What’s 100 years old, a member of the Hill Investment Group family, and the first and largest of its kind?
If you’re a St. Louisan, you may already know the answer is The St. Louis Municipal Opera Theatre – or, The Muny, to its many friends. Founded in 1918, the Muny is the oldest and largest outdoor musical theatre in the nation. The HIG connection comes from the fact that its long-tenured President and CEO Dennis Reagan is our own John Reagan’s dad. (Reagan Senior has been a fixture at the theatre since he joined their ranks more than 50 years ago!)
To commemorate its centennial, we hosted a birthday bash for this beloved venue on August 12, including a pre-show dinner and backstage theatre tour, followed by the season’s closing production of (what else?) “Meet Me in St. Louis.”
We were pleased to put on the event, enjoyed by a good number of our local friends. What a night it was. Because pictures will capture the event far better than words can, we invite you to stroll over to HIG’s Instagram page, where we’ve posted several other photos of the fun.
Here’s to the Muny’s next season … 101 and counting!
Speaking of Vanguard versus AQR, another frequently asked question we get here at Hill Investment Group is why we typically use Dimensional Fund Advisors instead of Vanguard for the core of our portfolio builds. Vanguard typically beats Dimensional in terms of raw fund expense ratios (i.e., how much the investor pays to fund management). And we often emphasize how important it is to manage costs. Shouldn’t that mean Vanguard is the obvious choice?
Our answer: Expense ratios are an important consideration, but they’re not the only one.
At HIG, our Investment Policy Committee (IPC) is tasked with remaining current on these sorts of comparisons. To supplement our own, independent analyses, we also keep an eye on the work of respected colleagues, such as the BAM ALLIANCE’s Chief Investment Officer Jared Kizer, CFA. As a former colleague, Jared graciously agreed to let us share his own recent research report here: “Comparing DFA- vs. Vanguard-Oriented Portfolios.”
I found Jared’s analysis compelling, and I hope you do as well. Enjoy the read.
For years, Capital One® has been hiring outspoken celebrities like Samuel L. Jackson, Charles Barkley and Spike Lee to ask folks, “What’s in your wallet?” It’s a memorable ad campaign – and probably a successful one, as they run it every year during March Madness. But perhaps a more relevant question these days is, “What’s in your digital wallet?” Do you have the apps in place to manage your wealth, wherever you may roam?
Here’s a summary of the apps you’ll find in our own digital wallets here at Hill Investment Group:
HIG Wealth Access – A handy overview of your total wealth, including assets and liabilities such as home(s) and debt loads.
HIG Client Portal – A place to check your financial portfolio, as well as to securely store critical electronic documents. HIG’s client portal includes accounts we manage as well as those held elsewhere (such as in a client’s company retirement plan).
Custodian Login – Custodian account logins (for us, that’s Schwab), so you can deposit checks, initiate other financial transactions, and review account information.
Banking/Credit Cards – Bank and credit card account logins, so you can keep an eye on your spending and saving activities.
One of our goals is to enable all clients to Take the Long View® by having easy access to their information. Please reach out to us if we can answer additional questions about what’s in your digital wallet or we can point you in the right direction for your set-up.
There are a myriad of financial talking heads crowding the airwaves with baseless predictions. How do we find the few worth heeding? We look for intellectual curiosity – a thirst for understanding what is right and true, regardless of where it may lead. Inside of Hill Investment Group, we savor the voices who stand out in this way.
We point you, our tribe who are committed to Take the Long View®, to AQR Capital Management’s new podcast channel “The Curious Investor.” We are especially impressed by its third episode, “Active versus Passive,” featuring a conversation between Vanguard founder John “Jack” Bogle and AQR managing and founding principal Cliff Asness.
As the father of the world’s first publicly available index fund, Bogle personifies passive investing like nobody else can. In contrast, Asness has structured AQR on the premise that he and his team can add value to investors’ portfolios by identifying opportunities to apply evidence-based methodology. He’s our modern “active” aficionado, as we’ve described in earlier posts.
You’d think the podcast would be a vigorous debate between these two legends. Instead, it exemplifies the considerable common ground and respect they share. Bogle explains:
“We do things very differently from an investment standpoint – to which I would say: So what? … [W]hat I’ve always admired about Cliff is his intellectual soundness. … I’ve always admired that in anybody. And it doesn’t matter whether their intellectual ideas align with my own or not.”
See what I mean? Especially when it comes to the science of investing, nobody has everything figured out. Even if we did, markets evolve over time, generating new insights, possibilities and questions – new subjects to debate.
Guided by a board of financial academics and a mission to advance the science of investing, Dimensional Fund Advisors might seem like a surprising source for an article promoting the Tao principle of “wei wu-wei,” or a way to “do without doing.”
But it’s not so surprising, once you appreciate how challenging it can be to Take the Long View® approach to patient, persistent investing – instead of continuously indulging in hyperactive bursts of trading activity.
Vice President Jim Parker of DFA Australia explains the difference in his recent article, “The Tao of Wealth Management.”
Click to enlarge and read
At Hill Investment Group, we share Dimensional’s perspective, advising our clients on how to build and preserve personal wealth through a “less is more” approach to their investing. Instead of spinning our wheels chasing today’s crisis or predicting tomorrow’s hot trend, we dedicate our energy to substantively improving our clients’ personal and financial well-being.
In short, while it may seem as if our course is a quiet one, we work hard every day to help our clients achieve wei wu-wei.
Imagine this: You walk into a grocery store and buy a bag of apples priced at $1.50 – no sales tax. You hand the cashier two $1 bills. He hands you $0.40 in change and wishes you a nice day.
“Wait,” you say. “Don’t you owe me another dime?
“Oh, no,” he replies cheerfully. “I always keep a little extra for myself. I hope you don’t mind.”
As wrong as this may sound for the produce aisle, similar practices go on every day in muni and corporate bond markets, where they’re called markups and markdowns. Essentially, these are the commissions a bond broker/dealer takes out of your account for executing your trades. You incur a markup cost when you buy a bond and a markdown cost when you sell.
That last one is especially confusing, since a “markdown” usually means you’re getting a discount. Here, it means less money is heading into your pocket. And unless you have access to a (costly) Bloomberg terminal or similar resource, plus the details of your own trade, it’s usually an expense you never knew you incurred. Even with Bloomberg, here’s a peek at what a typical bond screen there looks like. Not so simple to decipher.
Given the relatively opaque nature of bond pricing, here’s how a typical transaction might work: Say you receive a nice, clean trade statement informing you that your bond broker just purchased a muni bond for your portfolio for $10,200 and sold one out of your portfolio for $9,800. Seems clear enough.
But here’s what may really have happened: The market rate of the bond you bought for $10,200 was actually only $10,000; the broker charged you a $200 markup and kept the difference. The bond you sold actually fetched you a market rate of $10,000, but the broker charged you a $200 markdown. For both trades, you paid the broker a relatively steep 2% fee.
We’re not suggesting bond brokers should work for free. One way they earn their keep is by charging you to transact your trades. That’s fair. But we’re less enthused about the relative lack of transparency on the amounts being charged.
This is especially concerning, since individual, retail traders are far more likely to incur higher transaction costs than large, institutional investors can command (such as a mutual fund company managing a fixed income fund). As described in this Vanguard report, “[I]n the municipal bond market, the bid-ask spread for a “retail” trade (less than $100,000 per bond) is typically higher than that for an institutional trade—sometimes substantially so.”
In the stock market, transaction fees are clearly disclosed on every trade confirmation. Plus, current stock prices are widely available to look up online, using any number of free services. It’s easy to see if the prices at which you bought or sold were vastly different from the “rack rate.” If transaction fees get out of line, you should be able to catch that too.
Compared to the stock market, the going price for bonds is much harder to find (again, usually requiring a costly Bloomberg subscription or similar service). And transaction costs are often hidden away within the totals on your trade confirmations. This makes it more difficult to tell whether or not you’ve received a fair deal.
Fortunately, over time, we’ve seen improvements in bond market pricing data and transaction cost disclosures. Last May, new regulations went into effect, requiring brokers to disclose markups and markdowns on bonds they sell to retail investors (that’s you) within the same trading day in which they bought them. The disclosures are reported to you after the trade has occurred.
That’s a start. But why not always require markup/markdown disclosures, for all types of bond trades? While we’re at it, why not require markup/markdown fees be disclosed in advance, in case you would like to do your due diligence on costs before you’ve already incurred them?
These are good questions. We hope, over time, they will be answered with continued clarifying action, until bond trades are at least as transparent and competitively priced as we see in the stock markets.
Like father, like son: “Little” Henry Bragg is an Astros fan too.
What do you get when you combine an evidence-based process with visionary team spirit and brilliant leadership? A World Series Commissioner’s Trophy, for starters. The “rags to riches” tale of the Houston Astros 2017 World Series victory is now available for your reading pleasure, thanks to Sports Illustrated senior writer Ben Reiter.
We love the recent approach to managing the Astros because it mirrors our approach to investing in two major ways:
First, it is backed by data. The Astros management seeks to fully understand the factors that drive wins, quantify them, and weight heavily toward them.
Second, like with investing, achieving your long-term goals may sometimes require short-term sacrifices. If you have the right philosophy and the right process, you can trust that the odds will work in your favor long-term.
Something of a visionary himself, Reiter actually predicted the team’s 2017 victory on the cover of the magazine’s June 30, 2014 edition. Was that luck or forecasting talent? You be the judge, when you read Reiter’s entertaining account in “Astroball: The New Way to Win It All.”
Reminiscent of Michael Lewis’ Moneyball tale of the Oakland A’s, the Astros applied similar evidence-based strategies to improve their game. They leveraged what the Oakland A’s Billy Beane began and took it a step further, incorporating (with help from the “Nerd Cave”) scores for more unconventional qualities, such as personality and grit. These elements and more are touched on in this review: “[R]oster-creation, all by itself, did not bring home the championship. Building an exceptional team is one thing, but making it work as a team is another.”
We’ve said it before; we’ll say it again: We couldn’t be prouder of our exceptional home-town team. Go Astros!
Bonus read: For more of baseball’s rich historical lore, I also enjoyed this recent PBS documentary on legendary hitter Ted Williams, in all his quirky glory (narrated by St. Louis’s own Jon Hamm). This related New York Times piece tells the backstory of how some of the film’s best footage was almost lost for good.
Henry McDaniel, savoring the last drop of ice cream.
Thirteen can be a lucky number after all, as we were lucky to celebrate Hill Investment Group’s 13th year in business by hosting our largest summer family bash to date. Twenty-nine HIG team and family members attended the event, hosted by Matt and Lisa Hall.
More than an excuse to slurp up some ice cream, our family party is a way for us to reaffirm the meaning we find in our work. Magic happens when we have the opportunity to help families plan for their financial future. A different, but equally potent magic happens when we get together with our own families. It’s not only a privilege to enjoy one another’s “at home” side, it also reminds us that our loved ones are one of the reasons we work so hard. Roll up that deep stuff with some tacos, some kids and a pool – and you have our favorite employee event of the year!
This year a big storm blew in halfway through, but it didn’t dampen our spirits. Even as the rain fell in sheets for about an hour and the house lost power, Matt & Lisa’s daughter Harper entertained all the other kiddos with some expert slime-making … just add water.
Our theme this year was summer fiesta, featuring catered local fave Mission Taco Joint and Clementine’s Naughty & Nice Ice Cream, delivered. Eventually, the weather broke and we all had a blast swimming and cheering on the young contestants in our diving board splash-a-thon. John’s son James was the bomb.
James Reagan has the look of pure joy.
The only real downside to the weather was that we weren’t able to get our usual group photo. We’ll just have to make do by featuring the adorable pic of PJ’s son Henry, above, while re-sharing these group photos from 2016 and 2017. Next summer? Bring it on!
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