The Investment Fiduciary

Third quarter changes in Harvard Endowment public equity portfolio

Posted by: investment-fiduciary on: November 17, 2009

Harvard University Endowment significantly increased its holding of Market Vector Russia, iShare Mexico and iPath India in third quarter of 2009.

Table: Top 10 holdings in Harvard University Endowment’s public portfolio

Rank Names 9/30/09 (x1000sh) 6/30/09 (x1000sh) Change
1 iShares E. Mkt 10298 9712 +586
2 iShares Brazil 3355 3294 +61
3 iShares China 4962 4178 784
4 iShares S. Korea 4127 4349 -222
5 iPath India 1882 1388 +494
6 iShares S. Africa 1624 1595 +29
7 iShares Taiwan 7297 6836 +461
8 Mkt vector Russia 2596 882 +1714
9 iShares Mexico 1639 570 +1069
10 Vanguard E. Mkt 1568 1758 -190

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What Warren Buffet has to say about market forecasts

Posted by: investment-fiduciary on: November 11, 2009

Being a financial advisor, I get asked to forecast the market all the time. I notice most other financial advisors would regurgitate the morning financial news and look really smart and up-to-date. I felt like I am the only one in my profession who doesn’t know what is the market going to do in the near future. So what a relief Warren Buffet threw me a life line like this one:

We have long felt that the only value of stock forecasters is to make fortune-tellers look good. Even now, (Berkshire Hathaway vice chairman) Charlie (Munger) and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.

I am gonna print this quote on note cards and hand it to anyone who ask me to forecast the market again.

A story Technical Analysts won’t tell you

Posted by: investment-fiduciary on: November 9, 2009

This is a story shared with me by Larry Swedroe …

In 1959 Harry Roberts, of the University of Chicago, had a computer generate a series of random numbers that would have a distribution matching the average weekly price change of the average stock (about 2 percent).  Since the numbers were randomly generated, there was no pattern and therefore no knowledge that could be obtained by studying a chart of this nature. In order to create the illusion that his charts were those of particular stocks, Roberts placed a starting price of $40 on each chart. He then took a group of these charts to the leading technical analysts of his day. He asked for their advice on whether to buy or sell these unnamed hypothetical stocks. He told them that he did not want them to know the name of the stock since this knowledge might bias them. Each technical analyst had very strong advice on what Roberts should do but since the numbers were randomly generated the patterns were only in the minds of the observers. I am sure that you will never hear about this story from a technical analyst.

Why attorneys need financial help?

Posted by: investment-fiduciary on: November 6, 2009

busy attorneyLack of time

“Life is short, time is never enough!” lamented a lawyer client of mine. With intense pressure to meet billable hour requirements, some attorneys don’t even have time for their spouse and children, let alone their personal finances. It also doesn’t help that the financial world is becoming increasingly complex.

Professional stress

Believe it or not, law practice is one of the most stressful jobs – despite the great pay. No other job is as focused on the adversarial aspect of life as law practice. Martin Seligman’s research shows that 52% of lawyers are unhappy. When people are stressed and unhappy, they can’t do proper financial planning.

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Beyond the S&P 500

Posted by: investment-fiduciary on: November 4, 2009

Look beyond comfort zoneIf you are like most investors, your equity portfolio will have a few auspiciously named stock funds and a few company stocks you feel comfortable with. You think you are well-diversified, but you really are only investing in the universe of the S&P 500 – the largest 500 stocks of the US equity market.

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Can experts predict the future?

Posted by: investment-fiduciary on: October 28, 2009

Crystal Ball“When the blind lead the blind, both shall fall into a ditch.” - Old Proverb.

In July 2007, I went to an event where the keynote speaker was a former Federal Reserve Board governor who had worked with Alan Greenspan for many years.

I had had a hunch since early 2006 that the housing bubble would end badly. However, the market had proven me wrong month after month. Bewildered, I felt an expert of that caliber could help prove or disprove my hunch once and for all.

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The Significance of Dow 10,000

Posted by: investment-fiduciary on: October 15, 2009

clown“It is a tale told by an idiot, full of sound and fury, signifying nothing.” – Shakespeare

Yesterday, the Dow passed 10,000 again. Predictably, the press kicked up a big storm about it.

Even a relatively unknown like me got a call from a major newspaper asking me to comment whether this was a sign that the market would keep going up. I really struggled to answer. I knew that if I could spin a good story, the reporter would come back to me for more and more comments. Pretty soon, I would look like a stock market guru to my clients and prospects. This would surely be a win-win for me and the newspaper – if only I could bring myself to pretend.

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How have stocks performed coming out of a recession

Posted by: investment-fiduciary on: September 30, 2009

The recession is very likely over.” – Fed Chairman Bernanke on 9/15/09.

What does the fed chairman’s statement mean for stocks, if indeed the worst recession since 1929 is over? We don’t know for sure. We can, however, let history be our guide.

In this spirit, I studied the one-year and three-year returns of the S&P 500 Index and the Fama/French Small Cap Value Index coming out of a recession for the nine recessions since 1950.

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Why did correlations go to one?

Posted by: investment-fiduciary on: September 24, 2009

My friend Carl Richards made an interesting observation in his last post:

Just when we need something to zig, they all zagged together!

FearSome people draw the conclusion that diversification no longer works. I strongly disagree.

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Roth conversion: the greatest tax break you don’t know you have

Posted by: investment-fiduciary on: September 2, 2009

Roth-conversion-opportunityStarting from tax year 2010, the Tax Reconciliation Act permits all taxpayers to make Roth IRA conversions, regardless of income level. Previously, taxpayers with a modified adjusted gross income of $100,000 (or more) were not permitted to make Roth IRA conversions.

With a stroke of the pen, many affluent Americans can increase their wealth by 10-20% in their lifetime. If circumstances are right, they may even double their wealth for their family.

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Author

Michael Zhuang is principal of MZ Capital , a fee-only RIA and DFA-approved advisor based in Washington, DC. He is also a regular contributor to Morningstar Advisor. Michael lives in Bethesda, MD. He can be reached at 301-452-4220 and info1@mzcap.com.

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