Below you'll find a list of all posts from 2017
How good were the good old days? Was the post-World War II economic boom in the United States and other developed countries a truly special period, one that we cannot expect to repeat, even over centuries-long time frames? Where did those exceptional growth rates come from, and what—if anything—can we do to bring them back? In An Extraordinary Time: The …
Where do technological innovations come from? We have two mental images. One is of a lone genius working in a laboratory or garage, misunderstood until, at long last, the world appreciates her contribution. The other is of a team of busy bees, experts working at a corporation or government agency, the Manhattan Project being the best-known example. The life of …
What do living organisms, cities and businesses have in common? They all have organic characteristics: they’re born, grow, sometimes shrink and usually die; they all require energy to maintain and grow; and they all must deal with the sometimes undesirable byproducts of their existence. Do these wide-ranging behaviors follow simple laws that have explanatory and predictive value? Geoffrey West, a …
Has productivity growth slowed in the U.S. and around the world, as conventional measurements suggest? Or is that just an illusion, caused by the difficulty of measuring the quality improvements (instead of quantity improvements) that now constitute the bulk of productivity growth? In a provocative interview, Horace (“Woody”) Brock, an economist, strategist and consultant to many of the world’s leading …
The equity risk premium (ERP), or equity premium, is the difference in expected or realized return between an equity index and a reference asset, where the latter is usually a bond or bill portfolio considered to be “riskless.” In the modern literature and in investment management practice, ERP usually means “expected ERP” and we will stick to that convention, reserving …
Where do technological innovations come from? We have two mental images. One is of a lone genius working in a laboratory or garage, misunderstood until, at long last, the world appreciates her contribution. The other is of a team of busy bees, experts working at a corporation or government agency, the Manhattan Project being the best-known example. The life of …
Has productivity growth slowed in the U.S. and around the world, as is the conventional wisdom? Or is that just an illusion, caused by the difficulty of measuring the quality improvements (instead of quantity improvements) that constitute the bulk of productivity growth? In a provocative interview, Horace (“Woody”) Brock, an economist, strategist and consultant to many of the world’s leading …
Richard Bookstaber has authored two superbly written and thoughtfully argued books on the flaws of the financial system. His first, A Demon of Our Own Design (2007), was focused on the system’s complexity and foresaw the global financial crisis of 2007-2009. His latest book, The End of Theory, argues that economics as currently understood is poorly designed to understand the …
In a burst of silliness, index funds have recently been compared to Communism, called un-American, and regarded as proof of our essentially lazy nature. But those are softballs. In a harder-edged attack, cash flows into index funds have been blamed for pushing the prices of a few favored stocks up to astronomical levels, distorting markets and making indefensible capital allocation …
How good were the good old days? Was the post-World War II economic boom in the United States and other developed countries a truly special period, one that we cannot expect to repeat, even over centuries-long time frames? Where did those exceptional growth rates come from, and what — if anything — can we do to bring them back? In …
Who is better at value investing: robots or people? How have robots — the quantitatively-driven passive funds that hold, for example, low price-to-book stocks — fared against actively managed value mutual funds? A provocative paper forthcoming in the Financial Analysts Journal, “Facts About Formulaic Value Investing,” by U-Wen Kok, Jason Ribando, and Richard Sloan, argues that robots are poor value …
Jimmy Wales, founder of Wikipedia, and Jack Bogle, founder of Vanguard, were among the distinguished speakers at the 2017 Morningstar Investment Conference in Chicago. Both men’s accomplishments have disrupted existing practices in ways that have almost uncountable benefits for mankind. As I’ll demonstrate, each of them has been responsible for two major disruptions. Wales set as his objective the dissemination …
Is the world going to hell in a handbasket? Are most people getting poorer while the rich get richer? Have we destroyed the planet? In a sparkling — and delightfully short — new contribution to the econo-optimist genre, Johan Norberg, author of Progress: Ten Reasons to Look Forward to the Future, emphatically answers “no.” Consider the following:In 1981, “extreme” poverty …
Is the market efficient? Of course not — not exactly, or not even close, depending on your point of view. However, the efficient market hypothesis (EMH), while self-evidently not quite correct, has remained surprisingly resistant to overturning. The reason is that, as MIT professor Andrew W. Lo says repeatedly in his new book, Adaptive Markets, “it takes a theory to …
Is the market efficient? Of course not – not exactly, or not even close, depending on your point of view. However, the efficient market hypothesis (EMH), while self-evidently not quite correct, has remained surprisingly resistant to overturning. The reason is that, as MIT professor Andrew W. Lo says repeatedly in his new book, Adaptive Markets, “it takes a theory to …
Who is better at value investing: robots or people? How have robots – the quantitatively-driven passive funds that hold, for example, low price-to-book stocks – fared against actively managed value mutual funds? A provocative paper forthcoming in the Financial Analysts Journal, “Facts About Formulaic Value Investing,” by U-Wen Kok, Jason Ribando, and Richard Sloan, argues that robots are poor value …
Why have defined benefit (DB) pension plans, arguably the most elegantly engineered financial service ever created, stumbled so badly? Less than 50 years after achieving wide acceptance and providing predictable and secure benefits to their participants, many DB plans have been terminated, and others struggle to attain adequate funding levels. Many of the terminated DB plans have been replaced with …
How much do savers need to save in order to meet their retirement income goals? Although a great deal of effort has been expended in search of answers to this question, a very simple and practical answer is almost in plain sight. It is under a small rock, the rock being the ordinary and familiar time-value-of-money annuity payment calculations that …