The Stingy News Weekly (02/05/2017)
New from StingyInvestor
The brain-bending world
"A new performance measurement is beginning to appear on brokerage statements in Canada. It's called a money-weighted return and it has the potential to cause a great deal of confusion." [$]
Doing better than you think
"Last week the venerable Dow Jones Industrial Average climbed above 20,000 for the first time. The event came as a relief to newscasters who could comment on the record rather than making up a reason for why the stock market moved a little higher that day."
Messiness is good for the soul
"he says, disorder can actually be good for our brains because when conditions around us aren't perfect, we are forced to use creativity to solve problems, and perhaps come up with solutions that are better than we could have imagined otherwise." [Books]
Factor investing art and science
"My conclusion is that we are still a long way away from understanding the so-called 'science' of investing. We're probably better off understanding the insanity of investors and the incentives of delegated asset managers if we want to understand the science of investing, but this is controversial among many financial economists." [Value Investing]
The retirement spending smile
"The following exhibit provides Blanchett's spending smile for a retiree that begins retirement with expenditures of $100,000. On average, this household can expect to experience declining real expenditures through age eighty-four, when real spending reaches a trough of $74,146. This reflects a nearly 26% drop in real expenditures. After this point, average real expenditures increase, though they do not necessarily exceed their initial retirement levels until retirees reach their mid-nineties." [Retirement]
Do stocks outperform Treasury bills?
"Most common stocks do not outperform Treasury Bills. Fifty eight percent of common stocks have holding period returns less than those on one-month Treasuries over their full lifetimes on CRSP. When stated in terms of lifetime dollar wealth creation, the entire gain in the U.S. stock market since 1926 is attributable to the best-performing four percent of listed stocks. These results highlight the important role of positive skewness in the cross-sectional distribution of stock returns. The skewness in long-horizon returns reflects both that monthly returns are positively skewed and the fact that compounding returns over multiple periods itself induces positive skewness. The results also help to explain why active strategies, which tend to be poorly diversified, most often underperform." [Markets]
Too much versus too little dynamism
"Of course, the too much versus too little dynamism diagnoses aren't mutually exclusive; there are probably elements of truth in both. Maybe the economy really isn't working for many Americans because globalization, automation and changing labor practices have thrown them to the wolves. But maybe there are also deep-seated structural shifts preventing communities and individuals from tapping the great opportunities the modern economy offers." [Economy]
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