The Investment Scientist

images-73Ever since it touched bottom on March 9th, 2009, the market has been going up and up and up with barely any hiccup. That’s dangerous! Because our minds could get complacent. That’s why I want to do a mental exercise with all of you: What would you do if the market fall 30%?

First of all, recognize these two important facts:

  1. Market fall of 30% and above happened every ten years or so. If we use history as a guide, we should expect a 10% odds of that happening over the next 12 months. (So don’t be surprised.)
  2. All market tumbles of that magnitude were recovered within 18 months in the US. (So don’t despair.) Read the rest of this entry »

Most investors are very good at hurting themselves financially. According to latest release of Dalbar’s Quantitative Analysis of Investor Behavior (QAIB), the average investor has a return of only 2.6% over the last ten years. That’s pathetic compared to what the markets gave. See the chart below, over the same period, the S&P 500 gave an annualized return of 7.4% and the bond market gave 4.6%.

Return chart
Read the rest of this entry »

For those who are hard core about learning personal finance, I have this to share with you – Jim Ludwick’s Tweets for the Month. Jim is a hourly fee-only financial planner I respect a lot. His tweets cover a wide range of issues …

Recently I have a new client. As part of the onboarding process, I examined her old portfolio and found something I don’t recognize:

Cusip Symbol Description Return
25190A104 N/A Deutsche Bk AG London BRH Ret Opt Secs Lkd Ishare MSCI Mexico Capped -21.15%
25190A203 N/A Deutsche Bk AG London BRH Ret Opt Secs Lkd Ishare Euro STOXX 50 Idx -26.60%
90273L815 N/A USB AG London BRH Notes Five 15 -22.30%

What they have in common is they don’t have a symbol, meaning they are not publicly traded securities, they have weird descriptions and they all lost a lot of money.

Read the rest of this entry »

Six years after the collapse of the stock market, I must say I begin to see signs that people are forgetting the lesson:

  • Some of my clients are pressuring me to increase allocation to stocks.
  • The US stock market has done better than others, and some of my clients are questioning why bother with global diversification.
  • I have seen portfolios (not managed by me of course) where 90% of money is allocated to US growth stocks.

Recently, Independence Advisor, LLC produces a fabulous video explaining the behavior of investment returns. It’s only five minutes long. Whether you are my clients or not, please watch it in its entirety, then you will understand why I always act as a dampener of emotions. Whether it’s fear or enthusiasm, I would always counsel not to get carried away.

If you want to find out how I can help you, schedule a Discovery review with me. If you are not ready, you can still get my white paper for free: The Informed Investor: 5 Key Concepts for Financial Success.

Remember When Everybody Wants to Be in Gold?

At the turn of the year, a few clients asked me a very good question: “Why my portfolio is not doing as well as the S&P 500 index? Shouldn’t we invest more in US stocks?”

The answer is very simple, US equity is only one component of the portfolio, it happened to do the best last year. The best component of the portfolio will always do better than the whole portfolio. That does not mean we should not diversify.

In fact, I got similar questions every year. Four years ago, it was like “Why didn’t we invest more in emerging markets? there’s no way the US market will do better than emerging markets.” Two years ago, it was like “Why shouldn’t we put everything in gold? all of my friends are investing in gold.”

Read the rest of this entry »


Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.

You may also get his monthly newsletter, or join his Facebook page for regular wealth management insights. Michael's email is info[at]

Twitter: @mzhuang

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