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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

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  • 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

    5,654
    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

  • Investing Anomalies

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    by Roger Trinwith — Monday, June 25, 2012

    Investing is historically chock-full of strategies based on absurd anomalies. These include the January effect, the Super Bowl Indicator, the Harvard MBA Indicator, and “Sell in May and Go Away.”  If you take a large number of “indicators” (I wince ...Read More

  • When Truth is Stranger than Fiction

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    by IFA Contributors — Monday, June 25, 2012

    Once in a while, when I need a topic to write about, I browse the latest press releases from the Securities and Exchange Commission (SEC). When looking today, however, even I had to do a double-take when I saw the headline, “SEC Charges Florida Broker in Astrology-Based ...Read More

  • "Index Funds" by Mark Hebner - A Gem

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    by Taylor Larimore (guest author) — Tuesday, June 19, 2012

    "Index Funds" by Mark Hebner - A Gem by Taylor Larimore (guest author) Mark Hebner’s updated Index Funds is a beautiful little book full of colorful pictures, complex charts and multi-fund portfolios (not Boglehead simplicity). Mr. Hebner shares my ...Read More

  • Index-Fund Investing: Revisiting a Piece of Investment History

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    by IFA Contributors — Tuesday, June 12, 2012

    In August of 1976, while everyone was dreading the potential epidemic of Legionnaires’ disease, Nobel Laureate Paul A. Samuelson wrote a now famous column in Newsweek titled, “Index-Fund Investing.”1 Samuelson noted the ascendancy of index funds based on ...Read More

  • Naked Short-Selling: Two Big Wall Street Firms Get Exposed

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    by IFA Contributors — Monday, June 4, 2012

    Normally, when you make a mistake, you choke down a slice of humble pie and life goes on. On rare occasion, however, there are mistakes so egregious that you just want to put a bag over your head and pretend that you don’t exist. This must be how the ...Read More

  • Book Collector

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    by Guest Author: Farzam Khassian — Tuesday, May 29, 2012

    Book collector Farzam Khassian shares his thoughts on his hobby of collecting rare investment and financial books. He has collected more than 1,000 financial books over the years and has inspired Mark Hebner to also start collecting these treasures. It is interesting to note ...Read More

  • IFA’s Concerns with IPOs

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    by IFA Contributors — Thursday, May 24, 2012

    While some may accuse us of hindsight for writing this blog during the unfolding of the Facebook IPO debacle in which $12.8 billion of shareholder value has been wiped out as of 5/23/2012, Index Funds Advisors, Inc. has long advised our clients not to buy IPO shares after they ...Read More

  • Jim Parker

    Sharing the Wealth: The Case for Equities

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    by Jim Parker — Thursday, May 24, 2012

    Quiz Question: What do these companies have in common: Whitbread of the United Kingdom, Molson Coors of North America, Qantas of Australia, Honda of Japan, and Adidas of Germany? Yes, they all deliver consumer products and services. Whitbread is in hospitality, Molson Coors is ...Read More

  • A Big Bang for 401(k) Plans?

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    by IFA Contributors — Wednesday, May 23, 2012

    Source: NASA On rare occasions, a change so profound and significant occurs in the financial world that it is given the “big bang” designation. Examples include the 1975 abolition of the fixed rate commission system in the U.S. and the drastic deregulation of the ...Read More

  • Active vs. Passive: A Deeper Look into Fixed Income

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    by IFA Contributors — Tuesday, May 22, 2012

    "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." -Standard & Poors Indices versus Active Funds (SPIVA ®) ...Read More

  • The Terrible, Horrible, Terminal, Apocalyptic National Debt Crisis

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    by Nick Murray — Saturday, May 19, 2012

    Just the other day, I was at a lovely club in downtown Jacksonville, Florida, waiting to speak at a luncheon meeting of about a hundred financial advisors. Suddenly, one of the advisors came bursting out of the room where the audience was finishing their lunch, and accosted me. ...Read More

  • Mal-location of Capital

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    by Roger Trinwith — Wednesday, May 2, 2012

    I used to play a lot of golf, probably far too much. When my friends would ask for advice, the number one question I would get is, “What kind of driver should I buy?” I suppose this was my introduction to the efficient mal-location, excuse me, allocation of capital. ...Read More

  • Wall Street: the other Las Vegas

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    by IFA Contributors — Wednesday, May 2, 2012

    About a month ago, I wrote about Nicolas Darvas, a world famous dancer who claimed that he made $2 million in the stock market. This claim was vigorously disputed by the New York State Attorney General, Louis Lefkowitz. A write-up of the allegations against Darvas can be found ...Read More

  • Books of the Doomsday Genre: Read This before You Read One of Them

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    by IFA Contributors — Tuesday, May 1, 2012

    While we at Index Funds Advisors, Inc. do not dismiss the bleak scenario envisioned by the authors of books such as Aftershock or The Day after the Dollar Crashes as completely implausible, there are a number of problems with books of this doomsday genre that deserve ...Read More

  • The Road to Serfdom

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    by Tyler L. Collins — Sunday, April 29, 2012

    The Road to Serfdom was written by Friedrich von Hayek in 1944. Friedrich von Hayek was a prominent Austrian economist during the twentieth century, and this book was one of his most important ...Read More

  • Weston Wellington

    Where's the Party?

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    by Weston Wellington — Friday, April 20, 2012

    The surge in stock prices around the world in the first quarter serves as a reminder that predicting market trends can be a frustrating business. Six months ago, the outlook for stock prices appeared to be fading from grim to grimmer: Congressional leaders were wrangling ...Read More

  • Exchange-Traded Notes: We Hate to Say We Told You so, but….

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    by IFA Contributors — Thursday, April 19, 2012

    Exchange-traded notes (ETNs) are unsecured-debt instruments that track an index, currency, or a commodity price. According to Morningstar, there are now (as of 2/12/2012) 209 ETNs that hold a total of $17.4 billion in assets, and most of them have appeared in just the last five ...Read More

  • How I made $2,000,000 in the Stock Market

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    by IFA Contributors — Thursday, March 29, 2012

    OK, I confess! I did not make $2 million in the stock market, but that title did catch your attention, did it not? How I made $2,000,000 in the Stock Market is one of the antique books in finance recently acquired by IFA’s ...Read More

  • Betting vs. Investing: What We Can Learn from March Madness

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    by IFA Contributors — Thursday, March 22, 2012

    At Index Funds Advisors, Inc., we often get to see how other people are invested before they become IFA clients. If one of these prospects were to tell us that they own commodity futures as part of their investment portfolio, we would stop them dead in their tracks and inform ...Read More

  • Where the Money Grows

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    by IFA Contributors — Wednesday, March 21, 2012

    “The easiest way into Wall Street is by the Hall of Delusions through which many have entered who forgot to return. That door stands always wide open. No legend of warning affronts the eye. There ought to be one, and it should read: ‘No Safe Conduct ...Read More

  • MF Global and the Meaning of Chutzpah

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    by IFA Contributors — Tuesday, March 20, 2012

    Like schlemiel and schlimazel, chutzpah is one of those Yiddish words that lacks a good English counterpart. A good example of it is the old joke about the guy who kills his parents and then demands leniency because he is now an ...Read More

  • Escaping From the Great Vampire Squid

    by IFA Contributors — Wednesday, March 14, 2012

    As a blogger, sometimes there is a dearth of topics to write about, and sometimes Christmas comes early. My benefactor for today is Greg Smith, a former executive director at Goldman Sachs who tendered his resignation as an ...Read More

  • The Sizzle or the Steak: Exotic Market-Linked CDs

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    by Roger Trinwith — Tuesday, February 28, 2012

    With investors scouring the metaphorical earth and turning over its rocks for “safe” investments that provide yields in excess of inflation, it comes as no surprise that Investment Banks have started selling record numbers of exotic market linked Certificates of ...Read More

  • Can You Pay an Active Manager to Beat the Market for You?

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    by IFA Contributors — Tuesday, February 28, 2012

    When was the last time you walked into Wal-Mart and found $20 bills on sale for $10? I am guessing never. It might not occur to you that your hope of finding a manager with true skill (i.e., the ability to deliver a consistently higher return than the market) who is willing to ...Read More

  • Weston Wellington

    Who Has the Midas Touch?

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    by Weston Wellington — Thursday, February 23, 2012

    Over the course of a lengthy and illustrious business career, Warren Buffett has offered thoughtful opinions on a wide variety of investment-related issues—executive compensation, accounting standards, high-yield bonds, derivatives, stock options, and so ...Read More

  • The End of Wall Street as We Know It—And We Feel Fine

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    by IFA Contributors — Tuesday, February 14, 2012

    Lately there has been a great deal of news coverage of the ever-shrinking pool of bonuses awarded to the traders and investment bankers of the too-big-to-fail Wall Street firms. At UBS, for example, certain highly compensated employees will have to face the indignity of having ...Read More

  • Tough Times for American Funds

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    by IFA Contributors — Tuesday, February 7, 2012

    According to a recent report from Morningstar, 2011 was yet another banner year for the ascendancy of passive investing. Index mutual funds received net inflows of $76 billion, and exchange-traded funds which are primarily passive received $121 billion. Actively managed funds, ...Read More

  • Brad Steiman

    Paradox of Skill

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    by Brad Steiman, Dimensional Fund Advisors — Monday, February 6, 2012

    Manager selection is a process that requires analyzing noisy performance data, so it should lean heavily on the notion of statistical ...Read More

  • Just How Skilled of a Manager Picker Do You Need to Be?

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    by IFA Contributors — Friday, February 3, 2012

    At Index Funds Advisors, Inc. we often refer to the proverbial monkey throwing darts at the stock pages of the Wall Street Journal and how active fund managers as a group have had about the same overall success as the monkey at beating the market. Case in point, the average ...Read More

  • Morningstar's Manager of the Year: Luck or Skill?

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    by IFA Contributors — Thursday, February 2, 2012

    Unfortunately for them, investors are constantly bombarded with advertisements, market commentaries, and screaming magazine covers telling them what they should do with their money. Contributing to all the clamor and din is Morningstar’s annual announcement of their awards ...Read More

  • Jim Parker

    Hedge of Darkness

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    by Jim Parker — Thursday, January 19, 2012

    It's true. Big money can be made from hedge funds. If you run one, that ...Read More

  • Tilting Towards Small Cap Stocks: Is It Still Worthwhile?

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    by IFA Contributors — Friday, January 13, 2012

    To summarize, the question an investor should ask is not "should I be in large caps or small caps?" but rather "what is a sensible blend of large and small companies that will allow me to capture a risk premium without being tempted to sell out of my portfolio when it performs ...Read More

  • Weston Wellington

    Year-End Review

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    by Weston Wellington — Monday, January 9, 2012

    Equity investors around the world had a disappointing year in 2011 as thirty-seven out of forty-five markets tracked by MSCI posted negative returns. The US did well on a relative basis and was the only major market to achieve a positive total return, although the margin of ...Read More

  • Bryan Harris

    2011 Review: Economy and Markets

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    by Bryan Harris — Monday, January 9, 2012

    The past year reminded investors that they should hope for the best, prepare for the worst, and be thankful when reality does not match their fears. Investors entered 2011 with hopes that the world economy would continue recovering from a long and painful deleveraging process. ...Read More

  • 2011: The Year in Review

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    by IFA Contributors — Tuesday, January 3, 2012

    Unlike 2009 and 2010, 2011 was a year in which most risks were not 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 return. One of the noteworthy events that ...Read More

  • Tax Loss Harvesting [VIDEO]

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    by Mark Hebner — Wednesday, December 21, 2011

    In addition to rebalancing, taxable investors should also consider a tax-savings tool called tax loss ...Read More

  • Reaching for Yield: Preferred Stock

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    by IFA Contributors — Wednesday, December 21, 2011

    In this continuing series exploring different ways investors might attempt to increase the annual income received from their portfolios, we look at preferred stock, a special equity security that has properties of both equity and debt instruments. In general, preferred ...Read More

  • Hedge Funds on Edge

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    by IFA Contributors — Monday, December 12, 2011

    A recent article in the Economist, “Dazed and Confused”, details what a difficult year 2011 has been for the $1.9 trillion hedge fund industry. The average hedge fund has fallen by around 9% this year compared ...Read More

  • Reaching for Yield: High-Yield Mortgage REITs

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    by IFA Contributors — Monday, December 12, 2011

    In this continuing series exploring different ways investors might attempt to increase the annual income received from their portfolios, we look at mortgage real estate investment trusts (REITs). A REIT is a security that sells like a stock and invests in real estate either ...Read More

  • International Diversification: Is It Still Worthwhile?

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    by IFA Contributors — Thursday, December 8, 2011

    With all the recent turmoil in Europe, Index Funds Advisors, Inc. has received questions from clients regarding whether there is still an expected benefit from international diversification in equities. In 2011, international and emerging markets indexes lagged behind their ...Read More

  • Weston Wellington

    What Does a Winning Streak Tell Us?

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    by Weston Wellington — Tuesday, November 29, 2011

    Bill Miller is one of the most closely watched money managers in the industry, so it was big news when he announced his decision last week to step down as portfolio manager of Legg Mason Capital Management Value Trust (LMVTX) early next year. His departure also adds an ...Read More

  • Index Funds Advisors, Inc’s Concerns with Muni Bonds

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    by IFA Contributors — Wednesday, November 23, 2011

    Due to their tax-exempt status, many high net worth investors have become convinced that all of their fixed income exposure should be in municipal (muni) bonds. These investors have enabled state and local government entities to borrow $3.7 trillion1 for all sorts of ...Read More

  • Fidelity Magellan's Alpha?

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    by Mark Hebner — Tuesday, November 15, 2011

    The chart below is the Alpha Chart for the famous Fidelity Magellan fund. Peter Lynch managed the Fidelity Magellan Fund from 1977 to 1990, during which time the fund's assets grew from $20 million to $14 billion, just in time to experience more losing years than winning ...Read More

  • Stock Pickers and the Illusion of Validity

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    by IFA Contributors — Monday, October 31, 2011

    To beat up an old cliché, if you ask 1,000 stock pickers for an explanation for why they chose to buy a particular stock, you are likely to get 1,000 different answers. They range the gamut from "Cramer likes it" to "it just hit a head-and-shoulders bottom" to an ...Read More

  • IFA’s Concerns with ETFs

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    by IFA Contributors — Wednesday, October 26, 2011

    With the Securities and Exchange Commission’s launching of a broad, agency-wide review of exchange-traded funds and the recent Senate subcommittee hearings concerning the rapidly growing $1 trillion ETF industry and its potential impact on market volatility, now is a good ...Read More

  • UBS: A Rotten Culture Inspires Rotten Actions

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    by IFA Contributors — Thursday, September 29, 2011

    UBS, the Swiss-based financial services company that is the world’s second largest manager of private wealth assets, has been in the news a lot lately. We all know about the rogue trader,Kweku Adoboli, who cost UBS a cool $2.3 billion, prompting major questions and ...Read More

  • Warren Buffett, Market Efficiency and the Disappearance of Alpha

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    by IFA Contributors — Tuesday, September 27, 2011

    As staunch admirers of Warren Buffett, we at IFA can only marvel at the value he has created for his investors over the course of his illustrious career. Anyone fortunate enough to own Berkshire Hathaway since June 1st, 1979 has seen a remarkable 600-fold increase in wealth as ...Read More

  • The Turn of the Tide

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    by Mark Hebner — Thursday, September 8, 2011

    Is there change on the horizon? A recent article in Bloomberg Businessweek by Charles Stein details the disenchantment investors are experiencing with stock pickers. Mutual funds that invest in domestic equities have experienced a mass exodus of around $8 billion in redemptions ...Read More