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Momentum: A Fourth Factor

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by IFA Contributors
Monday, April 1, 2013

Throughout IFA’s Website, you will find references to the three-factor model formulated by Professors Eugene Fama and Ken French, which says that the expected return of a broadly diversified stock portfolio in excess of a risk-free rate is a function of that ...Read More

Article Library

  • Hedge Funds: A Deeper Look into their Returns

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    by IFA Contributors — Wednesday, March 27, 2013

    Despite the dismal results delivered to their investors since inception1, hedge funds have continued to grow, reaching a record $2.25 trillion by the end of 2012, according to Hedge Fund Research2.  At IFA, we have consistently warned investors to steer clear of them, and ...Read More

  • SAC Capital Sets a New Record – but Not One to Boast About

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    by IFA Contributors — Wednesday, March 20, 2013

    A story that we have been following for some time now is the SEC/FBI investigation of SAC Capital Advisors for insider trading. On March 15th, a shoe dropped when the SEC announced1,2 a record-setting $616 million settlement for affiliates of SAC Capital related to trades ...Read More

  • Jim Parker, DFA  Vice President

    Expensive Mistakes

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    by Jim Parker — Thursday, March 14, 2013

    This material may refer to resident trusts offered by DFA Australia Limited. These resident trusts are only available in Australia. Nothing in this material is an offer or solicitation to invest in these resident trusts or any other financial products or securities. All figures ...Read More

  • Dow 20,000? Not Quite Yet!

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    by IFA Contributors — Monday, March 11, 2013

    Our latest example of an unfulfilled prediction comes from James Altucher of Formula Capital who stated a year ago on Yahoo's Daily Ticker that the Dow would go to 20,000 within a ...Read More

  • What Is Your Fund's Active Share, and Should You Care?

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    by IFA Contributors — Monday, March 11, 2013

    To borrow from a Vanguard study1, "active share" is defined as the percentage of a portfolio that differs from a benchmark index. It provides a simple measure of the degree of active management in a portfolio at a given point in ...Read More

  • Brad Steiman

    Northern Exposure: Short-Sighted

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    by Brad Steiman — Friday, March 8, 2013

    Not long ago, fatigued investors were feeling the cumulative weight of two severe financial crises, periods of heightened stock market volatility, and an endless supply of bad economic news. Investors who extrapolated recent market experience were losing faith in equities and ...Read More

  • Papers Cited in IFA's Investment Policy Statement

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    by Mark Hebner and IFA Contributors — Thursday, February 28, 2013

    While any Wall Street firm can publish a "research report" that makes an unsubstantiated claim (e.g., Apple's share price will hit $1,000 by the end of the year), academic research is held to a completely different standard: the peer review process. This process ensures that no ...Read More

  • Betting against the House

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    by Weston Wellington — Thursday, February 14, 2013

    It's New Year's Day 2012. In addition to overdosing on televised college football, you're spending part of the holiday working on the family finances. Armed with a laptop and various online financial tools, you're on the hunt for appealing stock market ...Read More

  • Betting Against Buffett: So Far Not So Good

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    by IFA Contributors — Tuesday, February 5, 2013

    From the title of this article, you may have thought I was referring to someone who took a short position in Berkshire Hathaway. While I don’t personally know anybody who is crazy enough to have done this, at least one person thought it was a good idea. On January ...Read More

  • Time Diversification of Risk

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    by Mark Hebner — Sunday, January 27, 2013

    As the investment time horizon lengthens, the actual average annual compound return achieved by a stock portfolio converges to its expected ...Read More

  • What Some People Will Do to Beat the Market!

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    by IFA Contributors — Wednesday, January 23, 2013

    While hedge funds as a whole have failed to deliver their investors a higher return than T-Bills1, there are a few that have provided above-market returns. One of them is Steven Cohen’s SAC Capital, which is now the subject of an ongoing FBI/SEC investigation of insider ...Read More

  • An Explanation of IFA's New Tagline

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    by Mark Hebner — Tuesday, January 22, 2013

    As you may have noticed, we at Index Funds Advisors have changed our tagline from "matching people with portfolios" to "fiduciaries for wealth." While the former is a fair description of what we do at the beginning of a client relationship, the latter goes to the essence of who ...Read More

  • Economic Forecasting and Market-Timing: Stay Clear of It!

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    by IFA Contributors — Friday, January 18, 2013

    Anybody who watches CNBC during market hours gets treated to a litany of economic predictions and their expected impact on market prices. Quite often, you will hear from two different pundits with opposite points of view about the direction of the economy, yet both sound ...Read More

  • IFA's Concerns with Laddered Bond Portfolios

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    by Mark Hebner — Thursday, January 10, 2013

    To borrow from Investopedia, a bond ladder is a portfolio of individual bonds with maturity dates evenly spaced across several years, so that the bonds are maturing and the proceeds are being reinvested or spent at regular ...Read More

  • 2012: The Year It Didn’t Happen

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    by Weston Wellington — Monday, January 7, 2013

    Judging by the headlines in the financial press, investors spent much of the past year anxiously awaiting one calamity after another that failed to occur. The plunge off the so-called fiscal cliff was averted. The euro zone did not fall apart. China's economy and stock market ...Read More

  • 2012: The Year in Review

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    by IFA Contributors — Wednesday, January 2, 2013

    Unlike 2011, 2012 was a year in which risk was rewarded. It is important to bear in mind that if risk were rewarded every year, it wouldn't be risk and investors would have no right to expect a positive real ...Read More

  • New Website to Help Stop Investment Scams

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    by IFA Contributors — Friday, December 21, 2012

    Today, I found a basis for hope upon reading this press release describing how the Better Business Bureau (BBB) and the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation have teamed up to produce a new Website to combat investment fraud, BBB Smart ...Read More

  • Arthur Wiesenberger: The Morningstar of His Day

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    by Mark Hebner and IFA Contributors — Tuesday, December 18, 2012

    A recent addition to IFA's ever-expanding collection of antique finance books is the 1954 edition of Investment Companies by Arthur Wiesenberger. For those who are not familiar with this weighty tome, consider it the Morningstar of that time ...Read More

  • The Nobel Foundation: Isn’t It Ironic…Don’t You Think?

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    by Mark Hebner — Monday, December 17, 2012

    The highly coveted Nobel Prize has been the pinnacle of academic achievement for advances in science and culture. Unfortunately, the Nobel Foundation believes in touting the exact opposite when it comes to the investment strategy for their endowment. In a recent interview with ...Read More

  • Ponzi Schemes After Madoff: A Sad Story Continues

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    by IFA Contributors — Tuesday, December 11, 2012

    It has been almost exactly four years since Bernie Madoff was revealed as the operator of the largest Ponzi scheme in history (estimated at $64.8 billion by prosecutors). One might think that with all the publicity and news coverage, people would have become more cautious and ...Read More

  • Forecasting Stock Market Returns: Why We Don't Do It

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    by Mark Hebner and IFA Contributors — Monday, December 10, 2012

    A recent whitepaper from Vanguard1 analyzed the impact of sixteen different variables on subsequent equity returns. They included everything from the ten-year smoothed price-to-earnings ratio to consensus GDP growth. ...Read More

  • Tax Rates and Stock Returns

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    by IFA Contributors — Friday, November 30, 2012

    With all the chatter in the financial media about the impending fiscal cliff, investors cannot be blamed for their confusion. Some investors have expressed a concern that an increase in tax rates may result in a substantial drop in stock market values or lower expected future ...Read More

  • What a License Plate Reveals

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    by IFA Contributors — Thursday, November 29, 2012

    While driving to work today, I was racking my brain for a good topic to write about when suddenly, a black Ferrari convertible zoomed past me. Normally, I would not give that a second thought, but I could not help but notice the license plate which displayed an abbreviated ...Read More

  • Deja Vu: Sandy and the Great Blizzard of 1888

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    by Mark Hebner — Tuesday, November 6, 2012

    While Sandy was well forecasted, folks back in 1888 had no benefit of foresight. As a result, Northeasterners were caught off-guard that early Sunday morning.  Snow pelted New Jersey, New York, Massachusetts, and Connecticut, leaving many trapped in their homes for a ...Read More

  • The Impact of Bad Investor Behavior

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    by IFA Contributors — Wednesday, October 24, 2012

    About a year ago, Professors Brad Barber and Terrance Odean published a survey of studies from around the world (including several of their own) showing the deleterious impact of bad behavior on investors' wealth. To summarize their findings from the conclusion, "They ...Read More

  • When Two Minuses Do Not Make a Plus

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    by IFA Contributors — Tuesday, October 23, 2012

    As a registered investment advisor, Index Funds Advisors, Inc. is constantly solicited by mutual fund companies and ETF (exchange-traded fund) providers hoping to convince us to use their products for our client’s portfolios. Recently, we were invited to a Webinar on an ...Read More

  • The Google Earnings Debacle: The Piranhas Attack

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    by IFA Contributors — Friday, October 19, 2012

    At Index Funds Advisors, Inc, we often talk about the Efficient Markets Hypothesis which states that current prices incorporate all publicly available information. When new information appears, traders act on it like a school of piranhas devouring a fresh piece of ...Read More

  • VP Dimensional Fund Advisors

    The Top Ten Money Excuses

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    by Jim Parker — Thursday, October 18, 2012

    Human beings have an astounding facility for self-deception when it comes to our own money. We tend to rationalize our own fears. So instead of just recognizing how we feel and reflecting on the thoughts that creates, we cut out the middle man and construct the facade of a ...Read More

  • Hedge Fund Warnings from the SEC

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    by IFA Contributors — Monday, October 15, 2012

    Anyone who is contemplating investing in a hedge fund would do well to read the SEC's Investor Bulletin: Hedge Funds. This document instructs potential investors to not only read the fund's offering memorandum but also to make sure they understand the fund's investment ...Read More

  • Beating a Dead Horse

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    by IFA Contributors — Friday, October 12, 2012

    Once again, the S&P Indices versus Active Funds (SPIVA®) Scorecard shows the dismal story for active management getting worse and worse. For domestic equity funds in the last 12 months, 86.0% failed to beat their benchmark. The failure rate for five years is a very ...Read More

  • Weston Wellington

    Another Wall of Worry

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    by Weston Wellington — Thursday, October 4, 2012

    Investors have been confronted with a steady drumbeat of discouraging news over the past year. It's not difficult to explain why mutual fund investors have generally favored fixed income strategies rather than equities over this past twelve-month ...Read More

  • A Problem with Jack Bogle? I Don't Think So!

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    by IFA Contributors — Tuesday, September 11, 2012

    For anyone who works in the investment advisory business, particularly on the passive side, John (Jack) Bogle is a name held in the highest esteem. A pioneer in the realm of indexing, the founder and longtime CEO of Vanguard brought low-cost investing to countless investors, ...Read More

  • The Economic Consequences of the New Deal

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    by Tyler L. Collins — Friday, September 7, 2012

    Benjamin Stolberg and Warren Jay Vinton wrote The Economic Consequences of the New Deal in 1935. Benjamin Stolberg was a journalist and writer, who mainly focused on the issues of American ...Read More

  • Vice President Dimensional Fund Advisors

    In Other News

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    by Jim Parker — Monday, September 3, 2012

    Bad news sells. It sells because fear is a more powerful emotion than greed. Newspaper editors know that, which is why the front pages are often so depressing. But sometimes you need to dig inside the paper for a more balanced ...Read More

  • Amsterdam: Where It All Began

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    by IFA Contributors — Monday, August 13, 2012

    In his magnificent work, The Birth of Plenty—How the Prosperity of the Modern World Was Created, William Bernstein outlines the four necessary conditions for the massive growth of wealth experienced over the past two centuries: the securing of property rights, the triumph ...Read More

  • Pension-Gate Continues - Maryland has been Called Out

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    by IFA Contributors — Monday, August 6, 2012

    Index Funds Advisors, Inc. has repeatedly called attention to the scandalous waste of money on active management by state retirement systems. Last week, The Maryland Public Policy Institute and the Maryland Tax Education Foundation issued a report by Jeff Hooke and Michael ...Read More

  • Caught Short! A Saga of Wailing Wall Street

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    by IFA Contributors — Thursday, August 2, 2012

    Continuing with our series of blogs on books in the financial humor genre, we will take a quick look at Caught Short—A Saga of Wailing Wall Street by the iconic singer, dancer, actor, comedian, and songwriter, Eddie Cantor. Published in November of 1929 (one month after ...Read More

  • Brad Steiman

    The Greatest Hits of Investing

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    by Brad Steiman — Friday, July 27, 2012

      For more than a decade, I have had the privilege of hearing many colleagues discuss the fundamentals of investing in simple and effective ways. Everyone puts their own words and music to this set of ideas, but the following are what I consider the top ten greatest hits, ...Read More

  • Jim Parker

    The Cost of Safety

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    by Jim Parker — Sunday, July 15, 2012

    Investors are now so risk averse they are willing to pay the German government to look after their money; not a risk-free return, but a return-free risk. Yields on two-year German notes sank to an all-time low of -0.005% on June 1. Looked at another way, anxious investors were ...Read More

  • Pop Quiz

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    by Weston Wellington — Sunday, July 15, 2012

    Question: The twenty-two prominent firms listed below share a common characteristic. What is it? Answer: If you guessed each firm is a constituent of the S&P 500 Index, you would have been close—but ...Read More

  • Brendan Connelly

    Retirement Plan Shadows

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    by Brendan Connelly — Thursday, July 12, 2012

    How to Win Your Battle against the Money Management Machine     "It is difficult to get a man to understand something when his salary depends on his not understanding it." —Upton Sinclair, The Jungle, 1906   "Everyone carries a shadow, and the less it is ...Read More

  • Credit Ratings vs. Market Pricing

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    by Dimensional Fund Advisors — Friday, June 29, 2012

    In the highly competitive financial markets, most "news" has already been incorporated into prices. Dimensional takes advantage of the information embedded in prices, rather than relying on third parties rating ...Read More

  • A Busy Week in the World of High Finance

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    by IFA Contributors — Thursday, June 28, 2012

    This is one of those weeks where we have so many juicy stories that I truly don’t know where to begin. How about another Madoff story? At last, we have the long-awaited and so richly deserved punishment of ten years in the slammer for Peter Madoff, the brother of ...Read More

  • Actively Managed Funds Continue to Lose Market Share

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    by IFA Contributors — Wednesday, June 27, 2012

    Recently, when I was browsing the Morningstar Website, I stumbled upon a video titled “What’s Driving Investors Away From Actively Managed Funds?” In the interview with Christine Benz, Morningstar’s editorial director Kevin McDevitt states: “If you ...Read More

  • Reaching for Yield: Junk and Other High-Risk Bonds

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    by IFA Contributors — Tuesday, June 26, 2012

    In this concluding article in the series exploring different ways investors might attempt to increase the income generated by their portfolios, we look at high-yield bonds. These securities offer a higher coupon payment than Treasuries and investment-grade corporate bonds at the ...Read More