Riding the Bull History suggests that markets hitting new highs, or experiencing declines, provides little evidence of future returns. Looking at the S&P 500 Index from 1926-2018, we find that average annualized returns have been positive over one-, three-, and five-year periods following both new monthly highs and market declines of at least 10%. In …
Bulls, Bears, & Long-Term Benefits of Stock Investing Read Full Article »
Dimensional’s 2020 analysis of US-based mutual funds shows that only a small percentage of funds have outperformed industry benchmarks after costs—and among top-ranked funds based on past results, only a small percentage have repeated their past success.
Don’t Try to Outguess the Market The competitive landscape makes the search for future winners a formidable challenge. Confronted with so many fund choices—and lacking an investment philosophy to inform their search—some investors will resort to using track records as a guide to selecting funds, reasoning that a fund manager’s past outperformance is likely to …
An Age Old Debate in Finance: Active vs. Passive Read Full Article »
Trading Places The year 2019 served up many examples of the unpredictability of markets. Interest rates that US policy makers expected to rise fell instead. American consumers’ confidence weakened as the year began, and new headlines broadcast fears of an economic slowdown. But investors who moved onto the sidelines may have missed the gains in …
Investing in an Uncertain World There’s a misconception in the markets: value stocks have lost their vigor. Value stocks have underperformed growth stocks over the past decade. In the US, the annualized compound return has been 12.9% for value stocks, or those trading at a low price relative to their book value. That contrasts with …
Value Judgements: Viewing the Premium’s Performance Through History’s Lens Read Full Article »
“The Lost Decade”? Looking at a broad measure of the US stock market, such as the S&P 500, over the past 20 years, you could be forgiven for thinking of Charles Dickens: It was the best of times and the worst of times. For US large cap stocks, the worst came first. The “lost decade” …
A Tale of Two Decades: Lessons for Long-Term Investors Read Full Article »
You are told that you can invest in one of four boxes, each containing a passively managed portfolio, owning all the stocks in its defined universe. Because markets are efficient, each box has the same expected risk-adjusted return. The boxes are labeled A, B, C and D. To help you decide which box (investment strategy) to choose, …
Choosing Your Investments: Outfox the Fox Read Full Article »
We’ve established the unpredictability of the market from year to year, but let’s look at two countries that exemplify this well. Consider the performance of the US and Denmark, shown above. Is it immediately clear which country had the higher return over the past two decades? From First to Worst Denmark, in fact, was the …
Across more than 40 countries, there are over 15,000 publicly traded companies.1 If you listen to the news, however, some countries may seem like better places to invest than others based on how their economies and stock markets are doing at the time. Fluctuations in performance from year to year only add to the complexity, …
The US stock market has delivered an average annual return of around 10% since 1926. But short-term results may vary, and in any given period stock returns can be positive, negative, or flat. When setting expectations, it’s helpful to know the range of outcomes experienced by investors historically. For example, how often have the stock …