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Blog | The Portfolio Doctor

The Portfolio Doctor

My blog provides valuable insights into Nobel Prize-winning financial strategies for investors. By utilizing decades of worldwide peer-reviewed capital markets research and analysis, I demonstrate how to build better investment portfolios with lower risks. I also examine common financial media misinformation and how investors can make better financial decisions.

10 Ways Investments and Markets Have Evolved

1. Financial science becomes a driving force in well-designed portfolios.
Academic evidence casts light on the challenges with traditional investment approaches, such as security selection and market prediction, and pushes advisors toward more robust, research-informed investment strategies.
 
2. Theoretical and empirical research identifies drivers of investment returns.
Research shows that stocks offering higher expected returns can be identified using company size, relative price, and profitability. For bonds, information in the yield curve and credit spreads reveals higher expected returns.
 
3. Global information and competition further advance the market’s pricing power.
Each day, the global security markets process billions of dollars in trades between buyers and sellers—and their collective wisdom helps drive securities prices toward fair value.

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Living in Fear of a Market Downturn?

Dimensional Fund Advisors’ David Booth on why you should change the way you think about investing.

It’s easy to feel anxious about investing these days. Those who claim they can foresee market moves are out in force, on screen after screen, citing factors such as trade wars or the inverted yield curve as signals that stocks will soon go down.

Maybe we will have a recession, maybe we won’t—but be wary of predictions on how markets will behave. It’s a losing game. The results of those who try to time markets or pick winners have been studied extensively, and there is no compelling evidence they do better than you would expect by chance.

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Hindsight Is 20/20. Foresight Isn’t.

The year 2019 served up many examples of the unpredictability of markets. 

Interest rates that US policymakers expected to rise fell instead. American consumers’ confidence weakened as the year began,1 and news headlines broadcast fears of an economic slowdown. But investors who moved onto the sidelines may have missed the gains in the US stock market. As of the end of October, the S&P 500 was up more than 20% for the year on a total-return basis. That puts it on course for the best showing since 2013 should that gain hold through December.

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Value Judgments: Viewing the Premium’s Performance Through History’s Lens

October 2019
104 dfa

There’s a misconception in the markets: value stocks have lost their vigor.

Value stocks have underperformed growth stocks over the past decade. In the US, the annualized compound return has been 12.9% for value stocks, or those trading at a low price relative to their book value. That contrasts with 16.3% annualized compound return for growth stocks, or those with a high relative price.1

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Opinion: The U.S. Can Slash Health-Care Costs 75% with 2 Fundamental Changes — and Without ‘Medicare for All’

Fund the HSA deductible, as Indiana and Whole Foods do, and put real prices on everything

As the Democratic presidential candidates argue about “Medicare for All” versus a “public option,” two simple policy changes could slash U.S. health-care costs by 75% while increasing access and improving the quality of care.

These policies have been proven to work by ingenious companies like Whole Foods and innovative governments like the state of Indiana and Singapore. If they were rolled out nationally, the United States would save $2.4 trillion per year across individuals, businesses, and the government.

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A Tale of Two Decades: Lessons for Long‐Term Investors

The first decade of the 21st century, and the second one that’s drawing to a close, have reinforced for investors some timeless market lessons: Returns can vary sharply from one period to another. Holding a broadly diversified portfolio can help smooth out the swings. And focusing on known drivers of higher expected returns can increase the potential for long-term success. Having a sound strategy built on those principles—and sticking to it through good times and bad—can be a rewarding investment approach.

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Forget Stocks. Ultralong Bonds Are the Real Gamble.

Buying bonds at such stupidly high prices isn’t a way to keep your investment safe—it is speculation.

by: James Mackintosh

In the old days, the government bond market was the calm, dependable one keeping a watchful eye on its excitable equity-market sibling. No longer. Bonds are now just as good a place to be if you like to bet on big price moves, and stocks—while not exactly a tranquil place to invest—haven’t moved any more than is usual.The reason: panic. Yet again there is a global rush for the longest-dated bonds, pulling down the 30-year Treasury yield Thursday to the lowest ever, below 2% for the first time. In the past three months, the soaring price of that bond has led to a return of more than 20%, something that since the 1980s had happened only in the financial collapse in late 2008 and the U.S. credit rating downgrade-plus-eurozone crisis of 2011.

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Swedroe: Indexing No Risk To Market

By: Larry Swedroe

Over the past few decades, there has been a substantial shift from active to passive investment strategies. This shift has occurred as investors have become more aware of the persistent failure of active management, as demonstrated in the S&P Dow Jones biannual Indices Versus Active (SPIVA) reports.

A January 2019 Federal Reserve Bank of Boston study, “The Shift from Active to Passive Investing: Potential Risks to Financial Stability?”, found that “Passive funds made up 45% of the assets under management (AUM) in equity funds and 26% for bond funds at the end of 2017, whereas both shares were less than 5% in 2005.”

Wall Street has been attacking and ridiculing passive investing for decades. Among the arguments are that the rise of passive investing results in a reduction in price discovery efforts, leading to prices being distorted and capital allocated inefficiently. This occurs because indexing either has too large an influence on prices or it inhibits price discovery because it lowers aggregate market trading volume.

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