Archive for the ‘Investor Behavior’ Category
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 [...]
The investment risks you don’t see
Posted by: Michael Zhuang on: February 8, 2010
When talking to a prospect about my advisor services, I would ask him his philosophy about risk. The conversation would usually go like this: Prospect: “I don’t like losing money.” Me: “What do you mean? Can you be more specific?” Prospect: “I don’t mind giving up a little upside; I just don’t want to lose [...]
“Stir-Frying” Chinese Stocks
Posted by: Michael Zhuang on: January 26, 2010
At the end of last October, the Chinese stock market index was up 70% for the year. One would expect Chinese investors to be making money hand over fist. Not so, the Chinese Securities Investor Protection Agency, the equivalent of SIPC, did a survey of investors in November that garnered 2,791 valid responses. The result [...]
A story Technical Analysts won’t tell you
Posted by: Michael Zhuang 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 [...]
Can experts predict the future?
Posted by: Michael Zhuang on: October 28, 2009
“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 [...]
The Significance of Dow 10,000
Posted by: Michael Zhuang on: October 15, 2009
“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 [...]
Why did correlations go to one?
Posted by: Michael Zhuang 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! Some people draw the conclusion that diversification no longer works. I strongly disagree.
In the mind of an investor
Posted by: Michael Zhuang on: August 31, 2009
Found this chart on digg.com … don’t know who to give credit to. Whoever drew this is brilliant.
How investors lost money: evidence from mutual fund flows
Posted by: Michael Zhuang on: July 30, 2009
Investors don’t need outside help to hurt themselves. I’ve been writing about how ignoring conflict of interest, hidden fees, and not taking the necessary time to do due diligence costs investors a great deal of money. Today, I’m going to show you another way they self-inflict pain, and what to do about it. Let’s imagine [...]
How Madoff did it
Posted by: Michael Zhuang on: July 3, 2009
This week, Bernie Madoff was sentenced to 150 years in prison by New York District Judge, Denny Chin. With the trial now over, Madoff’s victims are still fighting over what little is left of his fund. They want to know: Where was the SEC? More appropriate questions should be: How did Madoff do it? What [...]
Small Cap Value outperformed in 2008
Posted by: Michael Zhuang on: January 5, 2009
In January 2008, I wrote in my article “Recession and stock market performance” that: Small cap value stocks are likely to outperform. With one week left in 2008, the Russell 2000 Value Index, representing small-cap value stocks, has lost 34%. This is bad, but not as bad as the S&P 500 Index’s 41% loss and [...]
Is stock market volatility justified by subsequent changes in dividends?
Posted by: Michael Zhuang on: October 24, 2008
Warren Buffet: “Price is what you pay, value is what you get.” The value of a stock is its dividend stream. (Also see Dividends to rescue in a “Great Depression”.) So far in this bear market, the S&P 500 has tumbled close to 50%. Does that mean dividends will fall by 50% … permanently?! During [...]
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