The Value of Diversification
From the March 2011 newsletter:
When I list “full diversification” as one of core components of Mariposa’s investment strategy, what does that really mean? What’s the point of diversification?
Before answering those questions, let’s first discuss one interesting, but often overlooked, property of investments: the difference between the realized, annualized return and the average return. For example, if you experience returns of +10% in one year and then -10% in the next, your realized return is not 0%, but slightly negative (-1% if you’re calculating at home). I like to think about this relationship as a simple formula:
Top 5 Articles of 2010
Here are the five most popular articles with our readers in 2010, our first full year of blogging:
Stock Market Predictions Using Q
Last month, we used the P/E ratio to predict stock market performance over next 1 to 20 years. This time, let’s try using another valuation metric: the Q ratio. An easy way to calculate Q is by using the Federal Reserve’s Z.1 data, which was just refreshed last Thursday. And as mentioned previously, we know that predicting stock market movements profitably is extremely difficult, so we need to proceed with care.
Using data since 1945, the chart below shows the historical relationship between Q and S&P 500 returns over the following 1 and 20 years (annualized and adjusted for inflation).
Investment Options: US Stocks
This is the latest post in a series covering investment selection. Each post covers an asset class, highlighting selection factors to consider and listing filtered investment options.
“Is the market up or down today?” A question like this implicitly refers to the US stock market, not the market for German government bonds or crude oil futures, because when people think of investments and the financial markets, most naturally think of US stocks. US stocks are, and should be, a core holding for most investors.
Smart Year-End Investing Moves
From the November 2010 newsletter:
As you feast on turkey and Black Friday sales this weekend, you may wonder what investing tasks you need to take care of before year-end. Okay, that’s not going to happen, but here’s a list anyway. Happy Thanksgiving!
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