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The Right and the Wrong Arguments for Indexing

by: Lawrence Hamtil  on Monday, April 24, 2017

As an adviser who allocates a large portion of client assets to low-cost index-type ETFs, and who manages a fair amount of my own portfolio in this manner, I believe that the trend toward lower-cost index-type investing, - I hesitate to call it "passive" investing, - is generally a welcome one.  I say this because research has shown that lower-cost funds exhibit much lower "behavior gaps" than higher-cost alternatives, which means that investors seemingly are moving in the right direction as far as improving their dreadful record when it comes to investment performance. Read More

Credit Analysis and Relative Equity Valuations

by: Lawrence Hamtil  on Thursday, April 20, 2017

Last week, I discussed how the key factors of diversification and dynamism explain, if not justify, the premium valuation that US equities enjoy over most other global equity markets that are characterized by far more concentration and stagnation within their components.  I think, however, that there is quite a bit more to be said on the topic, and that is the focus of this post, which will attempt to contextualize relative equity valuations by analogizing the stock market to the credit markets, an idea similar to that offered recently by Philososophical Economics.   Read More

Relative Equity Valuations, Diversification, and Creative Destruction

by: Lawrence Hamtil  on Wednesday, April 12, 2017

Fascination with the stock market has become a national obsession, not least because the financial well-being of the majority of Americans depends on a healthy equity market.  Investing in equities has become a hobby for some, a profession for many, and a necessity for all.  Given this importance of the stock market both to Americans and, really, to the rest of the world - the US equity market is by far the largest in the world; Credit Suisse estimates that the US weighting in the global equity market is more than six times that of the next largest country - it is understandable that so much attention should be given to it, and also that so many attempts should be made to discern its intrinsic value, or to determine its future path. Read More

Indexing May Not Yield All The Diversification Benefits You Think

by: Lawrence Hamtil  on Wednesday, April 05, 2017

My friend, Ben Carlson, recently wrote a post that detailed some of the potential pitfalls of the major shift toward indexing.  He included in his list such items as the potential for weaker hands capitulating and blindly bidding up shares at perhaps an inopportune time, and also the fact that the success of indexing, while likely mitigating tax drag and minimizing fees, will still leave you very exposed to normal market ups and downs, not least because index funds tend to be more fully invested than actively managed equity mutual funds. Read More