Tag Archives: Burt Malkiel


Is Indexing Worse Than Marxism?

Index funds have always been ridiculed by active mutual-fund managers.  Two recent events have fueled a new set of criticisms.  The mid-year 2016 Standard and Poor’s report on index fund performance showed that the superiority of low-cost indexing, whether in the form of mutual funds or exchange-traded funds (ETFs), has increased over time.  Over the preceding five and ten-year periods, index funds outperformed over 80 percent of their active peers.  It has become increasingly untenable to claim that passive index investing produces mediocre results.  The second related event is that investors have increasingly taken note.  Money has been pouring out of active mutual funds and into passively-managed index funds.   Last year investors pulled over $200 billion out of actively-managed […]

What Should the Investor Do About The Bond Market?

Professional investment advisors as well as academic financial economists have traditionally advised investors to hold widely diversified portfolios. Indeed diversification has often been called “the only free lunch” available to investors. Broad diversification is recommended to provide investors with a reasonably secure rate of return while containing portfolio risk. Diversified portfolios have normally included some bonds. The role of bonds has been to provide a safety net during the inevitable times when equities suffer sharp losses. Especially since bond returns are often negatively correlated with stock returns, bond holdings make investment portfolios more stable. That stability can help investors to stay invested during periods of extreme volatility. Probably the biggest mistake that investors make is to sell out their equity […]

How Much Should We Invest in Emerging Markets?

One of the most enduring and best-documented behavioral biases in investing is called “The Home Country Bias.” Despite the availability of well-regarded and highly profitable corporations located throughout the world, investors tend to limit their investments to those companies domiciled in their own country. At one time, a survey of institutional investors in France found that 97% of their equity investments consisted of French companies despite the fact that France represented only 3% of the world’s total equity capitalization. Such a bias is found all over the world. British investors prefer British companies, Japanese investors prefer Japanese companies, and U.S. investors prefer companies domiciled in the United States. Despite the substantial risk-reducing benefits of international diversification, investors all over the […]

The Stock-Pickers’ Market Myth

Earlier this month, Barron’s ran a cover story that made the case that 2015 was likely to be a “stock pickers’ market.” Active portfolio managers were expected to “recapture their lost glory” as interest rates were predicted to rise. Unfortunately, we have heard similar claims at the start of every year. In early 2014 The Wall Street Journal ran an article predicting that 2014 would be a stock pickers’ market as the correlation between the S&P 500® index and its component stocks was declining. Indeed, in every year one can find similar predictions for the year ahead. Money managers have a number of clichés they use to promote their high-priced services, and “stock pickers’ market” is one of their favorites. […]

Has Indexing Become Too Popular?

Indexed investment strategies (passively holding portfolios that simply buy and hold all the securities in a particular market) continue to increase in popularity. Currently more than 35% of investment portfolios use index funds to gain exposure to the U.S. stock market.1 And according to Morningstar Investment Research, more than 55% of the moneys invested in equity mutual funds during 2014 went into index funds — rather than actively-managed funds. Given this success, people often ask whether index funds have become too popular. Could we be entering a period when active portfolio management will become more advantageous? And could the very size of index funds interfere with their ability to produce exceptional results? My answer to both questions is a clear […]

What To Do in a Falling Market

We ran an earlier version of this post on the Wealthfront blog in June 2013 after a turbulent run in the market.  For many, it’s hard to remember that June 2013 was a volatile month given how great 2013 turned out to be by the end of the year. Given the recent market volatility in September 2014, we thought an update of this post with fresh data would be valuable to our readers. The global equity markets have been increasingly turbulent over the past few weeks. The S&P 500 began September at over 2000, and proceeded to drop 2.9% through September to close at 1946.16 on October 1st. Small caps performed more poorly, with the Russell 2000 dropping 7.6% in the same […]

Introducing Ali Rosenthal

At Wealthfront, we believe that everyone deserves sophisticated financial advice. To deliver on that belief, we need more than an audacious mission — we need to build a world-class company. To achieve that goal, we need to attract world-class talent in three major areas: investment research, software development and management. Thus far we’ve made some pretty good progress. We’ve been fortunate to attract financial luminaries like Burt Malkiel and Charley Ellis to our investment team. Our software team includes some of the best from companies like Apple, Facebook, Google and LinkedIn. Our management team includes five professionals who helped build billion-dollar revenue companies that forever changed their industries. Today, we’re thrilled to announce yet another phenomenal executive, Ali Rosenthal, has […]

Indexing and the 2014 “Stock-Picker’s” Market

In January of this year it was widely believed 2014 would be a “stock-picker’s” market. While the S&P 500® index of large U.S. stocks produced an extremely generous return of more than 30% in 2013, an indexing strategy was deemed unlikely to be effective in 2014 — or so active managers argued in an attempt to justify their high fees. While several months remain we can still take a preliminary look at the results. The stock market was not quite as favorable this year as it was last year. The S&P 500 produced a rate of return of only  about 7% during the first six months of 2014. But did active managers finally demonstrate their superior skills? The answer is […]

Charley Ellis Joins Wealthfront

At Wealthfront, we believe in putting our clients’ interests first. The trust and confidence our clients place in our service is the primary reason we’re now the largest and fastest-growing software-based financial advisor. Our success allows us to attract incredibly talented people from the investment and technology worlds, which in turn enables us to continually improve the service we offer to clients. We’re honored to announce today that Charley Ellis, founder of Greenwich Associates, the leading research-based strategy consulting firm to the financial services industry, has joined Wealthfront as a member of our advisory board. Charley has written 16 books on individual investing, including the classic Winning the Loser’s Game. It’s hard to find someone in the investment industry whose […]

Investors’ Most Serious Mistake

Without doubt, the most serious mistake individual investors make is trying to time the market. Neither individual nor professional investors are able to make consistently accurate calls on the direction of market prices. In fact, I have never known anyone who knows anyone who has consistently made accurate directional bets on either equity or bond prices. When individual investors try to time the market they are much more likely to buy and sell at the worst times. Emotionally, investors suffer great pain when pessimism is rampant and stock prices fall.  They are more likely to buy when everyone is optimistic and prices are near or at their peak. Behavioral considerations cause investors all too often to shoot themselves in the […]