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Do Surprises Really Move Markets?

French economist Louis Bachelier long ago remarked: “Clearly the price considered most likely by the market is the true current price: if the market judged otherwise, it would not quote this price, but another price higher or lower.” Prices will not change if the expected happens. It is the unexpected that causes prices to move. In an efficient market, any new information the market receives will be random, not in the sense of being good or bad, but in the
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Getting to the Point of a Point

                    A quick online search for “Dow rallies 500 points” yields a cascade of news stories with similar titles, as does a similar search for “Dow drops 500 points.” These types of headlines may make little sense to some investors, given that a “point” for the Dow and what it means to an individual’s portfolio may be unclear. The potential for misunderstanding also exists among even experienced market participants, given that
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Discipline: A Necessary Condition for Successful Investing Part 3 of 3

(Continued from Discipline: A Necessary Condition for Successful Investing Part 2 of 3) There’s another way to reduce the risk of investment depression. Myopic Loss Aversion and the Pain Ratio Nobel Prize winner in economics Richard Thaler, author of the book Misbehaving, has found that we tend to feel the pain of a loss twice as much as we feel joy from an equal­-sized gain. This tendency leads to the behavior known as “myopic loss aversion,” creating a problem for
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Discipline: A Necessary Condition for Successful Investing Part 2 of 3

(Continued from Discipline: A Necessary Condition for Successful Investing Part 1 of 3) Perhaps the greatest anomaly in finance is that while investors idolize Warren Buffett, they not only fail to follow his advice but often do exactly the opposite of what he recommends. Buffett’s Advice Warren Buffett, probably the most highly regarded investor of our era, has offered the following advice over the years. Listen carefully to his statements regarding efforts to time the market. “Inactivity strikes us as intelligent
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Discipline: A Necessary Condition for Successful Investing Part 1 of 3

A good friend, Sherman Doll, related the following story. Sherman has been a two­ line sport kite flier for years. While not a pro, he has learned a few tricks from observing the flying behavior of these kites. He told me that one of the most difficult skills for beginners to master is what to do when their kite starts to plunge earthward. The natural, panicky impulse is to yank backward on the lines. However, this only accelerates the kite’s
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Invest for the Long Term

Over the last nine decades, the U.S. experienced 9 bear markets and 15 recessions or depressions, World War II and Vietnam, and any number of crises big and small. Yet $1 invested in 1927 could have grown to more than $6,229 by the end of 2017.1 Markets have shown a remarkable ability to reward patient, long-term investors for staying invested. This is important, since most of us are investing for the long term. For a 65-year-old couple, there is a
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Déjà Vu All Over Again

Investment fads are nothing new. When selecting strategies for their portfolios, investors are often tempted to seek out the latest and greatest investment opportunities. Over the years, these approaches have sought to capitalize on developments such as the perceived relative strength of particular geographic regions, technological changes in the economy, or the popularity of different natural resources. But long-term investors should be aware that letting short- term trends influence their investment approach may be counterproductive. As Nobel laureate Eugene Fama
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Estate Planning Projects to Tackle in the New Year

                As the end of the year approaches and you begin to look back on 2018, what changes need to be reflected in your estate plan? Have you gotten married or divorced in the past year? Perhaps you’ve welcomed a new child or grandchild, or experienced a change in your health. So much can change in a year, and it’s important not to let too much time pass before those changes are reflected
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Why Should You Diversify?

As 2019 begins, and with US stocks outperforming non-US stocks in recent years, some investors have again turned their attention towards the role that global diversification plays in their portfolios. For the five-year period ending October 31, 2018, the S&P 500 Index had an annualized return of 11.34% while the MSCI World ex USA Index returned 1.86%, and the MSCI Emerging Markets Index returned 0.78%. As US stocks have outperformed international and emerging markets stocks over the last several years,
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2018 Market Review

After logging strong returns in 2017, global equity markets delivered negative returns in US dollar terms in 2018. Common news stories in 2018 included reports on global economic growth, corporate earnings, record low unemployment in the US, the implementation of Brexit, US trade wars with China and other countries, and a flattening US Treasury yield curve. Global equity markets delivered positive returns through September, followed by a decline in the fourth quarter, resulting in a – 4.4% return for the
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