Skip to main content Blog Help (new window)
Home
Blog > Categories
Can the Size and Value Premiums Be Captured?
The debate about whether the size and value premiums have existed on paper was settled many years ago. The long-term historical data clearly shows robust size and value premiums. The average annual U.S. size and value premiums have been 3.6 and 4.8 percent, respectively, from 1927-2012. What has been more hotly debated, however, is whether these premiums could actually be captured in the real world net of t....
How to Make Your Own Investment-Grade Corporate Bond Fund
Last week, I outlined how to construct a portfolio of stocks and high-quality bonds to replicate the returns of high-yield corporate bonds. This week I’m tackling investment-grade corporate bonds.

The same basic logic as last week holds: There’s not much unique about investment-grade corporate bonds that you can’t achieve with a diversified portfolio of stocks and high-quality bonds. The only difference is you don’t need as much in stocks to replicate the returns of ....
How to Make Your Own High-Yield Corporate Bond Fund
With interest rates at low levels for a number of years now, many investors have moved some portion of their high-quality bond portfolios to higher-yielding investments like high-yield corporate bonds. I’ve long argued that there’s not much these strategies add relative to a traditional stock fund and high-quality bond strategy. Further, the traditional stock fund and high-quality bond allocation strategy tends to have lower costs and be more tax efficient. This is a bit of a qualitative argument though, and I wanted....
Quantifying the Behavior Gap
The behavior gap is the difference between the return investors actually earn and the return of the investments themselves. If investors could capably time financial markets, you’d see that investor returns were higher than the investment returns, indicating that investors bought low and sold high.
 
It turns out that most research finds the opposite result. Investors tend to underperform the returns of the underlying investments, which means investors i....
The SPIVA Scorecard and Investing in Money-Losing Funds
Late in 2012, I reviewed the mid-year 2012 Standard & Poor’s Indices Versus Active scorecard. S&P has since updated the scorecard through year-end 2012, and I wanted to quickly hit on some of its findings. I’ll focus on the five-year results since those are long enough to actually begin drawing mea....
Comparing Fund Families
I’ve gotten a few questions about the performance analysis noted in a recent New York Times piece about Dimensional Fund Advisors and Vanguard. Here’s the quote:
 
“What’s more, investors in Vanguard stock mutual funds have had higher actual returns than investors in Dimensional funds. On an asset-weighted basis....
The Small Sample Problem
One of the biggest problems with applying numerical tools to financial markets is that you need an enormous amount of data to be confident, at least in any kind of statistical sense. Nevertheless, both individual and institutional investors often make decisions with small samples of data, and these decisions produce bad outcomes more often than not:
  • Institutions frequently hire and fire managers based upon three years of performance.
  • Individual invest....
If Swensen Isn’t Staring Back at You in the Mirror…
For those of you who don’t know who that is, this is David Swensen, chief investment officer of the Yale Endowment.
 
I’ve got immense respect for Swensen (his book Unconventional Success was loaded with good information, including an absolute demolition of the Wells REIT), and it certainly looks like he and his team have delivered gre....