Gambling Not a Great Investment Strategy

Older investors focused on landing fat returns by taking on more risk might be putting their retirement in harm’s way, according to a recent article in The New York Times. Taking on more risk in the hopes of earning bigger gains can not only jeopardize investments but also the lifestyle retirees had been planning for. The article cites comments from several financial advisers regarding how they address this issue with clients. For clients who want… Read More

A Different Definition of Risk

By Jack Forehand (@practicalquant) —  Investment professionals like to use a myriad of fancy terms to measure risk. The problem with almost all of them is that they are in no way understandable for the average investor. Words like standard deviation, max drawdown, tracking error and Sharpe ratio are often thrown around to judge how risky a portfolio is. Those concepts are not only very difficult for investors to understand, but they also aren’t all that… Read More

Morgan Housel: Discomfort the Key to Investing Success

 A key component of becoming a successful investor, writes Morgan Housel of the Collaborative Fund, is the “ability to be comfortable being uncomfortable.” Investors, he says, “have a fascination with no-brainers, obvious decisions, and easy money. The phrases should be chapter titles in a book on the ease of deluding yourself.” He argues that finding well-performing investments requires above-average intelligence but also the willingness to “endure more discomfort and uncertainty than others.” Housel cites a comment… Read More

Max Drawdown a Good Indicator of Fund Volatility

When evaluating an equity fund’s volatility, more attention should be paid to “max drawdown”—the maximum decline a fund has experienced from peak to trough over a given period—than to standard deviation (how far returns move from the average). This according to a recent article in The Wall Street Journal. The article notes that a higher standard deviation generally indicates greater volatility. The stock market’s current standard deviation of 18%, it explains, indicates that “the majority—though… Read More

Marks: Be Selective in a Heated Market

  Last month, Bloomberg’s Erick Schatzker sat down with Howard Marks, co-chairman of Oaktree Capital, to discuss the fund manager’s investment approach. With respect to whether the now-stretched equity valuations make for what some are calling “treacherous” conditions, Marks comments, ” The riskiest thing in the world is to believe there’s no risk. When people talk about risk in the market, that’s a healthy thing.” According to Marks, however, there is an incongruity between words… Read More