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“Reversion to the mean” is a useful concept in investing. When we apply this concept to stock index valuation, this implies that there is a tendency for stock prices to trend higher when the market PE is well below the historical mean, and a tendency for stock prices to trend lower when the market PE Read more ➝
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One of the primary ways for an individual investor to gain a competitive advantage relative to the markets is to have a long term time horizon. When viewed through this lens, investors with a disciplined long term approach can benefit from short term market fluctuations systematically. An important way to benefit from market run-ups and Read more ➝
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Traditionally, the investment advisory industry has recommended two main types of investments for client portfolios, equity (stocks) and fixed income (bonds). In most environments, high quality fixed income investments carry lower risk (as measured by price volatility) than high quality equity investments. To make a portfolio more conservative and less risky, a higher percentage of Read more ➝
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The negative news about the economy continues and yet the stock market has kept going up. This divergence reinforces one of the key lessons of active management, which is that the broader the financial instrument, the less predictable the movement of its price. For example, let’s consider the shares of a single company, a very Read more ➝
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The financial repression exemplified by the Federal Reserve’s zero interest rate policy (ZIRP), that was begun on Dec 16, 2008, has many side effects. One of these side effects is to drive down the interest income that savers and investors receive from their bond and fixed income investments. For example, many bank deposits are paying Read more ➝