By Daniel Campbell, CFA
If I told you that we’d have a partial breakup of the European Union, a contested U.S. election, an economic contraction, and a global pandemic over the course of a year, would you expect the stock market to be up or down? Most of us might guess that the markets would be down (probably significantly). Few may have predicted that the markets would continue to set record highs. But that was 2020: a year of the unprecedented. Britain left the European Union, the first country ever to do so. The U.S. election was hotly contested, bringing out a record number of voters. And the defining event of 2020 – a global pandemic – upended normal life. Best-case scenario, it only changed the way we work, travel and connect with family and friends. (more…)
Historically, value stocks have outperformed growth stocks in the US, though recently that hasn’t been the case. While disappointing periods emerge from time to time, the principle that lower relative prices lead to higher expected returns remains the same. (more…)
As companies grow to become some of the largest firms trading on the US stock market, the returns that push them there can be impressive. But not long after joining the Top 10 largest by market cap, these stocks, on average, lagged the market.
by: Kenneth French, PhD
Director and Consultant
Investment returns have two parts: the expected return and the unexpected return. The expected return is the best guess of what will happen based on all the information currently available. The unexpected return is the surprise, the difference between what does happen and what was expected. Investors should base their portfolio decisions on expected future returns, not recent realized returns, and the two can differ by a lot.
A Taoist story tells of an old man who accidentally fell into the river rapids leading to a high and dangerous waterfall. Onlookers feared for his life. Miraculously, he came out alive and unharmed downstream at the bottom of the falls. People asked him how he managed to survive.
“I accommodated myself to the water, not the water to me. Without thinking, I allowed myself to be shaped by it. Plunging into the swirl, I came out with the swirl. This is how I survived.”(1)
By Sheldon P. McFarland
What do you get when you assemble a dozen or so of nuclear science’s greatest minds, give them access to the world’s first electronic general-purpose digital computer, and spend $2 billion during the height of World War II? An atomic bomb of course, and a sophisticated simulation technique code-named Monte Carlo. Monte Carlo simulation was developed by scientists working on the Manhattan Project to predict the explosive behavior of the various atomic weapons they were constructing. Since then, researchers have successfully applied it to a vast number of scientific problems. Today, and many evolutions later, we use it to model the validity of your financial life plan.