George Morgan's Blog, page 19

There Is Always A Greater Fool

This week’s edition of the Intelligent Investor centers on the growing field of behavioral finance.  Since the Dutch Tulip Bulb Bubble of the early 1600’s, traditional economic theory has struggled to explain why markets become emotional and create bubbles. At the center of their failure is their alliance on rational behavior and numerical data. Emotional human behavior cannot be captured on the spreadsheet. The Zweig article cites the research conducted by a group of psychologists and n...

Keep It Simple Stu!!d

On a network news show last night, one of the talking heads used the word complexativity to describe the situation in Congress. He explained that complexativity is a situation where humans create complexity out of an otherwise simple situation. Not only is Congress fond of complexativity, so is Wall Street. For example there are 152 U.S. market indexes, 147 of which are some slight modification of the original five. For example there is an index that only contains the growth stocks in the Dow...

Time For Discpline

For the past several days, the anchor person on the Evening News has made comments about the negative impact the potential government shutdown will have on everybody’s 401(k).  Successful 401(k) investing requires discipline and now is when you need to use it. True, the market is nervous about the budget haggling going on in Congress, but things have to be put in proper perspective. In the past three or four trading days the market has come back 300 plus Dow points. But, we went through...

Wall Street Needs To Pay Attention

When I started in the brokerage business 34 years ago, research on the individual stocks was an important part the business. Even the small regional firm I worked for had it’s own research department consisting of three full time analysists. Individual brokers also did research on stocks and most of us had our own recommended list. Over time the regulators made it illegal for individual brokers to do research on their own and required them to use research from large national providers like St...

Magic Number

Is there a magic number for the number of investment alternatives in a 401(k) plan? No, but, there is a magic range. I have seen a plan that has 200 choices, most of which are inappropriate for an unsophisticated investor with a long term perspective. I have talked to people who are a part of this plan and most of them got confused and walked away. I have seen plans with as few as four choices, which is marginal, but more important than the number is the type of investment choices available....

A Second Selection Conundrum

While the employer may face a conundrum in the selections they offer to their 401(k) plan, the employees can likewise be faced with a conundrum. Suppose that the selections in your 401(k) does not include index funds, does this mean you are unable to follow a passive index fund investing approach? Possibly not. Almost every 401(k) selection list I have ever seen includes some type of a large cap fund. A fund of this nature will include a significant percentage of the stocks in the S&P 500...

Selection Conundrum

In an ideal world, I hope that most employers will stock their 401(k) selection list with an appropriate number of index funds along with a money market fund and conservative bond fund for those employees whose temperament is unsuited for the disciplined index fund approach.  Employers who have a few young male types aggressive in their labor force face a conundrum; should you provide them with aggressive selections they desire so they can live out their fantasies of a quick killing in t...

Selection, Selection, Selection

In real estate it is location, location, location. In the 401(k) space it is all about selection, selection, selection. By selection, I am referring to the investment choices that a 401(k) participant has in their 401(k) plan. The available investment vehicles need to be those that are suitable for the long term nature of the 401(k). I have seen dozens of plans whose selection choices were confusing, expensive and were highly speculative in nature. Ninety nine percent of the 401(k) choices ar...

Those Were The Days

If you read any numerous studies on the long term performance of mutual funds, you will find that they all have one thing in common. In the 1960’ and 1970’s, when mutual funds were in their infancy, the percentage of mutual funds outperforming the market was in the 50% range. Over time that percentage gradually declined, until today it is less than 1%. Much of this decline in performance can be attributed to our modern high speed electronic forms of trading. However, if you examine the nature...

It Pays To Advertise

If you watch golf on TV during a warm summer’s day or if you browse through Money Magazine at the checkout counter, what do you see, millions of dollars’ worth of advertisements for mutual funds. Who pays for this advertising? Answer: the shareholders of the fund. Who benefits from the advertising? Answer: The fund managers who will garner new fees when new clients buy shares of their fund. There is no evidence whatsoever to support the mutual fund industries claim that by increasing the size...