If you could only make one decision in your investment strategy, what would it be? Would you concentrate on picking the best securities? The best ETFs or mutual funds? Would you focus exclusively on trying to time your asset allocation/rebalancing choices? Or maybe you’d spend a lot of time deciding if Asian stocks would beat European equities in the foreseeable future. Or how about managing the risk, however defined, like a hawk? In any case, the question is simply this: Which variable in the money game is likely to have the most influence on the end result of performance?
CAN INVESTMENT MISTAKES BE RATIONAL DECISIONS?
There’s a furious debate these days over the efficient market hypothesis and whether recent events support or spurn its implications. Among the criticisms: investors are irrational, meaning that they’re prone to chase trends mindlessly. In turn, this leads to speculative manias and crushing selloffs.
GDP VS. MARKET CAP FOR EQUITY MARKET ASSET ALLOCATION
In the hierarchy of investment decisions, asset allocation is at or near the top of the list of variables that are strategically relevant for diversified portfolios. There are a number of studies telling us so, starting with the influential Brinson study from 1986—“Determinants of Portfolio Performance”—and its 1991 update. The basic message: asset allocation matters.
THE WEATHER FACTOR
“Everybody talks about the weather but nobody does anything about it,” goes the famous quip (written, by the way, by Charles Dudley Warner and quoted by Mark Twain in a lecture). The connection between the weather and the economy is popular among the chattering classes these days. There’s some who think that the winter storms from earlier this month have suppressed business and consumer activity to a degree and so March will bring a stronger bit of growth than we’d otherwise see. In turn, that implies that we shouldn’t get too uptight about data dispatches for this month, as we did yesterday with regards to weekly jobless claims.
A WHIFF OF DEFLATION IN THE CPI REPORT
Headline inflation last month rose a modest 0.2%, the Bureau of Labor Statistics reported today. That’s been the pace each and every month since last September. Over the past year, inflation was a mild 2.6%. On the surface, it’s all quite humdrum. But wait—what’s this? There’s an outlier in the core inflation trend for January: CPI less food and energy slipped by 0.1%.
THE FIRST OF MANY RATE HIKES BY THE FED
We knew it was coming, but we didn’t know when. Now we know. After the stock market closed today in New York, the Federal Reserve announced it was raising its discount rate to 0.75% from 0.50%. This is the rate that the Fed charges on short-term loans to banks. Think of it as a down payment on the future.
WHERE ARE THE CUSTOMER’S RETURNS?
Fred Schwed’s classic Where Are the Customers’ Yachts: or A Good Hard Look at Wall Street (Wiley Investment Classics)
There are many answers, of course, ranging from high fees to poor decisions to thinking that beating the market is easy. Whatever the reason, it’s no secret that the average investor needs help in earning a decent rate of return on his investments. It all looks easy from the vantage of history, but real-world results tend suggest otherwise.
ANOTHER JUMP IN JOBLESS CLAIMS
It’s still touch and go with weekly jobless claims, and it probably will be for some time. We’re in a transition phase, or so it seems. The question is what will be the outcome? As we write, we’re inclined to think the odds are evenly split between a resumption in the near future of the general decline that’s been in force vs. a change for the worse.
SEARCHING FOR ECONOMIC PERSPECTIVE AMID A SEA OF NUMBERS
There’s no shortage of economic data in the 21st century. Perspective, however, isn’t always easy to come by. The digital age is a wonder for dispensing statistics, but the central challenge of digesting the endless reports, surveys, numbers and trends requires assistance.
HOUSING & INDUSTRIAL PRODUCTION CONTINUE TO RECOVER
The staying power of the current rebound remains an open question, but the data du jour at least confirm that a recovery is underway. It’s a precarious rebound, but the economy must walk before it can run.