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An IFA Internal Study of the Futility of Manager Picking

7,301
by Mark Hebner
Thursday, August 8, 2013

IFA performed its own study of the persistence of manager performance using Morningstar data. The numbers could not be more clear—past performance is no guarantee of future ...Read More

Article Library

  • The Failure of Manager Pickers

    5,311
    by Mark Hebner — Wednesday, August 7, 2013

    Like stock and time picking, manager picking is usually a worthless endeavor; however, there are still investors out there who believe they can select an all-star manager or financial guru who can beat the ...Read More

  • Diversification is Your Friend [VIDEO]

    6,838
    by Weston Wellington — Tuesday, August 6, 2013

    In this session we're going to discuss the topic of ‘diversification.' One leading economist number of years ago said, "diversification is the investor's best ...Read More

  • Mark Hebner and IFA Contributors

    Casinos, Insurance Companies, and Indexers: What Do They Have in Common?

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    by Mark Hebner and IFA Contributors — Tuesday, August 6, 2013

    To many people, the financial markets are nothing more than a giant casino where the odds are stacked against them. Certainly, one can hardly blame them when they repeatedly hear about the computers that now dominate trading or the hedge-fund related insider trading scandals. ...Read More

  • Thoughts on Time Picking

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    by Mark Hebner — Tuesday, August 6, 2013

    There seems to be universal agreement among investment experts that time picking is futile. Even so, it is not unusual for these same experts to actively tout its ...Read More

  • Profitability and a Four-Factor Model

    21,854
    by Mark Hebner and IFA Contributors — Friday, August 2, 2013

    When constructing or evaluating a domestic equity portfolio, Index Fund Advisors has traditionally utilized the three-factor asset pricing model that Professors Eugene Fama and Ken French introduced1 in 1993. This model states that the expected return of a broadly diversified ...Read More

  • Missing the Best and Worst Days

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    by Mark Hebner — Friday, August 2, 2013

    Big down days and big up days frequently come right next to each other. This is volatility—and it is why you have to stay in the markets to get the markets’ superior ...Read More

  • When Two Hats Are Not Better than One

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    by Mark Hebner and IFA Contributors — Thursday, August 1, 2013

    As a registered investment adviser that is regulated under the Investment Advisers Act of 1940, one of the fiduciary duties that Index Fund Advisors owes to its clients is to seek out best execution for their trades. We fulfill this requirement by placing client assets with ...Read More

  • IFA's Position Statement on Investing

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    by Mark Hebner — Wednesday, July 31, 2013

    1. Capitalism earns a profit for its shareholders on average. 2. Companies have a cost of equity capital of about 10% and that cost of capital is paid to the shareholders. 3. Nobody can see the future and future prices are randomly moved by unpredictable news. Bad news results ...Read More

  • The Wisdom of a Smart Crowd

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    by Mark Hebner and IFA Contributors — Tuesday, July 30, 2013

    Cogent Research LLC recently completed a survey of 1,700 financial advisers that asked how likely they are to increase or decrease assets with 24 different mutual fund companies, and once again, Dimensional Fund Advisors (DFA) scored the highest. DFA also scored the highest on ...Read More

  • The Separation Theorem

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    by Mark Hebner — Sunday, July 28, 2013

    Harry Markowitz was primarily concerned with the diversification of risky assets. James Tobin added the concept of combining risk-free assets, such as cash or bonds, with risky assets, such as ...Read More

  • Advocates of Capitalism

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    by Mark Hebner — Saturday, July 27, 2013

    Although not formally his professor, Ludwig von Mises may be considered a mentor of Friedrich von ...Read More

  • When Possessions Are Confused with Investments

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    by Mark Hebner — Friday, July 26, 2013

    All too often, we come across stories of broken nest eggs that make us feel truly awful. One such story can be found in this 8-minute documentary on YouTube regarding a former soap opera star who spent about $100,000 on Beanie Babies with the expectation of making sufficient ...Read More

  • Putting Active Management to the Test

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    by Mark Hebner — Friday, July 26, 2013

    from the University of Chicago, Eugene Fama's graduate student, Michael Jensen, published "The Performance of Mutual Funds in the Period 1945-1965," in the Journal of Finance, ...Read More

  • Prices are Fair [VIDEO]

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    by Weston Wellington — Friday, July 26, 2013

    Securities markets are very competitive all around the world. competition among market participants tends to drive prices toward fair ...Read More

  • A Hedge Fund Gets Indicted

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    by Mark Hebner and IFA Contributors — Thursday, July 25, 2013

    To help us keep track of all the hedge fund scandals of recent years, we created IFA’s Hedge Fund Manager Hall of Shame. Note that we limited it to hedge fund managers, so today’s grand jury indictment of SAC Capital Advisors for insider trading puts us in a bit ...Read More

  • The Mutual Fund Landscape—Not a Pretty Picture

    6,798
    by Mark Hebner and IFA Contributors — Wednesday, July 24, 2013

    As we have discussed in previous articles such as this one, investors have a strong tendency to pour cash into funds that have had high returns only to be met with disappointment. If investors truly understood how stacked the deck is against them, perhaps they would avoid this ...Read More

  • The Random Walk of Stock Prices

    6,697
    by Mark Hebner — Wednesday, July 24, 2013

    The Random Walk Theory essentially states that there are no discernible patterns in stock market prices. The logic and reasoning goes like ...Read More

  • A New Gadfly Buzzes the 401(k) Industry

    5,730
    by Mark Hebner and IFA Contributors — Monday, July 22, 2013

    While we have often written about the sorry state of affairs that constitutes today’s 401(k) industry, as documented in this PBS Frontline documentary, Professor Ian Ayres of Yale Law School has taken it to the next level, according to this article from RIABiz. After ...Read More

  • Second-Guessing

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    by Jim Parker — Monday, July 22, 2013

    Markets recently have had a rocky time as investors in aggregate reassess prospects for monetary policy stimulus in the US. Is this something to worry about? The world’s most closely watched central bank unsettled financial markets by flagging that it may start to scale ...Read More

  • Active Investors Anonymous

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    by Mark Hebner — Friday, July 19, 2013

    I am Mark Hebner, president of Index Fund Advisors (IFA), a registered investment advisory firm. Years ago I learned some painful lessons when I sold my previous business and turned the profits over to active ...Read More

  • June Provides an Example of Differing Investor Behavior

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    by Mark Hebner and IFA Contributors — Friday, July 12, 2013

    June was a difficult month for fixed income (bond) investments, as interest rates increased in the face of the Federal Reserve's announcement that its program of bond buying known as Quantitative Easing would eventually taper down. Investors holding longer-maturity bonds were ...Read More

  • An Inside View of Dimensional: Upfront and Personal with David Booth

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    by Melissa Johnson and Mark Hebner — Friday, July 12, 2013

    Mark Hebner recently sat down in Napa, California for a rare interview with David Booth, Chairman and Co-Chief Executive Officer of Dimensional Fund Advisors, to discuss the beginnings, evolution and impact of the renowned Dimensional Matrix Books. Not only did Booth talk about ...Read More

  • Some Recent Data on Inflation

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    by Mark Hebner and IFA Contributors — Thursday, July 11, 2013

    Anyone who is the least bit familiar with Index Fund Advisors knows that we take a “no forecasting” approach to economic data and its impact on returns. However, when the market itself provides a forecast, we are happy to make note of it, even though there is no ...Read More

  • When Two Seconds Is an Eternity

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    by Mark Hebner and IFA Contributors — Tuesday, July 9, 2013

    In a previous article, we discussed the non-level playing field (to put it as charitably as possible) on which individuals who actively place their own trades compete. This message was driven home by Thomson Reuters’ announcement that it would suspend two-second early ...Read More

  • Bond Funds: Doing Their Job

    6,469
    by Mark Hebner and IFA Contributors — Tuesday, July 9, 2013

    In the second quarter of 2013, bonds turned in a loss, and they remained negative on a year-to-date basis as of the market close on 7/5/2013. For the four bond funds used in the IFA Index Portfolios, the average year-to-date return was -0.58%. While it could have been as ...Read More

  • 2Q/2013: The Quarter in Review

    7,103
    by Mark Hebner and IFA Contributors — Friday, July 5, 2013

    In the second quarter of 2013, risk continued to be rewarded for US equities but not for foreign equities, REITs, or fixed income. Perhaps the most noteworthy event during the quarter was the negative reaction to Fed Chairman Ben Bernanke’s statement that the Fed’s ...Read More

  • Pension-Gate: More Smart Advice from Maryland

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    by Mark Hebner and IFA Contributors — Friday, July 5, 2013

    About a year ago, we called attention to a report by the Maryland Public Policy Institute and the Maryland Tax Education Foundation titled, “Wall Street Fees and the Maryland Public Pension Fund” which concluded the following: "State pension systems represent the ...Read More

  • Climate vs. Weather: Understanding the Difference

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    by Mark Hebner and IFA Contributors — Thursday, June 27, 2013

    The recent heat wave in Alaska where the temperatures exceeded 90 degrees prompted us to ask what is the probability that on a given summer day, the temperature in Fairbanks, Alaska will exceed 90 degrees? Naturally, this is a very small number, best measured in basis points ...Read More

  • Pension-Gate - Good News from Pennsylvania

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    by Mark Hebner and IFA Contributors — Wednesday, June 26, 2013

    A few months ago, we reported on how CalPERS (the $260 billion California Public Employees Retirement System pension plan) was considering dropping its current active approach to embrace a more passive investment strategy. Naturally, we encouraged (and continue to encourage) ...Read More

  • The 401(k) Lawsuits Continue

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    by Mark Hebner and IFA Contributors — Wednesday, June 26, 2013

    About two months ago, PBS aired “The Retirement Gamble” which delved into the problems facing American workers who have had their defined benefit pension plans replaced with sub-par 401(k) plans. One of the primary problems of these 401(k) plans is the high costs ...Read More

  • So Just How Much Should You Be Saving for Retirement?

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    by Mark Hebner and IFA Contributors — Tuesday, June 25, 2013

    This, of course, is a crucial question to both your current and future financial security. Certainly, there are no easy “one-size-fits-all” answers, but thanks to some recent research from Massi De Santis and Marlena Lee of Dimensional Fund Advisors (DFA), we have ...Read More

  • How and Why Investors Lose

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    by Mark Hebner — Tuesday, June 25, 2013

    The Trzcinka study cited by Jason Zweig, showed a large gap between funds' and shareholders' returns and was a shock to even the ...Read More

  • Active Investors are Gamblers

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    by Mark Hebner — Monday, June 24, 2013

    New studies in the field of neuroeconomics confirm the release of dopamine when presented with the opportunity of a surging ...Read More

  • Types of Active Investing

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    by Mark Hebner — Sunday, June 23, 2013

    About 75% of investors are active investors. The most popular strategies in attempting to beat a market include stock, time, manager, and style ...Read More

  • What is Risk?

    9,161
    by Mark Hebner — Saturday, June 22, 2013

    There are many terms used by investment professionals and academics in their quest to define ...Read More

  • The Downsides of Indexing?

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    by Mark Hebner and IFA Contributors — Friday, June 21, 2013

    A recent article on MarketWatch by J.J. Zhang offers up several criticisms of indexing that we will answer here. Zhang starts with the usual positive attributes of indexing, such as simplicity and diversification - and then begins his attack: “With several studies showing ...Read More

  • Active vs. Passive: Is the Tipping Point Here?

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    by Mark Hebner and IFA Contributors — Tuesday, June 18, 2013

    Back in 2007, John Bogle, the founder of The Vanguard Group and the author of The Little Book of Common Sense Investing, The Only Way to Guarantee Your Fair Share of Stock Market Returns", wrote the following endorsement of Index Funds: The Twelve Step Program for Active ...Read More

  • Buy What, Bernie?

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    by Tom Allen and Mark Hebner — Friday, June 7, 2013

    The name Bernie Madoff has become the icon for everything that is wrong with the financial services industry. Although many scammers have preceded Bernie in deceiving investors and bilking them out of their life savings (and I am sure there will be more), he will always be ...Read More

  • Sex, Lies and Ticker Tape

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    by Mary Brunson — Wednesday, June 5, 2013

    "I don't wait in lines...I snort them." Those simple, yet searing words should have served as a warning siren for Turney Duff. They should have signaled the impending and total crash of his own personal universe—had he only paid ...Read More

  • The Art of Letting Go

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    by Jim Parker — Wednesday, May 29, 2013

    In many areas of life, intense activity and constant monitoring of results represent the path to success. In investment, that approach gets turned on its head. The Chinese philosophy of Taoism has a word for it: “wuwei.” It literally means “non-doing.” In ...Read More