In June we reminded our readers that, while investment grade corporate bonds are a worthy portfolio diversifier, high-yield or “junk” bonds are far more volatile and therefore unsuitable for most household investors. Junk bonds are loans to firms with dubious credit quality (these bonds are graded Ba or lower by Moody’s Investor’s Service, or BB+ […]

Global capital markets have tumbled again, this time in response to fiscal chaos in Greece and its implications for the wider Eurozone. In today’s integrated global economy the potential for any nation to default on its sovereign debt is disruptive. Investors, however, should not change their allocation plans in response to events external to their

The question of free markets versus socialism is in the news. We take this opportunity to remind investors that it is logically consistent for investors who accept the primacy of free markets to adopt passive, asset class management over the alternative of active management. In our discussion we draw upon a transcript of a presentation

As November drew to a close the European financial crisis grew more severe when the most prudent European government, Germany, could not sell more than about 65 percent of its public debt on offer at an auction. If investors refuse German bonds, then what hope is there for the traditionally more profligate European sovereigns, such

Politicians have met the bond market. Legislators in Washington have spent lavishly for decades, and the bill is now due. Standard and Poor’s change in outlook for U.S. Treasury securities from “stable” to “negative” serves as a stark reminder that profligate spending has consequences. While fiat currencies can mask the ill effects of unchecked fiscal

On August 5, after markets had closed, Standard and Poor’s stripped the U.S. of its triple-A rating. Many had predicted that a downgrade would result in a broad sell off of Treasuries and a corresponding increase in yields. These predictions proved to be wrong. The next trading day, August 7, the yield on the 10-year

In early 2009 renowned bond investor and PIMCO chief investment officer Bill Gross and CEO Mohamed El-Erian proclaimed the emergence a new post-financial crisis era, coining the phrase “new normal”. They predicted a period that would be characterized by several years of economic stagnation and below average equity returns in the U.S. and in other

Imagine sitting in a bar in which you are introduced to someone said to have an uncanny ability to predict whether the Yankees will win or lose their next game. Further suppose that you know for a fact that for the previous six games he has walked into this bar the day before each game

In February 2010 the newly elected government of George Papandreou announced that Greece’s 2009 deficit was much larger than previously reported and revised it upward to an alarming 12.7 percent of GDP. This figure was more than double the previous government projection, and was later revised yet again, to 15.4 percent. This turned out to

Investors who follow our approach can look back on 2013 with satisfaction as global equity markets provided calendar-year returns well above historical norms. But rather than ponder market outcomes, we once again remind our readers that it is far more productive to focus on those factors that are within their control.• I will understand my