The Investment Scientist

Archive for November 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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Warren Buffet

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 the market is 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.

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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.

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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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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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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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