The Investment Scientist

If you look at this chart covering the last five years, the red line representing the US market and blue representing international markets, which market do you think would have made you more money? It’s a no brainer right? The US market went up nearly 90%, while the international markets went up less than 30%. Of course it’s the US market, right?


I thought so too until I reviewed a client’s 401k account recently. I set up his account about five years ago. 

Read the rest of this entry »

Identity-Theft.gifOne day two years ago, I got an email from a client of mine. In a very concise manner, he told me he was in Singapore for a business deal and he needed to wire $500k from his investment account to a bank account in Singapore.

To raise the money, I would need to sell some of his highly appreciated investments. I didn’t want him to be surprised by capital gain taxes, so I replied with an explanation of the tax implications.

After that, I was ready to wire the money, so I sent him a short message: “You know our standard procedure, any time a client wants to move more than $10k, he needs to call me to tell me in his own voice.” I totally expected my phone would ring right away.

Instead, I got another email: “I am in Singapore, I don’t have a phone with me, take this email as my authorization to wire the money.”

Read the rest of this entry »

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.
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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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