Archive for the ‘Economics & Markets’ Category
A 2011 Investment Recap
Posted by: Michael Zhuang on: January 8, 2012
My investment approach can be summed up by three principles: Globally diversified Small cap value tilt Short duration tilt This approach endured extraordinary challenges in 2011. 1. Globally diversified Even though the US equity market largely ended up where it started, the global equity markets did a lot worse: the MSCI EAFA Index (world developed [...]
Staying in Your Seat
Posted by: Michael Zhuang on: November 18, 2011
[Guest post by Tom Warburton] Who could forget the recent World’s Series? Man, was that sixth game otherworldly or what! The day after the sixth game a buddy wandered in – remorseful that he, while watching the Cards vs Rangers, had gotten up out of his seat to go out in his backyard with his [...]
Is the Sky Clear Enough Yet?
Posted by: Michael Zhuang on: November 9, 2011
[I wrote this two weeks ago.] On September 12, a client of mine called me to get out of stocks altogether. He used a vivid analogy: “The storm is raging; I will wait until the sky clears before I get in again.” The storm he referred to was the European debt crisis. Judging by my [...]
Is the Greek haircut really a default?
Posted by: Michael Zhuang on: October 28, 2011
This morning, I woke up to news that the Europeans, Germans mostly, have finally hammered out a deal with Greece, which now only needs to pay 50% of what it owes to private lenders (mostly German banks). German Chancellor Angela Merkel called this a 50% “haircut.” World markets cheered the news by rallying 2% to [...]
10-Year Return Perspective of Small Cap Value
Posted by: Michael Zhuang on: October 26, 2011
Many investors are puzzled by the underperformance of small cap value since May of this year. They ask: “Is it worth being in an asset class that can’t do well in bad times?” To answer their question, I did a 10-year rolling return comparison between the Fama/French Small Cap Value (SCV) and the S&P 500 [...]
Why I Am Bullish About The Market?
Posted by: Michael Zhuang on: October 3, 2011
What happened to the market in August and September? Between July and the end of September, markets lost between 13.5% (Dow) and 27% (Emerging markets) depending on which market you are looking at. I pored through economic data and could not see any marked deterioration in the economy. In fact, on balance, I see continued [...]
“Market Bets on Fed Miracle” So Said WSJ
Posted by: Michael Zhuang on: September 27, 2011
If you think reading Wall Street Journal would make you a more intelligent investor, think again. After a recent one-day market rally, WSJ wrote this: U.S. stocks jumped on Tuesday as many investors sent a plea to Federal Reserve Chairman Ben Bernanke: Come to the rescue of the stalling economy and battered financial markets. The [...]
How can an investor prepare for market corrections?
Posted by: Michael Zhuang on: August 11, 2011
The common approach to dealing with a market correction is trying to get out of the way at the first sign of trouble before the big one hits, like getting out after a 5% dip before the 30% drop hits. This approach requires perfect foresight. God can do that, not you, and certainly not a [...]
US Credit Downgrade: Stock Market Panics, Bond Market Thumbs Its Nose at S&P
Posted by: Michael Zhuang on: August 9, 2011
On the first trading day after the US credit rating was downgraded, the markets seemed to suffer from bipolar disorder. The stock market was a bloody mess: the Dow Jones was off 634.76, its worst ever decline since the credit crisis in 2008! The bond market, especially the treasuries market, which was supposed to take [...]
How Often Do Market Corrections Happen?
Posted by: Michael Zhuang on: August 5, 2011
As of yesterday, the market had dropped more than 10% from its recent peak on 5/2. Many investors are very concerned. I am too. Whenever I find my emotions are unsettled, I study historical data. That has always given me a perspective unavailable from the tick-by-tick reporting of the real-time financial media. The following table [...]
Jeremy Siegel’s Commentary on Economic Events
Posted by: Michael Zhuang on: July 31, 2011
Today, I received an economic commentary from WisdomTree that includes a piece written by Professor Jeremy Siegel. He is a University of Pennsylvania professor and author of several books totting stocks as long-term investments. His piece covers four subjects: economic slowdown, US default, European debt crisis, and corporate earnings. Below, I have excerpted key passages [...]
Harvard Endowment on US Equity & Emerging Markets
Posted by: Michael Zhuang on: July 27, 2011
I asked my PhD analyst John Want to pull the Harvard Endowment 13F filing for the first quarter of 2011 and find out what has changed sinceour last examination three months ago. From the table of the top 15 holdings that is attached, we can see three changes: 1. The iShare S&P 500 Index ETF is [...]
High-Yield Bonds: Higher Risks, Lower Returns
Posted by: Michael Zhuang on: April 21, 2011
In 1993, the Journal of Financial Economics published “Common risk factors in the returns of stocks and bonds” by Fama and French. They examined bond returns in particular through the lens of various asset return models. Let’s look at one of those models: the Fama/French three-factor model. The regression statistics of various bond classes are [...]
Inflation Rate Remains Tame But For How Long?
Posted by: Michael Zhuang on: April 19, 2011
[Adapted from my Morningstar contribution] A year ago this month, after a trip to China I wrote ominously about inflation hitting the US economy like a tsunami. My opinion was based on two observations: China’s labor costs were galloping at a 20% to 30% clip per year, and so much of what we consume is [...]
US Stock Performance after Deep Recessions
Posted by: Michael Zhuang on: April 12, 2011
What an indelible mark on many investors’ psyche the financial crisis in 2008 has left! Despite two years of strong equity returns, many investors are still on the sideline, afraid even to dip their toes into the market. That’s understandable. Most investors’ perspectives are shaped by their most recent experiences. They are now doing things [...]
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