DATA-DRIVEN INVESTMENT RESEARCH

January 25, 2017

One word has caused much angst among lawmakers, financial advisors, brokers, and those seeking advice. And that word is fiduciary. A very general definition of fiduciary is a person who has an ethical or legal relationship of trust with one or more parties. There are several professions that necessitate a fiduciary standard of care, not limited to attorneys, doctors, real estate agents, bankers, and even executives of publicly traded companies. These individuals are always obliged to act ethically, and may even be legally responsible to act in the best interests of those who they serve. Each profession has varying deg...

January 19, 2017

If there’s one thing that those in the media love to do when it comes to investing, it’s attempting to predict the future. Turn on any channel that focuses on the stock market and you’re guaranteed to hear pundits making forecasts of the future with almost near certainty. The statements are made with such confidence and bravado it’s almost as if they know exactly what’s going to happen and when. Of course, this can’t be the case because they’d all be billionaires several times over if it were. Educated guesses can be made, but no one has ever consistently predicted what the market is going to do ahead of time, no one.

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January 17, 2017

Investors should get to know Spiva. No, Spiva is not akin to a Siri, or Alexa, or any other artificial intelligence device that is ready and able to answer any question you may have. Spiva is just a boring document, an investment scorecard, if you will. But the Spiva U.S. Scorecard will help with future investment decisions much more than any AI device.

The 2016 Mid-Year Scorecard was recently released and it’s very informative. The crux of the situation is that if you come in contact with 10 money managers who all claim, on average, to outperform a basic benchmark index, be it the S&P 500 or some other benchmark, they...

January 10, 2017

Although we are proponents of passive investing at Hardcastle Research, it's important to diversify your holdings. Single stocks can provide some diversification and offer substantial potential for returns. Here are some ideas that may be worth looking into for a small portion of your portfolio in 2017:

American Express (AXP)

When the decision is made to purchase a stock, it’s important to analyze both the technical movements of the stock price and the fundamentals of the underlying business. But there’s also a more qualitative, pragmatic element to investing in single stocks: the experience everyday customers have with...

December 30, 2016

Nothing attracts more investors like the alluring narrative of sizable, past returns. Indeed, money comes flooding in when a fund manager beats the market by even the slightest margin, despite the improbability of repeat outperformance. Despite the narrative in the media that all investment advisors, hedge fund titans, and general money managers are impervious to failure, the truth plays out every year with a considerable number of funds being consigned to the dustbin of history. But rarely are these failures reported, let alone accounted for, when it comes time to publish the investment community’s holy grail of mark...

December 21, 2016

There’s an excellent example from Warren Buffett that illustrates how long-term investors should tackle market volatility. It perfectly encapsulates the mentality of what the ultimate purpose of investing is: to sell an asset at a price higher than what you initially paid for it. I’ll let Buffett explain in his own words:

“A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? 

These question...

December 4, 2016

When people decide to invest in the stock market, there’s almost always an aversion to losing money. There’s a risk that investors will receive less in the future than what they contribute in the present, and that’s often enough to scare people away indefinitely. When others invest, they conceptualize risk as an opportunity cost of missing out on the next big IPO or private equity success story. To them, the risk of bad timing and missing large returns on their capital drives their investing behavior. And this “opportunity cost” risk must be mitigated for these high-return-seeking investors when allocating money in se...

November 17, 2016

Almost anyone can come within a dollar or two of estimating what it costs for certain household items, whether it’s a gallon of milk or a roll of paper towel. We know what it costs because we buy them so often and the price is in plain view for us to see. We also have a tendency to look for deals and discounts to decrease that price even further. Unfortunately, the price of investing isn’t so transparent, and we often don’t do our due diligence to find out what we should be paying, let alone what we might be paying.

After all, does the average investor really know—down to the dollar—how much they’re paying their adviso...

November 7, 2016

There has probably been a time where you’ve heard someone discussing a stock or mutual fund that has had big returns, or perhaps an advisor who has outperformed the market over a given year or so. Naturally, we’d like to flock to that expert advisor, or that superior stock or mutual fund to realize some of those gains as well. There would probably be something wrong if we didn’t feel compelled to jump in and make some money right then and there. Unfortunately, chasing investment returns can be one of the worst mistakes an investor can make. And too often this impulse occurs when an investor has not established a plan...

November 2, 2016

With any endeavor a person undertakes, there’s usually some future goal that is set before the activity commences. If that goal is to become a doctor, one must take an entrance exam to gain acceptance into medical school, complete a residency program, and pass their boards in order to become officially recognized as a board-certified physician. Likewise, when one decides to part with their hard-earned money today in exchange for future earnings, there must be a goal in mind as to the amount of future return one is willing to accept in lieu of having their money in hand to spend today. 

Tha...

October 31, 2016

John C. Bogle, Founder of Vanguard and arguably the most revered advocate of the individual retail investor, has stated innumerable times “do not allow the tyranny of compounding costs overwhelm the magic of compounding returns.” Never has this been more true than today. The costs of investing have never been lower — if you make the right decisions. There are essentially three major categories of costs: the cost of employing an advisor, which people may or may not utilize, depending on how comfortable they are with navigating the plethora of information available. The second cost is the cost of actually owning the ass...

October 30, 2016

The investment community has traditionally used one of two approaches to measure the value of assets: the firm-foundation theory or the castle-in-the-air theory.1The firm-foundation theory is concerned with the intrinsic value of an investment instrument, be it a common stock or commodity. An analysis of the security’s value against its price in the market is supposed to direct the buying and selling of the security. The castle-in-the-air theory of investing is also referred to as the “greater fool” theory because its primary objective is to determine how to get a higher price than what the securit...

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