More on this book
Community
Kindle Notes & Highlights
“smart beta” funds do generate excess returns, it is most likely because they are assuming greater risks.
“Smart beta” funds require periodic rebalancing.
excess returns resulted from the assumption of greater risk rather than from the mispricing of growth stocks.
“Smart beta” strategies rely on a type of active management. They do not try to select individual stocks but rather tilt the portfolio toward various characteristics that have historically appeared to generate larger-than-market returns.
failed to produce reliable excess returns, although a few have “beaten the market” over the lifetime of the funds. These funds are, however, less tax efficient
testament more to smart marketing than to smart investing.
perform well in the future depends crucially on the market valuations existing at the time the strategy is implemented.
many of these patterns could self-destruct in the future, as many of them have already done.
true market inefficiency ought to be an exploitable opportunity. If there’s nothing investors can exploit in a systematic way, time in and time out, then it’s very hard to say that information is not being properly incorporated into stock prices.
There will always be errors in the forecasts of future sales and earnings. Moreover, equity risk premiums are unlikely to be stable over time. Prices are, therefore, likely to be “wrong” all the time.
On average, these higher-cost portfolios must underperform capitalization-weighted index funds that can be purchased at close to zero cost.
The secret of getting rich slowly (but surely) is the miracle of compound interest.
take advantage of every opportunity to make your savings tax-deductible and to let your savings and investments grow tax-free.
Determining clear goals is a part of the investment process
High investment rewards can be achieved only at the cost of substantial risk-taking.
the longer a bond’s term to maturity, the greater the risk and the greater the resulting yield.
real estate investment trusts (REITs) deserve a position in a well-diversified investment
ask yourself is how you felt during a period of sharply declining stock markets.
high tax bracket, with little need for current income, you will prefer bonds that are tax-exempt and stocks that have low dividend yields but promise long-term capital gains
good house on good land keeps its value no matter what happens to money.
real estate market is less efficient than the stock market.
individual pieces of property are not always appropriately priced.
a single-equity REIT is unlikely to provide the necessary diversification across property types and regions.
excellent vehicles for putting money aside for required expenditures on specific future dates. The principal attraction
Open-end bond (mutual) funds give some of the long-term advantages of the zeros but are much easier and less costly
New-issue yields are usually a bit sweeter than the yields of seasoned outstanding bonds, and you avoid paying transactions charges on new issues.
TIPS mature, the investor gets a principal payment equal to the inflation-adjusted face value at that time.
a diversified portfolio of higher-yielding foreign bonds, including those from emerging markets, can be a useful part of a fixed-income portfolio in a period of very low interest rates.
low interest rates present a daunting challenge for bond investors. All the developed countries of the world are burdened with excessive amounts of debt.
keep interest rates artificially low as the real burden of the debt is reduced and the debt is restructured on the backs of the bondholders. We
portfolios of dividend growth stocks may be no more volatile than an equivalent portfolio of bonds of the same companies.
Returns from gold tend to be very little correlated with the returns from paper assets.
Almost none of the gold is actually used. In this kind of market, no one can tell where prices will go.
unless you are an institutional investor who has established a clearly preferential position, your chance of investing with the best is realistically zero. Ignore these exotics—they are not for you.
INVESTMENT COSTS ARE NOT RANDOM; SOME ARE LOWER THAN OTHERS
biblical proverb states that “in the multitude of counselors there is safety.” The same can be said of investments.
Firms that buy back stock tend to reduce the number of shares outstanding and therefore increase earnings per share and, thus, share prices.
Larger appreciation benefits the managers by enhancing the value of their stock options,
stock returns are determined by (1) the initial dividend yield at which the stocks were purchased, (2) the growth rate of earnings, and (3) changes in valuation in terms of price-earnings (or price-dividend) ratios. And bond returns are determined by (1) the initial yield to maturity at which the bonds were purchased and (2) changes in interest rates (yields) and therefore in bond prices for bond investors who do not hold to maturity.
1. History shows that risk and return are related. 2. The risk of investing in common stocks and bonds depends on the length of time the investments are held. The longer an investor’s holding period, the lower the likely variation in the asset’s return. 3. Dollar-cost averaging can be a useful, though controversial, technique to reduce the risk of stock and bond investment. 4. Rebalancing can reduce risk and, in some circumstances, increase investment returns. 5. You must distinguish between your attitude toward and your capacity for risk.
The longer the time period over which you can hold on to your investments, the greater should be the share of common stocks in your portfolio.
Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
you’ll buy more shares at low prices and fewer at high prices.
keep a small reserve (in a money fund) to take advantage of market declines and buy a few extra shares if the market is down sharply.
“buy low and sell high.” Systematic rebalancing is the closest analogue we have.
Never take on the same risks in your portfolio that attach to your major source of income.
Specific Needs Require Dedicated Specific Assets
Recognize Your Tolerance for Risk
