May 2017 | Posted By Katie Ackerman

As meticulous as we are with our financial advice, we tend to be even more deliberate when adding new members to our Hill Investment Group team. Fortunately, welcoming Nell Swanson as our Chief Operating Officer (COO) was one of our easiest hiring decisions ever.

You might not immediately conclude a natural fit, given her intriguing credentials as a petroleum engineer and, most recently, an operations specialist for an oil & gas private equity firm. But here’s where it gets interesting.

Nell found us after determining that something was missing from her otherwise stellar career. She was content enough and successful enough, but she wasn’t personally connected to it or inspired by it.

So, as any good evidence-based advocate would do, she took a good, hard look around. A voracious reader with a passion for behavioral finance, it was only a matter of time before she ran across Matt Hall’s Odds On. She devoured it at once, and knew she’d found the inspiration she’d been looking for. Reaching out to Matt for career advice, the conversation quickly turned into a job interview. The rest is happy history.

“Nell blew each of us away as we met her,” says Matt. “She has so much energy and initiative, and such a rare combination of technical ability and interpersonal understanding. We soon knew we’d found the right person to be our first COO.”

You’ll find Nell based in our Houston office, where she already is making her mark by exploring new business, operational, human capital, compliance, financial and overall organizational opportunities for us. Most of all, Nell will be instrumental in helping us sustain close personal relationships with our clients even as we grow. This is mission-critical and at least as important as any numbers involved.

In her spare time, Nell is planning a fall wedding to her fiancé and pre-school classmate Walter. She enjoys working out with Walter, putting together puzzles, reading, traveling with friends and family, volunteering in her community, and drinking copious cups of coffee … cold-pressed, lightly creamed.

When she told her family about her career change, she admitted she was nervous. “They’ve always been so supportive of my past plans, I was afraid I might disappoint them by shifting gears so dramatically.” Quite the opposite, her parents felt as she did (and we do) that she should pursue wherever her passions take her. We’re so glad they’ve led her to our HIG family. Welcome, Nell!

May 2017 | Posted By Henry Bragg

There’s never a lack of news in the financial press:  new studies, new reporting, new crises, new opportunities … it never ends.

Some of it is worth heeding; most of it is just noise. One of our roles at Hill Investment Group is to help you find the hidden gems in all that “new news.” Here are two worthy reminders that trying to pick individual stocks or forecast the market’s many moods remains as ill-advised as ever.

On the Dangers of Stock-Picking …

In his recently published piece, “Hot Stocks Can Make You Rich. But They Probably Won’t,” Jeff Sommer of The New York Times reflects on how investors may be tempted to chase surging stocks in hot markets. “But,” he cautions (emphasis ours), “before you jump headlong into stock picking, you may want to consider the odds … [O]ver the long run, while the total stock market has prospered, most individual stocks have not.”

This may seem counterintuitive, but for supporting evidence, Sommer cites a new study by Hendrik Bessembinder of Arizona State University’s business school (my own alma mater). Sommer points out two remarkable findings from the study, often overlooked in all the excitement:

  • “58 percent of individual stocks since 1926 have failed to outperform one-month Treasury bills over their lifetimes.”
  • “[A] mere 4 percent of the stocks in the entire market … accounted for all of the net market returns from 1926 through 2015.”

Professor Bessembinder’s study concludes that individual stock picks are like lottery tickets. A stock picker may beat the odds and win big, but if you’d rather focus on winning sustainably while managing the risks, you’re better off accepting wider market returns.

On the Dangers of Market-Timing …

On the same day Sommer’s article appeared, The Wall Street Journal’s Jason Zweig published a nicely paired piece, “Sorry, Stock Pickers: History Shows You Underperform in Bad Markets, Too.”

You may need a subscription to read the entire article, but the title says a lot. Based on data points going back to the 1960s, Zweig notes: “The odds of finding a stock picker who can do better in down markets have long been less than 50/50.” Not only are the odds against those who try to beat the market, the costs tend to be high in every market, up or down. So, while stock pickers often tout their ability to shine the brightest when the markets are at their darkest, the evidence again suggests otherwise.

So, What’s New?

Bottom line, a traditional active investor faces hurdles that are simply too tall to be enticing, especially when there is a more logical, evidence-based strategy to lead the way. This may not be breaking news to anyone who’s been following our work for a while, but I’d say it’s still as fresh and relevant as ever.

May 2017 | Posted By Buddy Reisinger

Earlier in the month, Henry Bragg and I attended “AQR University,” held at the University of Chicago and sponsored by fund manager AQR Capital. Given how many Nobel laureates have come out of there (check out that line-up of them on the wall), we know some of the university’s intellectual capital has rubbed off on us. At least it feels that way, based on the fresh perspectives we heard at the event.

University of Chicago professor and author Nicholas Epley was a keynote speaker. I’d read his groundbreaking book, “Mindwise,” but I’d not had the chance to meet him in person.

Me and Dr. Epley

In his presentation, Dr. Epley shared some of his research into how often we try to read one another’s minds. By frequently relying on body language or “perspective-taking,” he explained how and why our understanding of others is often off-base. What’s a better way to figure out what someone else is thinking? Dr. Epley suggests we should just ask.

We also heard from AQR co-founders Cliff Asness and Dave Kabiller. In today’s fast-paced environment in practical and academic financial economics, it’s important for us to regularly “just ask” colleagues and thought leaders what’s on their minds. This is another way we ensure our evidence-based investment strategies remain guided by peer-reviewed best practices.

For more on Cliff’s views, read this Wall Street Journal article about factor investing. In it, he expressed similar sentiments to the ones he shared with us in person.

Want to know what else we learned in Chicago? Just ask!

May 2017 | Posted By John Reagan

In “Presentation With a View,” you may have spotted this enigmatic image in the photo. What is it?

You may recognize it as a stylized rendition of an “Illustration of the Month” we shared last February. Both warn us against trying to successfully pick “winners” or avoid “losers” by chasing recent performance. Based on the data from the more detailed version, you’ve got less than 50/50 odds of picking a stock fund that is even expected to survive the 15-year period ending 2015. Picking one that not only survived but also outperformed its standard benchmark dwindles to a mere 17 percent.

Why play a game so heavily stacked against you when evidence-based investing is available instead?

May 2017 | Posted By Matt Hall

When Odds On was born, we quickly realized that one of the powerful benefits of having a book in hand is it gets our foot in the door at public and professional venues alike. By having opportunities to “teach the teachers” about evidence-based investing, we could spread the word faster through the power of exponential word of mouth.

That’s one reason it was fun and fulfilling to present “The Evolution of Evidence-Based Investing” to a group of attorneys at the century-old, St. Louis law firm Lewis Rice earlier this month. (The awesome view of downtown St. Louis, Arch and all, didn’t hurt any either!)

Looking back to the 1950s, it’s eye-opening to realize how far investing has come since then. That was back before computer-generated data was available to help us understand the powerful efficiencies available in our capital markets. It meant that trying to pick this or that stock was not only the typical way to invest … it was mostly the only way possible. Low-cost index funds weren’t even available until the 1970s, but what a ride, as today we’re nearing 40% of the market resembling our approach.

Are you looking for a speaker for one of your organization’s events? Let us know if we can tell you more about the evolution of investing. Not to worry: Having an awesome view is optional.

PS: Are you wondering about that weird square drawing in the photo above? Check out our “Illustration of the Month”  post. 

April 2017 | Posted By Buddy Reisinger

© Can Stock Photo / kbuntu

Given how fleeting a financial super-star’s fame tends to be, there’s something comforting about Warren Buffett’s staying power as the “Oracle of Omaha.” (Omaha is Buffett’s hometown and headquarters for his global holding company Berkshire Hathaway.) The straightforward wisdom he’s been sharing for more than 50 years in his annual shareholder letters helps explain the perennial appeal.

I’ve long admired his position on how to invest sensibly over the long haul. After all, he’s the guy who first said (in 1988), “our favorite holding period is forever.” But his insights on human character are always among my favorites, such as these new gems from his recently released 2016 letter.

  • “1,000 monkeys would be just as likely to produce a seemingly all-wise prophet. But there would remain a difference: The lucky monkey would not find people standing in line to invest with him.”
  • “Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle.”
  • “As Charlie [Munger] says, it’s great to have a manager with a 160 IQ – unless he thinks it’s 180.”
  • “[B]ad behavior is contagious: CEOs who overtly look for ways to report high numbers tend to foster a culture in which subordinates strive to be ‘helpful’ as well.”
  • “This year the magic potion may be hedge funds, next year something else. The likely result from this parade of promises is predicted in an adage: ‘When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience.'”

PS: If you haven’t caught the HBO Special, “Becoming Warren Buffett,” I recommend that too. You have to love an 86-year-old billionaire who still drives by the McDonald’s take-out window on his way to work each morning to “splurge” on an Egg McMuffin®. (Here’s the promo for it​. To watch it in full, you’ll need to be an HBO subscriber.)

April 2017 | Posted By Henry Bragg

At Your Service Art-fullsizeWhen we talk about evidence-based investing, we often mention the importance of going global.

Global diversification ensures that you aren’t placing all of your financial faith in the fate of any one country’s concentrated risks. It also helps you combat your natural tendency to bulk up on investments closer to home, where you imagine you’ll be safer or better off over the long haul.

That’s known in behavioral finance as “familiarity” or “home-town” bias, and it’s premised on false assumptions. We’re as patriotic as the next Americans. But the evidence still informs us that human commerce knows few borders, so neither should our investments.

That’s the long view on global diversification. But have you ever wondered about some of the details?

Say, for example, you were to invest half of your portfolio in a U.S. equity index fund, and the other half in an international index fund, “ex-U.S.” In terms of number of stocks as well as market cap (the total dollar value of a public company’s outstanding shares), how diversified are you, really? Are you still at a 50/50 split?

Dimensional Fund Advisors recently published “Going Global: A Look at Public Company Listings,” to explore some of these underlying questions. Some of its findings:

  • Worldwide, there are more publicly traded stocks than their used to be, increasing from about 23,000 to 33,000 between 1995 and year-end 2016.
  • In the U.S., there are fewer publicly traded stocks than their used to be. Using the Wilshire 5000 Total Market Index as a benchmark, U.S. stocks declined from about 5,000 to 3,600 companies between 2005 and year-end 2016. (That’s right, the “Wilshire 5000” actually only tracks about 3,600 stocks these days.)
  • As measured by market cap, the U.S. still dominates global markets – by far, at 54% of the world’s market cap. That’s also an increase from 40% in 1995. The next biggest contender? Japan at 8%. (See our accompanying “Illustration of the Month.”) 
  • Many index funds only expose their shareholders to a fraction of these total available stocks. From Dimensional’s report: “For example, one well-known global benchmark, the MSCI All Country World Index Investable Market Index (MSCI ACWI IMI) contains between 8,000 and 9,000 stocks. … For comparison, the Dimensional investable universe, at around 13,000 stocks, is broader.”

What can you draw from these insights besides trivia to share at your next social gathering? Zooming back to our favorite vantage point – the Long View – there are still plenty of opportunities in plenty of places to maintain your efficient, effective, globally diversified investment strategy.

April 2017 | Posted By Rick Hill

Is there such a thing as too much knowledge? There can be! It’s called “the curse of knowledge” when we forget that nobody will have a clue what we’re talking about if we leap right into the deep end of investment theory.

That’s why our first responsibility is to recreate those same, “ah-ha!” moments that we’ve already enjoyed. Today’s video with journalist Robin Powell does just that, for those of you who are wondering what this “evidence-based investing stuff” is all about, as well as for anyone who could use a handy, two-minute reminder. Enjoy!

Robin Powell and Matt Hall on Evidence-Based Investing from Hill Investment Group on Vimeo.