The Investment Scientist

Author Archive

“The January Effect” refers to two phenomena in the stock market that elude good explanation: 

  1. The market tends to perform exceptionally well in January.
  2. The market’s January return tends to predict the rest of the year. That is, if we have a good return in January, it is more than likely that we will have a good return for the whole year.

In recent years, however, people have been saying that the January Effect is weakening. So today I am going to revisit these two phenomena using the S&P 500 return data from the last 10 years. In the table below, I calculated the January returns (and the annual returns) from 2013 to 2022 and arranged them from the lowest to the highest. 

Read the rest of this entry »

My dad turned 90 recently and he can still do this move: He can sit down on the floor with his legs crossed and can stand up again without using his hands to assist him. Try it yourself and see if you can do that. It turns out that this simple test predicts your longevity. People who can get up unassisted will live many years longer than people who can not. 

My mother is five years younger than my dad. In contrast to my dad, she can barely walk on a flat floor. Usually, she shuffles and she is so unstable that I am afraid a tiny coin on the floor could trip her up. 

Judging by the way they walk, my dad looks like he is 60, and my mom 90. 

Read the rest of this entry »

I am talking about an HSA – the Health Saving Account. Why is it the best? Because it is the only saving vehicle that gives you triple tax benefits. The money goes into the account pre-tax, the money inside can grow tax-free, and all health-related qualified withdrawals are tax-exempt. 

However, not everybody is qualified to open such an account. Only folks who have an HDHP – High Deductible Health Plan can contribute to such an account, and the contribution limits are relatively low. For 2022, the limits are $3650 for an individual or $7300 for a family; for 2023, the limits are $3850 and $7750 respectively. 

Who should have an HDHP in order to have an HSA? Folks who are young or very healthy. In my case, I am not that young, but I am super healthy and I plan to live a long life, so an HDHP makes sense for me. Not only can I pay a lower health insurance premium, but I can also open an HSA and begin to save for my future healthcare needs. 

Read the rest of this entry »

I have a 14-year-old son who has done some odd jobs for my business this year. What he did not know until now is that I actually paid him about $7000 in 2022 and put $6000 of that into a kiddy Roth IRA that I opened for him. 

This is how I told him.  I pulled him aside and announced: “Son, I just made you a millionaire!” That got his attention away from playing video games!  He asked: “How so?”

“Daddy just put $6000 into your Roth IRA. In a few days, when it’s 2023, daddy will put another $6500 into your Roth IRA. This type of account lets your money grow tax-free, and when you retire, lets you withdraw the money tax-free. Let’s say you have a very productive life and retire at 74. If you don’t touch the money until then, how much money will you have assuming the money grows at 8%?”

Being the smart boy that he is, my son quickly figured out he should use the compounding formula: 8% per year, compounding over (74-14) = 60 years will make the money 1.08^60 = 101 times over. Since he gets $6000+$6500 = $13,500 from daddy (actually by his own work.) $13,500*101 = $1,363,500! He broke out in a smile! 

I smiled as well since I taught him a lesson about investing: start early, stay disciplined and let compounding work its magic. 

Read the rest of this entry »

It has been a few months since I decided to write a newsletter about Health. As I get older, it is becoming clearer and clearer to me that health is the ultimate wealth and one can not talk about wealth in isolation of health.

However, I don’t know where to start. My own awareness of the importance of health has been a slow and gradual process. After I first became cognizant of its importance, there was a long process of knowledge acquisition as well as plenty of trial and error on myself.  Following that, there was yet another long process of habit formation. Truth be told, there was no “aha” moment and there was definitely no instant success. Instead, it has been a constant learning and many micro-adjustments over many years

Read the rest of this entry »

A new client of mine asked me to evaluate this situation. Last year, a so-called “financial advisor” who was actually an insurance agent got them to transfer all of their money from TSP (a fantastic retirement plan for federal employees) into an equity index annuity with an insurance company. 

The selling points often presented by these “advisors”  for products like these are that an index annuity can save them taxes and that the money is protected from market drops and will never go below its original value. The first selling point is bogus in this case! Since the money was in TSP where money grows tax-free anyway. The second selling point appears on the surface to be valid, but it is also bogus as I will show you in a moment. 

Read the rest of this entry »

A client of mine came to me very worried because at this time last year, his account was $1.35mm and now it’s only $1.19mm. That’s a “loss” of nearly 12% in one year. “At this rate, am I gonna lose everything in 8 years?” he asked. 

I showed him a number buried deep in his statement, and he immediately regained confidence that he is not losing, he is, in fact, gaining. What number did I show him? Just stop reading for a minute to think about that. After one minute you can read on.


Read the rest of this entry »

Here are your answers to the survey question: “What You Learn The Most From Warren Buffett and Charlie Munger?” Most people pick “They are patient” as their top take-away, followed by “They are value-oriented”.

If I had been asked the same question ten years ago, I would have picked these two as well. However, today I want to discuss the point that came in third, that they stay alive and sharp

Read the rest of this entry »

Thank you for all the responses to my last survey.  Here is the breakdown of your answers – the table below shows the percentage of you who think the specific asset is an enduring asset.

Bitcoin is not an enduring asset. The so-called cryptocurrency is neither used for any meaningful exchange, the primary function of a currency, nor is it safe from hacking or outright bans from governments. 

Read the rest of this entry »

My last newsletter illustrated an actual example of a client portfolio that had fallen 17% in value over the previous 12 months.  Despite that, the portfolio’s projected income had increased by 10%.

This client’s portfolio is a 50/50 portfolio, with 50% in bond funds and 50% in stock funds. The same factor that drives the portfolio value’s fall also drives the increase in income. The factor I’m talking about is the long-term interest rates. 

Don’t mistake this for the Fed’s interest rate hike. The Fed only controls the overnight Fed fund rate, it does not control the long rates like the 5-year rate, 10-year rate, etc. It is the market that sets the long rates. When the market believes that the Fed needs to tighten up a lot more to control inflation, long rates increase across the board, causing both stock and bond values to fall. (If the central bank will pay high overnight interest long into the future, all existing investments become less valuable.)

Read the rest of this entry »

In a previous article, I argued that for folks in the wealth accumulation phase, market discounts like we are getting now, between 22% of the S&P 500 and 33% of the Nasdaq, are actually good news. The same amount of money can now buy more enduring assets. And yes, owning more enduring assets in retirement is absolutely better than owning fewer! In the future, I shall write another article about what constitutes enduring assets (#). But back to the current topic.

I got an email from a retired client of mine, who asked: “What about me? I am past the accumulation phase. I need to draw a fixed income from my portfolio, and I just saw it shrink by nearly 20%.” We did a review of his portfolio, afterward, he felt much more reassured.

Did I do some kind of magic trick? No, I simply showed him what was hidden in his portfolio statements. I compared not just the value of his portfolio, but also his projected yearly portfolio income between August of last year to this August. Here is the comparison table. 

Read the rest of this entry »

The following is a chart I grabbed from the St. Louis Federal Reserve website. It more or less explains why we are experiencing runaway inflation now, and why it may not easily go away.

The chart shows the total M1 money supply. Note that as recently as 2012, the total money supply was just over $2T, but now, only ten years later, it is over $20T. That’s a ten-fold increase. The majority of this increase came during the Pandemic when within a few short months, the money supply increased from $4T to 16T. 

Only after March of this year, when it became clear that inflation is not “transitory,” did that money supply begin to taper off slightly. It does not look like it will ever go back to the level it was at prior to 2020, though.

Read the rest of this entry »

Since the beginning of this year, the stock market has experienced its worst six months in the last 50 years. At one point, the Nasdaq was down 30%, and the Dow and the S&P 500 were in bear market territory. From its lowest point, the market has recovered a bit, but after Chairman Powell’s Jackson Hole speech, the market seems to have resumed its slide. So the question is, will the market give us even deeper discounts on stocks?

Before we go into that, let me sum up my impression of Chairman Powell’s Jackson Hole speech. He has found his inner Paul Volcker! He has turned from a super dove to a super hawk when it comes to inflation.

Read the rest of this entry »

What a difference a month can make! At the end of June, the stock market gave us discounts of between 20% to 30% (depending on indexes.) That made the first half of 2022 the worst six months of the stock market since 1970. Many investors were panicky! I, on the other hand, called it a good opportunity to acquire assets on the cheap. 

What a difference one month can make! All through July, the market went up and up despite much bad news like we are now technically in a recession. Now that the month is over, stocks are between 7.5% to 10% more expensive (depending on indexes.) Happy now?

Read the rest of this entry »

The first half of 2022 was the “worst” six months of the stock market since 1970 according to the financial media. The S&P 500 is in bear market territory. The tech-heavy Nasdaq is down 30%. Even the bond market, which is usually up when the stock market is down, is down by double digits. What a blood bath!

I had rolled over an old 401k account to an IRA last October. By the end of June, the account was down nearly 15%. Let’s take a closer look at how I invested the money.

The Initial balance was about $711k, which I used to invest in 3054 shares of US Total Stock Fund (USTSF), 4511 shares of Global Real Estate Investment Fund (GREIF), 4900 shares of International Stock Fund (INTSF), 263 shares of Nasdaq 100 Stock Fund (NDQSF), and 53109 shares of High Yield Corporate Bond Fund (HYCBF). Note that all of these symbols are pseudonyms. 

After the initial investment, I made only one change in April, which was to sell some GREIF and HYCBF to buy 223 shares of Gold Fund (GOLDF). In the table below, I show how the amount of each asset increased (green) or decreased (red). In the last two rows, I also show the value and the income of the portfolio and how they increased or decreased over time.

Read the rest of this entry »

In a previous article, I used the Quantity of Money equation to explain what the Fed had done to rescue the economy from imminent collapse at the onset of the Pandemic. Today I will explain why doing that caused inflation and why that inflation is not unlikely to be transitory unless certain things happen.

Read the rest of this entry »


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

Twitter: @mzhuang

Error: Please make sure the Twitter account is public.


%d bloggers like this: