Insights

Stock Pickers Fell Flat In 2013

Last year certainly provided active managers with plenty of opportunities to outperform, and it’s worth examining if they really did. For example, while the S&P 500 Index returned 32.4 percent, Netflix (NLFX), the top performer in the index, returned 297 percent. Two other stocks, Micron Technology (MU) and Best Buy Co. (BBY) returned more than…

7 Myths About Dividend-Paying Stocks

The most common misconception among investors may be the value of investing in dividend-paying stocks. Almost every week, someone contacts me to extol the virtues of investing in what they call “high quality, dividend-yielding securities.” Often, their interest is spurred by the recent high performance of these stocks. According to one paper by Gregg S. Fisher, published…

The Delicate Craft of Misleading Investors

Proponents of alternative investments (like hedge funds) have a very effective presentation. They claim these investments have low volatility (risk), offer excellent risk-adjusted returns, and don’t correlate well with stocks or bonds, thereby providing a “hedge” in troubled times. These proponents demonstrate the accuracy of these claims with compelling statistics, displayed in impressive marketing materials….

Start Paying Attention to Tax Efficiency

Much attention has been paid to expense ratios of mutual funds. Yet, despite the fact that taxes have a substantial impact on the long-term performance of taxable mutual fund investors, far less attention has been paid to the impact of taxes on after-tax returns. And while the evidence is clear that it’s difficult for active fund managers to create superior investment performance by picking stocks or by timing markets, it’s relatively easy to avoid destroying value for taxable fund investors by managing investment taxes. For example, tax-aware funds might attempt to reduce the tax burden by avoiding the intentional realization of any short-term gains and by accelerating the realization of capital losses. Tax management strategies might not only reduce the tax burden, they might also generate lower trading costs. For example, tax-efficient investment strategies exhibit relatively low turnover, generating lower trading costs. In addition, liquidating stock positions with embedded capital losses and holding on to positions with capital gains might generate superior before-tax returns due to the momentum effect.

Tips for Dealing With the Market Decline

The recent sharp decline in the stock market has investors concerned. Apparently, many “investment pros” thought the market would continue its upward trajectory through 2014. The National Association of Active Investment Managers conducts a weekly survey with advisers and found that they have an astounding 98.3 percent of their clients’ portfolios allocated to stocks. This was a sharp increase over the average of 72 percent allocated to stocks in 2013.