Insights

Valuations of publicly traded companies are a frequent topic of conversation among investors and for good reason. Valuation ratios tell us the price of stocks relative to fundamentals like earnings, sales and book value. In other words, valuation ratios are an excellent way to understand the long-term attractiveness of groups of stocks relative to: one another their historical norms. A large body of academic evidence ties valuation levels and long-term expected returns, and intuitively, that the price we pay for
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Anyone who’s ever bought a used car knows the importance of avoiding a cherry-picked depiction of history. Low mileage and regular oil changes don’t matter much if the seller fails to mention the car was once submerged in floodwater. Many investors have been drawn to the shiny-object stocks of the S&P 500 index on account of their recent performance—since 2010, the large cap S&P has outperformed US small cap value stocks(1) by an annualized 1.7 percentage points(2). However, this impressive
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Sudden market downturns can be unsettling. But historically, US equity returns following sharp declines have, on average, been positive. A broad market index tracking data since 1926 in the US shows that stocks have tended to deliver positive returns over one-year, three-year, and five-year periods following steep declines. Cumulative returns show this trend to striking effect, as seen in Exhibit 1. On average, just one year after a market decline of 10%, stocks rebounded 12.5%, and a year after 20%
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Fear of missing out. It’s the acronym for a behavioral phenomenon where people worry they’re missing out on something important they believe may help improve their lives —information, the novel features offered by the latest smartphone or the desire to be part of an exciting shared experience like a pop star’s three-hour concert. We’ve also heard much about FOMO in the investment world over the past few years. Many will recall the so-called meme stocks or cryptocurrencies, but we can
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Have you ever had the feeling that people are somehow getting worse over time? Or that the moral foundations of society are fraying as the years tick by? Brand new research published in Nature explores the prevalence of this perception as well as the reasons why it may come to be. Admittedly, this topic may seem slightly tangential to the issues I usually cover here. Typically, I use this column to discuss new findings in the space of behavioral science,
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By Kathie Jones Charles Schwab Managing Director, Chief Fixed Income Strategist “There has been speculation lately that the U.S. dollar is on the verge of a major decline and might even lose its status as the world’s major reserve currency. “De-dollarization,” or the movement away from using the U.S. dollar as the primary currency of exchange in global trade and investment, has become a hot topic in financial publications. It appears to stem from news that China is beginning to
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David Booth Dimensional Fund Advisors Chairman and Founder Every year at this time, the NCAA men’s basketball tournament thrills fans and creates so much interest that it’s estimated one in four Americans filled out a bracket to try to predict who will win it all.1 I really enjoy watching the games and always fill out a bracket in a pool with my family. This year, I couldn’t help but see connections between investing and March Madness. Let’s start with the
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These days there’s a wide gap between what Americans think about the economy and the state of their personal pocketbooks. What’s going on? I study households’ economic expectations and their financial decisions and believe people may be overreacting to the current news cycle with their pessimism about how the economy is doing. Objectively, U.S. households are in pretty good shape. We have a higher level of savings than before COVID, thanks to the government stimulus payments during 2020 and 2021
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Bucket portfolios aren’t rational, but they are perfectly normal and can be an effective tool for investors. Bucket portfolios are aimed at providing spending resources during investors’ decumulation periods, usually in retirement. They are typically composed of three buckets, arranged by time horizon and investment type. The first bucket contains cash, such as a money market fund, sufficient for spending as planned in the short horizon and set at one, two or perhaps five years. The second consists mostly of
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David Booth DFA Chairman and Founder When I was growing up, our local newspaper, the Kansas City Star, was full of news and had one page for opinion. After decades of cable news and nonstop digital postings, I see more opinions these days than news. That’s not a bad thing. But when it comes to investing, it’s crucial to remember the difference between news and opinion, and how they are sometimes used to forecast the future. Any time the government
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