• Surprise! Behavior Has Not Changed

    September 20, 2017
    Earnings, Expectations

    Barron’s latest cover story, Wall Street’s Real Earnings Surprises, suggests that positive earnings surprises are not being rewarded with share price jumps like they used too. It may be true that the one-day response rate has declined, but since this touches close to home, we would like to highlight how we look at this behavior and see if there is reason for caution.

  • Why Your Portfolio Needs to Go Global

    September 14, 2017
    Global, Investment Planning

    Since inception of the MSCI EAFE Index at the end of 1969, U.S. stocks have outperformed in 23 of 47 calendar years on a price-return basis, or just under 50% of the time. Annualizing those returns, the U.S. has done a bit better, advancing by 7% per year vs. 6.2% for EAFE, again, on a price-return basis (selected because total return data for the EAFE only goes back to the mid 1980s). Further, since 1987 when total return data did become available for the EAFE, U.S. stocks have earned considerably more of their total return through price appreciation, and less from dividends, than have their foreign counterparts. Point being, the longer-term data based solely on price likely gives the U.S. an advantage, and even with that advantage, it’s basically been a coin flip as to whether the U.S. would outperform international stocks in any given year.

    So where are we going with this? The opportunity set for equity investors continuously evolves, and we think many investors routinely miss out on the chance to earn higher returns because of the way they structure portfolios (which in turn is a function of how asset managers build and market products, but we’ll leave that alone for the time being).

  • The Nothing

    September 07, 2017
    Andrea Coleman, CAIA
    Investor Behavior, Risk Management

    One of my favorite movies as a kid was “The NeverEnding Story.”  As a nerdy book reader then (and now, for that matter), I could see myself as Bastien as he immersed himself in the land of Fantasia and Atreyu’s quest to defeat The Nothing—the threat to make everything nonexistent.

    I recently watched it again and it got me thinking about what some of our advisors are currently dealing with.  We are in the eight year of an equity rally that, aside from a few hiccups, has had minimal declines (markets are supposed to have at least one 20% drawdown every four to five years, and domestically we’ve had zero since the bottom in March 2009).

  • The Dangers of Investing Complacency

    August 29, 2017
    Risk Management, Volatility

    It’s not enough to have a plan; you have to follow through.

    Recently, I was hiking with my family in the mountains a couple of hours west of Denver. During the hike, we were crossing a stream, and in my attempt to help my daughter across, I slipped and came down hard on a pile of rocks. Upon inspection, it was only a surface-level injury, something that I could easily patch up with my first-aid kit—which was in my car about five miles away. I was prepared in that I had thought to purchase a first-aid kit, but I had failed to actually put the kit in my backpack. Preparation without full implementation isn’t particularly useful.

  • How Market Valuation Should Be Influencing Your Portfolio

    August 21, 2017
    Market Environments, Valuation

    The topic of high valuations remain at the forefront of many investors’ minds with the cyclically adjusted P/E on U.S. stocks still just over 30 currently and having only been higher twice, in 1929 and in 2000. As one might expect, investing in expensive markets doesn’t typically have a big payoff, so when we were recently contacted by a journalist working on a story about investing in an overvalued market we were happy to share our insight. What follows are our responses to the questions posed about the role market valuation has in a portfolio.