George Morgan's Blog, page 6
March 8, 2014
Get What You Pay For
This week’s edition of Jason Zweig’s Wall Street Journal article addresses the issue of management fees. These are the fees that investment advisers charge investors to manage their portfolios. Mr. Zweig discusses several online services that provide the same management services either for free or at a significant discount to the fees charged by full service brokerage firms. The reason these online services can operate at such significant discounts is that most portfolio management is done by...
March 7, 2014
Market Insurance
An investment approach of buying one or two index funds and passively holding on to them is a proven solid long run approach. But, it is definitely not for the faint of heart. Academics define risk not as the loss of all your money, but as volatility in the value of your portfolio. This means that, in the short run, the value of your portfolio fluctuates up and down, but in the long run it reaches a favorable outcome. However, not every investor lives in the long run. An approach designed to...
March 5, 2014
New Wall Street Marketing Ploy
There are currently $1.7 trillion in exchange traded products in the United States. Of that total, 99.2% are in passive index products. A recent article in the Wall Street Journal however, reported that several of the big fund companies are preparing to launching a variety of new actively managed ETF’s The WSJ reported that the fundamental challenge facing actively managed ETF is the same one confronting actively managed stock mutual funds: The odds are stacked against active management. Whil...
March 4, 2014
Mix And Match
For years, I have been preaching and teaching that the markets are efficient and include an emotional component. I have also been preaching and teaching the Wall Street either ignores efficient markets and behavioral finance or believes that they are incorrect. In today’s Wall Street Journal there is an interesting story on mixing and matching index funds with actively managed funds in which the author acknowledges the existence of emotion and efficient markets. The article states...
March 3, 2014
More From The Sage
A homework assignment that I would give everyone who reads this blog is to go to the Berkshire Hathaway website, click on Warren Buffett’s “Letter to Shareholders and read pages 16 through 18. What he has to say is nothing I haven’t been saying for the past three years, the difference is he is Warren Buffett and I am no. In these few pages he explains how non-professionals can beat the professionals simply by being disciplined. Non-professionals need to block out the noise of the market and “...
March 1, 2014
From Oracle To Sage
The first time I met Warren Buffett was in 1992 at a talk he gave in downtown Omaha. I don’t remember who sponsored the event, but there were only about thirty people in the room. During the Q&A that followed his remarks, all the questions revolved around getting him to provide the questioner with a hot stock tip. In true Buffett fashion he dodged the question by suggesting that the questioner invest in Berkshire Hathaway. It was about that time that the media began to refer to him as the...
February 28, 2014
Not As Easy As You Think
Market timing is the way that the conventional wisdom thinks that successful investing is achieved. On a macro scale, market timing it involves getting out of the market when you think the market is going to go down and then getting back in when you think it’s going to go up. Another approach is doing the same buying and selling activity for individual stocks. The problem is human beings are very poor at predicting the short-term movement of the market. The way this works for individuals is t...
February 27, 2014
John Wooden And Your Money
In the 1960s, John Wooden coached the UCLA basketball team to seven consecutive national championships. No one else has even come close. Two of my friends from high school played for John Wooden. They told me that Wooden was an average basketball technician. His players were good athletes, but not extraordinary athletes. So to what can we attribute Wooden's success? The entire focus of coach Wooden was discipline. His teams rarely made mistakes and never made stupid ones. In order to become a...
February 26, 2014
It Seems To Make Sense
Yesterday I spoke to a group of 18 year olds at an investment workshop. Normally when I speak to groups about the investment process, I talk about how the stock market has evolved over the past decades. As I thought about my presentation to this group, it occurred to me that they have no exposure to the history of the market and therefore might not have the mindset that trading stocks was to invest. Boy was I wrong. They had just finished playing the stock market game as I entered the room. Y...
February 25, 2014
Shocking Numbers
Early advertisements for the SPDR ETF’s expressed its marketing proposition in a very straightforward manner; “Now you can trade the S&P 500 index all day long in real time.” It has lived up to its promises because has become the most traded stock in the world. Average trading volume for the SPDR is in range of 220 million shares, which in 2013 amounted to 6 trillion shares changing hands in just twelve months. Its total assets are in the $100 million range so that volume amou...
