The Investment Scientist

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www.usnews.jpgAfter the Comey firing and the dropping of a few other shoes, there is enough talk about the similarity to Watergate that piques my interest to study the stock market’s reaction during the Watergate period.

The Watergate period started with the arrest of five burglars breaking into the DNC offices located in the Watergate Hotel on 6/17/1972 and ended with Nixon’s resignation on 8/8/1974. I split that time period into three different stages.

  1. The early stage: from 6/17/1972 to Nixon winning re-election on 11/11/1972.
  2. The middle stage: from 11/11/1972 to 10/20/1973 when Nixon fired Archibald Cox and abolished the office of the special prosecutor. Attorney General Richardson and Deputy Attorney General William D. Ruckelshaus resigned. The day’s events are commonly known as the Saturday Night Massacre.
  3. The final stage: from 10/20/1973 to 8/8/1974 when Nixon resigned.
The chart below is the S&P 500 during whole Watergate period … Read the rest of this entry »
This morning I got an email informing me that I was identified to receive “The Five Star Wealth Manager” award.
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Am I super excited about this recognition?


This is not the first time I’ve gotten this type of email. In the past, I have received similar emails from both strangers and people claiming to represent well-recognized publications like Barron’s and Forbes. They all told me that they wanted to recognize me as the best wealth manager/financial advisor/financial planner in the country, or in my state, or in my city, or ever born. Read the rest of this entry »

The US market ended the month of March with the PE10 at 29.02. The PE10 is a stock market measurement devised by Nobel Prize winner Robert Shiller to measure the extent of market over-valuation or under-valuation. The long-term mean of the PE10 is 17, so the current level is nearly twice the long-term mean.

There have been only two other instances in history when the PE10 was this high, one in July, 1929 and one in February, 1997. It’s very interesting to study these two instances to frame our expectations of future market returns.

In both instances, there were two or more massive market corrections in the subsequent 20 years, but the market trajectories were vastly different. See the chart here :
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In the 1929 instance, the market peaked two months later while in the 1997 instance, Read the rest of this entry »

Recently, the Wall Street Journal reported that Merrill Lynch had just lowered fees for their fee-based accounts from 2.7% to 2.2%. Let me also quote:

“The reduction affects clients with under $1 million in assets at the firm. Those clients with $1 million to $4.9 million in assets will continue to pay a maximum of 2.2%, while investors with $5 million or more in assets will continue to pay a top rate of 2%.”

I’ve done a lot of second opinion financial reviews over the years and these fees are broadly consistent with what I’ve seen in portfolios managed by Wall Street brokerages like Merrill Lynch, Morgan Stanley, Ameriprise etc.

In comparison, my fees are 1% for the first million, 0.7% for amounts up to $5mm and 0.4% for amounts over $5mm. Most independent RIAs (registered investment advisers) are like me – our fees are about a third of those by major brokerages.

Everything else being equal, if you are paying 1.5% more a year in fees, a back-of-the-envelope calculation will tell you that in 20 years you will be 30% poorer because of those higher fees. In 30 years, you will be 45% poorer.

But everything else is not equal. There are two other major distinctions between brokers and RIAs: Read the rest of this entry »

Allow me to answer these questions by two charts. The first one comes from the website of Nobel Prize winner Robert Shiller. It shows that the current Shiller PE10 is at 29.14. It is right at the level reached just before the Great Depression, and already far higher than the level just before the previous stock market crash in 2008. However, it still has ways to go before it reaches the peak achieved during the dot com bubble.

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The second chart represents Shiller PE10 among global stock markets. It shows the relative valuation of stocks across the world. In this chart, US stocks are red hot and they are currently the most overvalued stocks in the world.
Read the rest of this entry »
LasScreen Shot 2017-02-01 at 2.12.53 PM.pngt week I attended a tax seminar organized by McLean Estate Planning Council. The keynote speaker was  a CPA and lobbyist for the AICPA on Capitol Hill. He is privy to Trump’s tax reform plan and a number of other Republican tax reform plans. These plans have a long way to go to become law, but the contour is taking shape  so I thought I would share what I learned with you in a few bullet points. Note that I bolded the parts that may be disadvantageous to taxpayers.
On personal income tax:
  • The number of tax brackets will be reduced from seven to three, and the top marginal income tax rate will be reduced from 39.6% to 33%.
  • Personal exemptions will be eliminated.
  • Standard deduction for married filing jointly will rise from $12,600 to $30,000.
  • Itemized deductions will be capped at $200,000 per household.
  • Mortgage interest deduction will be eliminated.
Overall, taxpayers will get a tax break. However, there are some taxpayers who will end up with a tax increase.These are folks with many dependents, who have a huge mortgage or who give a lot to charities.
On corporate income tax:
  • Tax rate will be reduced from 35% to 25%.
Screen-Shot-2016-11-18-at-5.07.47-PM.pngSince the election, the US stock market has been breaking new highs, encouraged by the prospect of lower taxes and higher growth. However I believe investors have not paid sufficient attention to the prospect of a trade war.

To a large extent, the election of Donald Trump is a repudiation of globalization by a large segment of the US electorate. Even though the country as a whole has benefited tremendously from globalization, those benefits have by and large bypassed working-class folks.

Before 2000,  Apple made all of its computers in the US and its market cap never rose about 10 billion dollars. Since then, Apple has subcontracted all of its production overseas and only kept design and marketing in US soil. The result?

Apple has become the most valuable company in the world with a market cap of over $600 billion even though they only have 66,000 employees in the US.

At the same time, Apple’s contract manufacturer Foxconn directly employs over 1 million workers in China. The supply chain to Foxconn employs another two million people. 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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