark Hebner and IFA Contributors — Friday, December 12, 2014

    As noted in this CNBC article, The CBOE Volatility Index (VIX) which is widely interpreted to be an indicator of fear has risen by 40% (actually 57% based on the 12/10/2014 close) over the three trading days ending 12/10/2014. VIX measures the market’s expected short-term ...Read More

  • Two Nobel Laureates—Two Views of Smart Beta

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    by Mark Hebner and IFA Contributors — Thursday, December 11, 2014

    Smart beta appears to be all the rage in the investment world right now. According to this Financial Times article citing Morningstar data, there were 673 smart beta exchange-traded products representing just under $400 billion as of 6/30/2014. In one of our recent articles, we ...Read More

  • Even More Bad News for Active Managers

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    by Mark Hebner and IFA Contributors — Wednesday, December 10, 2014

    On the heels of this story that we just published regarding the difficult times faced by active managers of large cap funds comes this piece from Reuters which states, “Stock-picking fund managers are testing their investors’ patience with some of the worst ...Read More