IFA Art Gallery

The Art of Financial Science

Step 1: Active Investors

Step 1: Active Investors

Active investors rely on speculation about short-term future market movements and ignore the lessons embedded in vast amounts of historical data. They commonly engage in picking stocks, times, managers, or investment styles.

Step 1: Active Investors
Monument Consecrated To Posterity
Active vs. Passive
12-Step Painting
The Siren Songs
Bear The Risk
more

Step 2: Nobel Laureates

Step 2: Nobel Laureates

Nobel Laureates provide us with research and hundreds of peer-reviewed published papers that collectively discredit the myth that active investors can consistently beat the market. Their research supports the argument that a globally diversified, low-cost strategy maximizes returns at given levels of risk.

Step 2: Nobel Laureates
A Devastating Conclusion
Watching Grass Grow
Invisible Hand
Whom Should You Trust
Wisdom of the Market
Harry Markowitz
Burton Malkiel
David Booth
Eugene Fama
Francis Galton
John Bogle
Kenneth French
Louis Bachelier
Merton Miller
Paul Samuelson
Rex Singuefield
William Sharpe
Adam Smith
Friedrich von Hayek
more

Step 3: Stock Pickers

Step 3: Stock Pickers

Stock pickers don't realize that virtually all of the information and forecasts about a stock, a sector, or an economy is quickly digested by the totality of market participants and swiftly embedded into the price.

Step 3: Stock Pickers
Baked in the Cake
The Collective Brain
Dawn of Randomness
The Evolving Investor
Incubator Bias
Silent Partners
Needle in Haystack
Stock Pickers Graveyard
Highway Monolith
The Big Casino
more

Step 4: Time Pickers

Step 4: Time Pickers

Time Pickers or market timers claim the ability to predict the future movement of the stock market, moving into the market before it goes up and getting out before it goes down. However, numerous studies from industry and academic experts demonstrate market timers have no such ability to beat the market, and they should be avoided just like the lion's cage at Barnum's circus.

Step 4: Time Pickers
Lady Fortuna
Piranhas
Market Forces
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Step 5: Manager Pickers

Step 5: Manager Pickers

Like Stock and Time Picking, manager picking is 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 odds.

Step 5: Manager Pickers
Track Record
Benchmark Your Portfolio
The Alpha Myth
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Step 6: Style Drifters

Step 6: Style Drifters

Style drift happens when an active manager drfits from a specific style, asset class or index that is described as the investment purpose of a portfolio or mutual fund.

Step 6: Style Drifters
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Step 7: Silent Partners

Step 7: Silent Partners

"Silent Partners" refers to the parties who silently share in the realized and unrealized gains on an investment. Fees, expenses, taxes, and inflation are silent partners that can set an investor back before returns even begin.

Step 7: Silent Partners
Sad Uncle Sam
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Step 8: Riskese

Step 8: Riskese

High risk exposure is like a scream inducing roller coaster, with soaring highs and stomach churning lows. On the roller coaster, the great the ups and downs, the greater the reurns...measured in thrills.

Step 8: Riskese
Default Risk Factor
Market Risk Factor
Size Risk Factor
Value Risk Factor
Term Risk Factor
Profitability
more

Step 9: History

Step 9: History

A good understanding of the long-term historical risk and return of various indexes will enable investors to know how to allocate indexes in accordance with their personal risk capacity.

Step 9: History
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Step 10: Risk Capacity

Step 10: Risk Capacity

Envision the market as a wild bull, bucking up and down, rearing and spinning. Investors are like bull riders, trying to hang on as the bull kicks and twists, making for a tumultuous ride. Matching the right portfolio to an individual's ability to handle risk is akin to finding the right bull that each investor can ride through all the ups and downs of the market.

Step 10: Risk Capacity
Bulls
Time
Knowledge
Income
Nest Egg Retirement
Index Portfolio 100
Index Portfolio 95
Index Portfolio 90
Index Portfolio 85
Index Portfolio 80
Index Portfolio 75
Index Portfolio 70
Index Portfolio 65
Index Portfolio 60
Index Portfolio 55
Index Portfolio 50
Index Portfolio 45
Index Portfolio 40
Index Portfolio 35
Index Portfolio 30
Index Portfolio 25
Index Portfolio 20
Index Portfolio 15
Index Portfolio 10
Index Portfolio 5
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Step 11: Risk Exposure

Step 11: Risk Exposure

The blend of investments that is appropriate for a particular investor is known as asset allocation, also called risk exposure, and is based on an investor's risk capacity. Asset allocation is the most important factor in optimizing a portfolio's expected return, thus it is essentially the most important decision an individual investor can make.

Step 11: Risk Exposure
Diversification
Sunny and Raining
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Step 12: Invest & Relax

Step 12: Invest and Relax

Invest, relax and stay balanced. Although indexing can be done on one's own, there is a high value to working with a qualified registered investment advisor (RIA), who is registered with the SEC and can provide valuable ongoing advice and education.

Step 12: Invest and Relax
Asset Location
Glidepath
Speculation Blues
Tightrope
Tax Loss Harvester
Stay The Course
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Important Figures

Harry Markowitz

Harry Markowitz
Carl Jung
Abraham de Moivre
Alfred Cowles
Alfred Nobel
Artistotle
Blaise Pascal
Brad Barber
Burton Malkiel
Carl Friedrich Gauss
Charles Ellis
Charles H. Dow
Charles Trzcinka
Cicero
Daniel Kahnerman
David Booth
David Swensen
Evel Knievel
Francis Galton
Gary Belsky
H.G. Wells
Harry Truman
Isaac Newton
Jason Zwieg
John Bogle
John Langbein
Karl Pearson
Keith Ambachtsheer
Kenneth French
Louis Bachelier
Mark Hulbert
Mark Twain
Matt Krantz
Merton Miller
Michael Jensen
Miguel de Cervantes
Milton Friedman
Patrick Henry
Paul Merriman
Paul Samuelson
Peter L. Bern
Rex Singuefield
Richard Thaler
Robert Arnot
Roger Ibbotson
Ron Ross
Ron Surz
Terrance Odean
Theodore Aronson
Warren Weaver
William Bernstein
William Sharpe
Zvi Bodie
Mark Hebner
Jean-Baptiste Colbert
Marquis de Laplace
Adam Smith
Craig Israelsen
James L. Davis
James P. Garland
Patricia C. Dunn
Robert Barker
Rosanne Pane
Robert Zutz
Friedrich von Hayek
Bethany McLean
Eugene Fama
Russell Wermers
Eugene Fama Jr
Franco Modigiliani
James Tobin
Susan Dziubinski
John J. Bowen
more