Finding Your Inner Investment Alpha Dog for 3% Extra Performance

Eddie and Chloe

Eddie                                    Chloe

Between Eddie, our Beagle-German Shepard mix, and Chloe, our Catahoula Leopard mix, it is Eddie—despite his sweet disposition and a 20-pound weight disadvantage—who is the alpha.

So if Eddie and Chloe were investment advisors, you might choose Eddie. After all, as the leader of the pack he must get dibs on all the good stuff, right? Yes, he does—but he’s also not fond of sharing and isn’t afraid to throw his weight around in order to keep what’s his. This bravado and every-dog-for himself attitude is not what you want in an investment advisor.

Rebalancing during “traumatic market events”- the whole or half the story?

Rebalancing during “traumatic market events”- the whole or half the story?At a recent Fortune 200 Ernst and Young (E&Y) workshop for employees (and spouses, such as myself), the presenter recommended maintaining an asset allocation suited to one’s goals, resources and tolerance for risk. Known as “Rebalancing,” this is standard advice and makes a lot of sense as described below.

However, my ears began to perk up when the presenter additionally recommended rebalancing during “traumatic” market events, not on a specific date each year. Again, this too makes a lot of sense – almost. It may have been a matter of emphasis or the need to get through a lot of material, but the presenter left out an additional couple of critical points that I’d like to add:

Historical “Growth of Investment” Charts: More than Meets the Eye

Growth of a $1 investment in stocks, bonds and bills: 1926-2013

The growth of a $1 investment chart, a touchstone for many in the investment advice business, is a source of investment wisdom:

  • Stay the course through the ups and downs.
  • “When it comes to investing for your long-term goals, through history’s ups and downs, there’s nothing like stocks.”1
  • “…the predominant trend for common stocks has been upward. Investors should consider this historical perspective when contemplating asset allocation decisions.”2

Seemingly sound advice. But as you prepare for, or settle into, retirement, it’s worth taking a closer look. Is there even more to this chart than meets the eye? 

“Framed” Financial Performance News: What You Can Do About It

How information is presented—or “framed,” in behavioral finance terminology —influences our perceptions. Whether you hear a market summary on the radio as you commute home, watch it on the nightly news, or read it on screen or in the paper, the financial media often frames the performance in disorienting ways. Jim Parker, Vice President, DFA Australia Limited, proposes three reorientation’s in his essay,“Future Testing.”


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The Golden Ticket Trap

In a popular children’s story, the young hero pins all his hopes on finding one of a handful of “golden tickets” hidden among millions of candy bars. It seems many people approach investing the same way.

The notion that the path to long-term wealth lies in locating secret and previously undiscovered treasures in the global marketplace of securities is one regularly featured in media and market commentary.

One magazine, for instance, runs a feature called “Fund Managers’ Secret Stocks,” referring to supposedly “bargain” stocks the pros keep hidden. (How the stocks can be secret when splashed on magazine stands nationally is not explained.)