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Portfolio Solutions Blog

Rick Ferri
July 27, 2015

Harry Markowitz won a Nobel Prize in Economics in 1990 for his work on a theory of portfolio management for individual wealth holders. Since that time, Modern Portfolio Theory (MPT) has become the bedrock for creating best-practice portfolio selection methods. Creating an optimal...

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Rick Ferri
July 20, 2015

I was a brand-spanking new Second Lieutenant in the Marine Corps 35 years ago.  We graduated 135 “butter-bars” from my Officer Candidate class. We were called that because the single, brass bar rank insignia looks like a bar of butter. We had a lot of pride and ambition on commissioning day, and all the opportunity in the world to advance in the Marine Corps.  

The top officer rank in the Marines is General. Not one of the fine officers with whom I was commissioned made it that far. (I retired as a reserve Major in early 2001.) General isn’t an easy rank to reach. According to the...

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Rick Ferri
July 13, 2015

What CFOs Think About the Market

Tune into any financial news network and you’ll hear a continuous drumbeat of Wall Street analysts spouting their most recent stock market forecast. I find there is value to these forecasts – entertainment value – especially from the forecasters who foresee grandiose returns or impending doom. In terms of investment value, if these forecasts serve any point at all, it’s to illustrate how far some forecasters will go to get media attention.

Perhaps a more useful stock market forecast is how chief financial officers (CFOs) of...

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Rick Ferri
June 30, 2015

With the Fourth of July fast approaching, I am reminded of the many benefits of independence, especially independent investment advice. You would think that independent advice would be any adviser’s highest calling. Surely our mission should be to aggressively avoid direct or indirect conflicts of interest, so we can freely employ any funds or investments that best suit our clients’ needs.

Investors should expect this highest level of care from their adviser, and they should ignore recommendations made by any firm that won’t look at all the...

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Rick Ferri
May 14, 2015

I’d have a lot more money today if all I had ever done was buy index funds and hold onto them. Instead, early in my investing years, I bought “gems” like penny stocks before they went bankrupt, options on banks falsely rumored to be ripe for buy-outs, a vacation timeshare because I thought it had appreciation value, and Salvador Dali prints from a dealer who went to prison for selling fakes. If I had known Bernie Madoff, I probably would have begged him to take my money.

I find I’m not alone in having made dumb investment mistakes. The School of Hard Knocks has been well attended....

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Rick Ferri
May 07, 2015

I’m always interested in reading academic studies that measure how well professional mutual fund managers can time financial markets. Many fund companies routinely claim their experienced management and propriety research give them a leg up on knowing where the markets are headed next. But is it true? Have mutual fund managers made profitable timing decisions ahead of the markets’ next movements?

The past 15 years has been an ideal time to test timing skill given two significant stock market downturns: the technology bust of 2000 and the...

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Rick Ferri
April 28, 2015

Index fund investors let the facts speak for themselves. The long-term data comparing active funds to index funds shows actively managed mutual funds underperform in all asset classes and all investment styles. There is no ambiguity in the results, and there’s nothing new to report here. The data has been saying the same thing for decades.

But, we’re only human. We forget, and lies are constantly being told that cause us to second-guess our resolve. It’s a good idea to revisit the data at least once a year...

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