Category Archives: Economy

How to Add 3 Nobel Prizes to your Portfolio

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nerd money Dear Mr. Market:

What if you, the investor, had all the knowledge and findings that it took to win a Nobel Prize in Economics? Would you be a better investor? Believe it or not…with the amount of news disseminated in today’s hyper-information and “data dumping” world…you likely already have all it takes to be a more disciplined and well schooled investor.

This past Monday (10/14/2013) the winners of the prestigious Nobel Prize for Economics were announced.  All three winners were American, which marks a trend as at least one American has won the award since 1999.  The winners: Eugene Fama, Lars Peter Hansen and Robert Shiller were recognized for their outstanding research and work in the financial markets.  While their work does not perfectly align there are several similarities and the bottom line is that you can never trust Mr. Market!

 Summary Of The Winners:

  • Eugene Fama’s research has revealed the efficiency of financial markets. If you’re a financial advisor who makes a living pitching expensive mutual funds or annuity products at clients you won’t likely have a framed portrait of Dr. Fama in your plush office.  Fama basically states that the market absorbs information so quickly that investors simply can’t outperform it consistently.  He is credited for popularizing the use of index funds as an investment option.
  • Lars Peter Hansen works strictly with data (econometrics), creating statistical models in an effort to test competing theories.  His work has allowed researchers to focus on what truly drives the financial markets. Of the three winners Hansen is the least known and popular but he ironically helps connect the other two winners’ work into something investors need to be aware of; you simply need to derive conclusions from what you do AND do not know.
  • Robert Shiller is best known for creating the Case-Shiller Home Price Index Study and now perhaps for the fact that he is married to Janet Yellen, the next Federal Reserve Chairman.  We’re huge fans of behavioral finance so the next time you hear someone talk about a “bubble” you will know who originally broke ground on the concept. His research has shown that investors are irrational and that markets develop bubbles that will eventually burst (he predicted both the Tech and Real Estate Bubbles). Continue reading →

2013: The Year of Stock Market Headline Horrors

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New-York-Post-Headless-bo-006Dear Mr. Market:

2013 has truly been a year of political headlines and deadlines. We’ve been yanked around with market threatening troubles ranging from the fiscal cliff, to sequestration, to the government shutdown, to the debt ceiling etc.

All the while the market continues to defy odds which further exasperates any rationally thinking mind.

The irony of recent headlines and the overall market environment is that it’s easy to make a convincing case that they’ll either go down this last quarter of 2013 or that they’ll finish strong and continue their banner-like year. Depending on who you follow, you’ll end up being bullish, bearish, or completely confused! This article will be short and sweet but at the end of it all you’ll know exactly where we stand and what we believe most investors should be doing.  Continue reading →

Sorry Mutual Fund: You’re Fired!

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always done it that wayDear Mr. Market:

It has been said that eight of the most expensive words in the business world are: “Because we have always done it that way!”  How often have we heard these words in our personal or professional life?  Where would we be as a country if we embraced this phrase?  Isn’t it safe to say life as we know it would not be the same if generations before us didn’t challenge the norm and truly “think outside the box”?

For decades Wall Street has fought change and attempted to maintain a shroud of secrecy with investors.  Mr. Market has become very skilled at pushing aside information and research that questions the norm and in many cases proves him completely wrong.  In this article we will look at some facts and figures that simply can’t be argued with or twisted into something that they are not.  If you are an investor who owns any mutual funds you need to read this! Continue reading →

This Recession has a Split Personality

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US-economic-collapse-vs-Recovery-1-300x300Dear Mr. Market:

It’s been well documented that you have a pretty volatile personality. There are days when you tempt us with optimistic stories and the potential to make tons of money in a roaring market. Suddenly, you turn on us and show investors your angry and pessimistic side with sharp drops in the stock market and ultimately their account balances.  It’s almost as though you have a split personality and we actually think that the same case can be made about our economy; the United States basically has a “split economy”.

We apparently have officially climbed out of a recession but if you ask most people on Main Street if that’s the case you’ll likely find that’s not their view. Even big businesses are still hoarding cash in what feels like nobody trusts tomorrow or what is around the corner.

Is this recession really over?

The word recession itself conjures up negative emotions and is the topic of many heavy conversations. This past recession was impactful enough to have even earned itself its very own name. It’s been called the “Great Recession” and some have even called it the Lesser Depression, the Long Recession, or the “global recession of 2009”. While so fresh on our minds, let’s first ask ourselves why that is and also assess where we are now relative to it.  Secondly, let’s ask when the next recession is coming? Continue reading →