Economy

Academics Converting Alpha Into Beta

August 21, 2019 by Hans Blake, CFA, CPA

Reading Time: 2 minutes

On today’s Intelligent Money Minute, we’ll interview Larry Swedroe on how academics converting alpha into beta make outperformance difficult. Prior to 1992, only active managers had exposure to market beating stocks. In this episode, Larry details the history of alpha and outperformance and what changed for passive investors. He refers to a white paper titled, The Cross-Section of Expected Stock Returns written by Fama and French. This paper altered the landscape of investing because of it’s 3 factor model. Now passive investors have the ability to gain exposure to the same markets in a much more tax efficient manner.

At Intelligent Investing we believe that Asset Allocation, or the long-term mix of stocks, bonds, and cash is the primary determinant of the variation of returns a client can expect. As a result, we focus on creating an appropriate blend that has a dual focus- maximizing returns and minimizing risk. To learn more about our asset allocation and our other wealth management practices, visit to investedwithyou.com/philosophy.

We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has since authored seven more books.

Larry Swedroe Bio

Since joining the Buckingham Strategic Wealth in 1996, Chief Research Officer Larry Swedroe has spent his time and energy educating investors on the benefits of evidence-based investing.

In his role as chief research officer and as a member of the firm’s Investment Policy Committee and Board of Directors, Larry regularly reviews the findings published in dozens of peer-reviewed financial journals, evaluates the outcomes and uses the result to inform the firm’s formal investment strategy recommendations.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television shows airing on NBC, CNBC, CNN and Bloomberg Personal Finance. Larry is a prolific writer, contributing regularly to multiple outlets, including Advisor Perspectives and ETF.com.

Before joining Buckingham, Larry was vice chairman of Prudential Home Mortgage and senior vice president at Citicorp.

Larry holds an MBA in finance and investment from NYU, and a bachelor’s degree in finance from Baruch College.

How’s It Going To End?

July 18, 2019 by Hans Blake, CFA, CPA

The Truman Show is a 1998 science fiction film featuring Jim Carrey as Truman Burbank. Truman, the unsuspecting star of The Truman Show, a reality television program broadcast live around the clock worldwide, spends his entire life in the fictional seaside town of Seahaven Island. This giant set equipped with state-of-the-art technology can simulate day/night, weather conditions, and has thousands of cameras to watch him. During his college years, Truman was supposed to fall in love with and marry co-student and actress Meryl. Instead, he fell for Sylvia, an “extra.” Sylvia warns Truman his “reality” is fake. Outside of the show, Sylvia has become part of a “Free Truman” campaign that demands the end of the show and Truman’s freedom. Sylvia helps Truman realize he is a pawn within a greedy corporation and wears a red sweater with a pin that says, “How’s it going to end?”

The question on Sylvia’s button may be the same question on your mind when it comes to the market. How is it going to end? When is it going to end?

What is a Bull Market?

First, let’s define a bull market. A bull market is a market pattern that occurs when prices keep rising up 20% from a previous drop of 20%. A bull market can refer to the securities market (like stocks and bonds), but can also refer to other markets like housing.

How Will This Bull Market End?

The U.S. economic expansion entered a record 11th year, while the bull market in equities is a few months older. You may be asking yourself the same question Sylvia’s button asked. The three Ts– Trump, Tariffs and Trade wars, can be a wet blanket on the embers of growth, but the market can still go higher. The adage, “Bull markets don’t die of old age” may be true, but attempting to time when to get in and out of markets can be futile and dangerous to reaching your long-term financial goals. Always keep in mind that the bottom of a bear market is the start of the next bull market, and also remind yourself of your personal time horizon. The truth is nobody knows how the current bull market is going to end.

When Will This Bull Market End?

There is no expiration date for bull markets. Nobody has a crystal ball to say when the bear market will begin and how long it may last, which is why we believe it is prudent to maintain a diversified approach and focus on the things you can control and not let fear or greed dictate your next move in your portfolio.

Maintain Discipline

Warren Buffett famously said that like dieting, successful investing is far easier to understand than to accomplish—because it requires discipline. At Intelligent Investing, we monitor and rebalance portfolios with the goal of maintaining the amount of risk we jointly agreed to take. We have a strong philosophy and set of processes that strive to reduce the emotional component of managing wealth.

Preparing for the Next Drawdown

Remember your history. Big equity drawdowns happen time and again and tend to drag down typical investor portfolios with them. The S&P 500 drawdowns worse than 20% have happened 11 times since 1926. We will have a bear market, but studies have shown that attempting to tactically avoid the next equity selloff is likely to disappoint investors. Diversification and discipline are still investors’ best bet.

We are long-term wealth managers. We try not to get caught up in the loud noise of the markets and we encourage you to do the same. If you’d like a financial accountability partner who can help minimize financial stress to maximize your life, let us know.

The Difficulty of Consistently Outperforming the Market

June 27, 2019 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes

On today’s Intelligent Money Minute, we’ll interview Larry Swedroe on the difficulty of consistently outperforming the market. Over time, the markets are becoming more efficient, consequently making it harder for active managers to outperform. In this episode, Larry explains some reasons why there’s little to no evidence of persistence of outperformance. We have several upcoming podcasts that will feature Larry, so be sure to subscribe to our podcasts, if you haven’t already.

He breaks the numbers down using an example from Charles Ellis’ white paper. According to Larry, if we look at history, around 20 years ago only 20% of managers were outperforming before taxes. After taxes, it was about 10% and currently, it is approximately 2% of managers outperform before taking into consideration taxes. Unfortunately, no advisor can consistently deliver outperformance in the market. At Intelligent Investing, we believe the dominant determinant of long-term, real-life returns will be the behavior of the client and advisor. This is why we strongly believe in behavioral teamwork.

To learn more about our behavioral coaching, go to our philosophy page. You can also read “The Loser’s Game” by Charles Ellis here. We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts.

Larry Swedroe Bio

Since joining the Buckingham Strategic Wealth in 1996, Chief Research Officer Larry Swedroe has spent his time and energy educating investors on the benefits of evidence-based investing.

Before joining Buckingham, Larry was vice chairman of Prudential Home Mortgage and senior vice president at Citicorp.

Larry holds an MBA in finance and investment from NYU, and a bachelor’s degree in finance from Baruch College.

Lessons Learned from the 2008 Crisis

January 10, 2019 by Hans Blake, CFA, CPA

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Reading Time: < 1 minute

On today’s Intelligent Money Minute, we’ll interview Dan Hamilton on real estate lessons learned from the crisis of 2008. During this episode, we discuss the value of diversification, and how this strategy kept Dan’s business alive. Our previous podcasts with Dan highlighted Real Estate Tips For Successful Professionals and Reasons for Entering The Real Estate Profession.

If you are interested in learning more about diversification and how this can minimize risk, you can read about Intelligent Investing’s “Wealth Management Philosophy” here.

We’ll be interviewing Dan on several podcasts regarding the Greenville market and on real estate in general, so be sure to subscribe to our Intelligent Money Minute podcasts.

Dan is a founding partner and the Operating Principal of Keller Williams Realty Greenville-Upstate, one of the largest and fastest-growing real estate brokerages in the Upstate. He is also the founder and Team Leader of Hamilton and Co. of Keller Williams Realty.

Dan Hamilton Bio

A longtime member of the Greenville community, Dan is passionate about serving and improving our community, and, to that end, he currently serves, or has served, in the following capacities:

South Carolina House of Representatives District 20
Board Member, Carolina Hope Christian Adoption Agency
Vice Chairman, Greenville County Redevelopment Authority
Director & Secretary/Treasurer, Greater Greenville Association of REALTORS
Co-Chair, Greenville Workforce Housing Trust Fund Task Force
Chairman, Greenville Housing Fund

On November 4, 2008, Dan was elected to serve his community in the South Carolina House of Representatives. He was elected Vice-Chairman of the Freshman Caucus and Chairman of the Upstate Caucus. He also serves on the Judiciary Committee.

5 Thoughts on Oil (In Under 1 Minute)

December 10, 2018 by Hans Blake, CFA, CPA

Reading Time: < 1 minute

Oil prices have dropped about 22% last month (or 33% from the Oct. 3rd peak to around $51/barrel for U.S. crude oil futures)
The benefit is that consumers don’t have to pay as much at the pump. Average prices at the pump are falling at the fastest rate in 3 years, according to fuel tracker GasBuddy. (down about 31 cents a gallon compared to a month ago)
Falling oil prices used to be a bigger boon to the U.S. consumers but are not as effective today. (I.e., in 1972, it took 1.1 barrels of oil to produce ~ $1k of GDP, and now it only takes 0.4 barrels)
Extraction techniques have changed from using large debt-free companies (Exxon, BP) who didn’t have much debt, to now using smaller debt-laden companies. Therefore, the lower oil costs may drive these smaller companies into bankruptcy, or prevent them from wanting to make further investments into energy, which can hurt the economy.
The trend in net export levels has been declining for over a decade so domestic demand is waning and putting downward pressure on global prices (in addition to the most obvious, that the global economy is hovering at below-trend growth ever since the Great Recession.)

4 Reasons to Not Worry About a Trade War

October 12, 2018 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes

In this latest podcast, we interview Dr. Jeff Roach, our director of research, on 4 Reasons Not to Worry About a Trade War. But first, a little backstory:

What Happened This Week?

On Wednesday and Thursday this week, the Dow dropped nearly 1,380 points. While 1,300 points sounds like a lot, the Dow Jones Industrial Average began Wednesday at more than 26,400. So the decline ultimately represented a loss of just over 5%. In other words, the U.S. stock market is back where it was in roughly mid-July. Keep in mind, the Dow Jones Industrial Average (DJIA), or simply the Dow, shows how 30 large, publicly owned companies based in the United States have traded during a standard trading session in the stock market. It only represents 30 large companies and is a relatively small sample of companies compared to the broad U.S. market and an even smaller sample when comparing to the global markets.

Why do stock markets increase or decrease?

A stock moves up or down in price because of investor sentiment. If investors believe a stock is worth more than its current price, it moves up. If they believe it’s worth less, it moves down. Stock markets are immediately responsive to what investors believe. These beliefs generally are formed more in response to investor emotion – how they feel about the stock price – than directly from an analysis of the stock’s metrics –such as improved or declining earnings, the price-to-earnings ratio or earnings per share.

So Why Did the Stock Market Drop?

As often occurs after a big market move, traders, news media, and taxi cab drivers offer up several explanations for what happened to the stock market. Here are two possibilities:

Possibility #1

One has to do with President Trump’s trade war with China. While the Trump administration has been talking about China for months, it upped the ante in late September by slapping a 10% duty on $200 billion worth of Chinese consumer goods. The China tariffs are expected to jump to 25% in January. The trade stand-off could hurt both the U.S. and Chinese companies, by raising production costs and crimping consumer spending, which could affect GDP.

Possibility #2

Also in late September, the U.S. Federal Reserve raised interest rates for the third time this year. Those moves are meant to reduce the risk of inflation, which has been finally beginning to tick up as the U.S. economy gains steam. Higher interest rates hurt stocks by making bonds a comparatively more attractive investment, and by making it more expensive for companies to borrow and invest.

So what can you do?

First, make sure your portfolio is prepared to weather the next storm. Second, ensure it is aligned with your risk tolerance and goals, and third, have a sound investment philosophy. We would be honored to serve you and your family and may provide a complementary portfolio review if you are concerned.

What Rising Rates Could Mean for Your Money

June 21, 2017 by Hans Blake, CFA, CPA

Intelligent Investing is able to stress-test your existing portfolio to determine what raising rates may do to your portfolio. We’d be happy to let you know what hidden risks may be lurking in your portfolios, and whether you are in an appropriate portfolio based on your risk tolerance. See the article below for what rising rates could mean for your money.

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