To Tilt or Not to Tilt

I tilt. Do you tilt? It’s OK to tilt. Many people tilt. I’m not talking about posture or politics – I’m talking about portfolio design. A portfolio “tilt” is industry slang for an investment strategy that overweighs a particular investment style. An example would be tilting to small-cap stocks or value stocks that have historically [...]

Any Monkey Can Beat the Market

Give a monkey enough darts and they’ll beat the market. So says a draft article by Research Affiliates highlighting the simulated results of 100 monkeys throwing darts at the stock pages in a newspaper. The average monkey outperformed the index by an average of 1.7 percent per year since 1964. That’s a lot of bananas! [...]

Investing in Three Dimensions (Part 2 of 2)

In Part 1 of this blog, we explored the theory behind Fama-French Three-Factor Model.  In Part 2, we explore its practical application. The Fama-French Three-Factor Model can be used two ways. First, it can be used to peer into portfolio returns and analyze results. Second, it can be used to engineer portfolios based on refined [...]

Investing in Three Dimensions (Part 1 of 2)

The stock market is a complex animal. It has many dimensions of risk and return. Academics and investors have been trying to understand and capitalize on these dimensions for centuries. Progress is being made. Researchers Eugene Fama and Ken French have conducted extensive research into the dimensions of stock market risk and return. In 1993, [...]

No Alpha from Alternative Index Funds

I had a little spat with another advisor last weekend while attending the first Financial Bloggers Conference in Chicago. This fellow insisted that index funds and exchange-traded funds (ETFs) that follow “alternative” indexes generate higher returns than traditional index funds that follow benchmark indexes. I said that wasn’t quite true. Although some alternative indexes have [...]