The year 2006 was a good one for equity investors around the world as stock prices rose in 46 of the 50 countries whose equity market returns are reported by MSCI. Among these, only Israel, Jordan, Thailand, and Turkey saw their local stock market indexes slump for the year. Total return for US stocks was 15.32% according to MSCI, placing it next-to-last among 23 developed markets (in dollar terms) and 42nd out of 50 countries in all. There were 36 markets with a total return greater than 20% (in dollar terms), and 19 had a total return greater than 40%. Nine of the top ten were emerging markets.
Dimensional is rarely in the news, but they are becoming harder for the national media to avoid, as passive portfolios continue to beat the competition. Click here to read the Forbes top story “The Index Insurgents.”
Yale University recently announced a 23 percent return on its investments, swelling its endowment to a whopping $18 billion. The man behind that investment success is David Swensen. He’s made an average 16 percent annual return over 21 years — better than any portfolio manager at any other university.
Mr. Swensen has become passionate about trying to teach individual investors how best to save for retirement. When Mr. Swensen set out to write a book (Unconventional Success) explaining how the average investor could replicate his success at Yale, the research showed him that the odds of beating the market in an actively managed fund are less than one in 100.
We invite you to listen to or read this recent interview to learn more about Mr. Swensen’s experience and his advice. Many of the lessons should sound familiar. Click here for the article and audio.
We were recently discussing the cable television show “Mad Money” because it takes a lively and entertaining perspective on the typical format of a show that dispenses financial advice/information. However, as with all such hot news, by the time the information has been disseminated, it is already incorporated into stock pricing within our highly efficient markets, and thus no longer useful information on which to base decisions about trading. Instead, we would suggest that, rather than following recommendations that may or may not match an individual’s ability, need and willingness to take risk, prudent investors continue to adhere to their well-developed plan based on their long-term financial objectives.
On August 16th, about forty-five Anheuser-Busch executives heard Rex Sinquefield, co-founder of Dimensional Fund Advisors and one of the creators of the first index fund, present evidence from an important study conducted in the United States and Great Britain. Not surprisingly, the study reveals the dismal performance of active fund managers in both countries. Rex went on to explain how one can build a portfolio that captures better than market returns by adding small and value stocks to increase the expected return and lower the standard deviation.
Anheuser-Busch is just one of a growing number of corporations who have switched to a passive investment philosophy in their pension and 401(k) programs. When faced with the data presented by academic studies as discussed in this presentation, more executives are beginning to understand how capital markets really work.
What is Monte Carlo? It is a statistical method for analyzing random phenomena such as market returns.
How can it help you? This basic overview of Monte Carlo explains why this tool is so helpful in viewing an uncertain future.