Investing

#Luck Often Plays A Role In Stock Returns

By March 8, 2019 No Comments

Mark Hulbert wrote another interesting article in the Wall Street Journal. Mr. Hulbert follows investment strategies and newsletters and always has interesting insights. He reads what a lot of people write and then explains it to the rest of us.

He interviewed Gene Fama and Ken French. They are professors at the University of Chicago and Dartmouth. DFA mutual funds follow strategies based on their academic research.

The gist of what they said is that some investing strategies that are fairly consistent over the long run often don’t show up in the short run.

Some thing that we just “know” like that stocks will outperform bonds, or cash; and small-cap will outperform large-cap; and value will outperform growth, while they have shown up to be pretty consistent historically, there are three, five, and even ten-year periods where that hasn’t been the case.

Even over ten-year periods, those strategies don’t work 10 to 15% of the time and when you’re looking at the three or five-year periods, it’s in the 20% to 30% range. We follow some of these strategies. We do invest more in value and small-cap and we invest in stocks, not just cash and bonds. It shows you that there’s a lot of statistical noise and a lot of variability and volatility. In the short run, luck also plays a role.

Anyway, it’s interesting, and I’d recommend you read it if you get a chance.

My name is Mike Garry, and my company is Yardley Wealth Management. We are a fiduciary, fee-only financial planning, and wealth management firm in Newtown, Pennsylvania. (That’s in Bucks County). If you’d like to talk about this or anything else, please reach out: 267-573-1019, mgarry@yardleywealth.net or @michaeljgarry

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Michael Garry

Author Michael Garry

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