Archive for the ‘Investor Behavior’ Category
How Not to Survive in a Flat Market
Posted by: Michael Zhuang on: December 31, 2011
Today is the last trading day of 2011. The S&P 500 closed at 1257, exactly the same close as in 2010! So, if your goal is wealth preservation, the market just did it for you. Or did it? From January to April, the market staged a four-month rally of 8.5% to peak at 1364 on [...]
How to Capture 100% of Mutual Fund Returns
Posted by: Michael Zhuang on: December 13, 2011
In my previous article, “The perils of chasing hot fund managers,” I showed that the average investor in a mutual fund run by “star” manager Bill Miller would be better off buying and holding an S&P 500 index fund. There is only one problem. Most index fund investors are not immune to the buy high [...]
The Perils of Chasing a ‘Hot’ Fund Manager
Posted by: Michael Zhuang on: December 8, 2011
On November 17, Bill Miller announced that he would step down as manager of Legg Mason Capital Management Value Trust (LMVTX). From 1991 to 2005, under Miller’s stewardship the fund outperformed the S&P 500 index for an astounding 15 straight years. Since then, the fund has underperformed the index in all but one year, and [...]
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 [...]
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 [...]
When I failed as a financial advisor
Posted by: Michael Zhuang on: September 14, 2011
On March 6, 2009, about lunch time, I got a call from Mrs. C. Apparently she was in some sort of a panic; she asked me when the market would stop falling. I couldn’t predict the future, all I could tell her: the market will eventually turn around, and when it does, it will stage [...]
Market Volatility, Emotions, and Investment Risk
Posted by: Michael Zhuang on: September 7, 2011
Imagine your house has a ticker symbol, and it scrolls along the bottom of CNBC together with other ticker symbols. The price of your house, like a stock price, is set by a bunch of people you’ve never met making apparently random bets based on a combination of intuition, general economic statistics, output of an [...]
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 [...]
Why Asset Class Diversification is Superior
Posted by: Michael Zhuang on: July 6, 2011
Recently, I came across a 20 Year Periodic Return Table prepared by Black Rock. I want to share this with you since this table illustrates the investment principles I have been emphasizing: 1) asset class diversification; 2) disciplined rebalancing; and 3) small value tilt. Today’s focus is on 1); the other two points will be [...]
8 Behaviors That Affect Financial Decisions
Posted by: Michael Zhuang on: March 17, 2011
This list is taken from an Irish Times article on behavioral economics. 1. LOSS AVERSION People are more motivated by fear of a loss than hope of a gain, hence are more likely to seek to avoid a penalty than seek to gain bonus, even if both amount to the same thing. 2. ILLUSION OF [...]
A Simple Investment Principle
Posted by: Michael Zhuang on: December 5, 2010
Just like two sides of a coin, the capital market is made up of capital demanders (businesses) and capital suppliers (investors). What for businesses are costs of acquiring capital are for investors rewards of supplying it. It is a simple truth that Costs of Capital = Expected Returns Looking through this lens, many capital market [...]
Will Greece sink your portfolio?
Posted by: Michael Zhuang on: May 6, 2010
In the last few days, news of Greece’s bankruptcy has rattled the markets. Pundits are predicting a spiraling debt crisis spreading to other PIIGS (Portugal, Ireland, Italy, Greece, and Spain) countries. Investors are worrying out loud that the crisis is going to sink their portfolios, again. Not if they have a balanced portfolio. Here is [...]
Living with uncertainty
Posted by: Michael Zhuang on: April 15, 2010
[Guest post by Tom Warburton] Last week a buddy walked into my office distressed over unemployment, the economic malaise, gold prices, the prospect of inflation, government debt, currency fluctuations, trade imbalance and future prospects for the stock market. He basically covered the waterfront of issues we see on the front page of financial magazines and [...]
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