Get the Beta Right

My latest at Alpha Baskets looks making sure investors own the right betas in their portfolios. Yields are frustratingly low and may stay low for a while. The point made is to avoid enhancing fixed income yield with high yielding equities; hence the word beta in the title. There is equity beta or volatility and there is fixed income beta or volatility. Substituting one for the other, thinking they really are substitutes is a bad idea. Coincidentally Carl Richards made essentially the same point in this post at the NY Times a couple of days ago (I didn’t know about Carl’s post until late this afternoon after I wrote my piece). From Alpha Baskets; This backdrop creates the bullish argument for equities that provide investors 2, 3 or 4% from dividends or 6-7% from MLPs and maybe more from mortgage REITs. This is an important point because pound for pound those vehicles probably yield more than most fixed income proxies but they also take on equity beta or something much closer to equity beta than what investors are typically looking for from the fixed income-ish part of their portfolios. Please click through to read the rest.   The picture is from last summer at a cross fit exhibition/competition that was held as a fund raiser for the Granite Mountain Hotshots at a gym across the street from their station and where many of them worked out. We are obviously coming up on the one year anniversary of the Yarnell Hill Fire. There are several subdued events planned to commemorate the crew. In the immediate aftermath I made the obvious comment...

Financial Goals Must Be Sensible

Morgan Housel raised a fascinating point in a post for Motley Fool titled Having Control Over Your Time Is The Only Sensible Financial Goal. Housel covers multiple concepts in the post including the economic reality that American are now more productive at work, he says “if every American worked just 11 hours a week, we could effectively be as rich per person as we were in 1950 — a time most of us look back on as a nostalgic era of prosperity.”  The point is understandable but I’m not sure it plays out in reality as life has more moving parts than it did 64 years ago. He also talks about most people his age that he knows not liking what they do for work. Morgan discloses that he is 30 years old so the people he talks about are reasonably close to 30 as well. Although the world (the internet) has evolved since I was 30, based on what I see from my nephews who are mid-20’s to early 30’s and to a lesser extent with more recent graduates from the fraternity chapter I was in (we keep in touch with Facebook, a newsletter, email distribution list and they are trying to get a Twitter feed off the ground). people this age are typically still in the paying their dues stage of their careers. With the right combination of luck and competence the odds of having control over your schedule increase when someone gets into their late 30’s and early 40’s so it is not surprising that the typical 30 year old isn’t in love with their work. Hopefully...

You Are Wasting Your Time Trying to Keep Up with the Joneses

My latest for Alpha Baskets covers a lot of ground from active versus passive, what investors should really be comparing themselves to and an investment philosophy that is similar to the 75/50 portfolio. From the post; Roberts showed the results of applying a strategy akin to the 75/50 portfolio (although his model was different) in isolating how crucial it is to avoid large declines or the full brunt of large declines anyway. As a reminder the 75/50 seeks to capture 75% of the upside with just 50% of the downside. There will be years of “underperformance” only tracking 75% of the bull market but the way the math has historically worked out it is more than made up for during the bear phase. Please click through to read the...

Alts Probably, Moderation Definitely!

My latest for Alpha Baskets revisits whether investors should have alternative investments in their portfolios. This something we’ve looked at many times because I believe when used properly they can be very effect in smoothing out the ride for a diversified portfolio. From the post; The Wall Street Journal ran an odd point counter point on whether investors should use alternative investments in their portfolios. The ‘pro’ argument gave the argument you would expect about reducing volatility and also looked at the democratization of the space through ETFs and mutual fund. The ‘con’ argument basically said that alts weren’t all that but then focused on the logistical obstacles for funds not target by mutual fund companies; lack of liquidity and lack of transparency. Please click through to read the...

Weekly Market Update

This week’s market update is posted at AdvisorShares and takes a close look at the divergence between small cap and large equities. From the post Perhaps more noteworthy is that this week, as our friends at Bespoke Investment Group pointed out, the Russell has gone below its 200 day moving average (DMA) which is a warning sign. A small cap lag as we are experiencing now also occurred albeit more dramatically in April 2000 and in 2006 it gave earlier warning before the S&P 500’s October 2007 peak. Please click through to read the rest....