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You know regret if you have ever sold a fund or stock only to see it rise shortly afterwards. Worse yet is when the fund or stock you purchased to replace the one sold underperforms. Some index funds systematically duplicate these regretful transactions through what is called “Index reconstitution.”  As you might suspect, such transactions drag performance down. The widely-tracked Russell index series reconstitutes every June. This year it is Friday June 24, 2016.

 

Crude Oil and Stocks

Sources: International Monetary Fund, Global price of WTI Crude [POILWTIUSDM], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/POILWTIUSDM, March 25, 2016. January and February prices from U.S. Energy Information Administration, Crude Oil Prices: West Texas Intermediate (WTI) – Cushing, Oklahoma Online Data Robert Shiller, S&P 500 Composite, U.S. Stock Markets 1871-Present and CAPE Ratio

The emotions of market timing

Today, stock prices are fairly high while growth is widely expected to be slow. Should equity owners sell? I did, prior to the crash of 2008, and I now regret my decision every time the market hits a new high. I’m also afraid to get back in. It’s difficult to time the market, even if behavioral finance teaches us that the price is not always right.– Laurence B. Siegel, The Inventor of Behavioral Finance Looks Back (A book review of Richard Thaler’s Misbehaving: The Making of Behavioural Economics).

Genius at Work

Warren Buffett’s annual Berkshire Hathaway shareholder letter provides insight into investment strategy worthy of consideration by all investors. This year’s letter, celebrating the 50th anniversary of Berkshire Hathaway under Mr. Buffett’s management, is no different. The following six insights may prove especially valuable to the individual/independent investor.

1. Stocks offer better long-term inflation protection than interest-bearing securities.

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