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Thursday, September 30, 2010

I Love Innovation

The Wall Street Journal just published it's 2010 Technology Innovation Awards. As a proponent of the idea that innovation is what drives economic growth, I love articles like this. It's just really cool to see all of the remarkable innovations that ingenious people come up with. Here is a complete list of the winners. It is interesting to note that winners come from many countries, although the US has by far the most from any one country. Also, the winners come from large companies, small companies and individual inventors, showing that there are many ways to get great innovations.

Finally, here is a video that spotlights the top three innovations:


Wednesday, September 22, 2010

A Look at Bond Markets

In this blog, I often focus on what is happening in the stock market, perhaps at the expense of discussing bonds. Well, some interesting things have been happening in the world of fixed-income. The first is that super-safe bonds, US Treasuries, are looking pretty risky right now as this WSJ article explains. With interest rates as low as they are, it is likely that they will go up again in the near future. This means that anyone holding these low interest rate bonds will see their value go down as interest rates rise. The price drop is more severe the longer the term of the bond, so it is much worse for 10 year bonds than it is for 2 year bonds. The graphic below from the above referenced article shows some past periods when holders of "safe" US Treasuries suffered significant losses.



This is also why we have always recommended owning bonds with close to a 5 year maturity, which reduces this "term risk" inherent in longer term bonds.

The other interesting development is the improvement in the corporate "junk" bond sector, discussed in this article. A Moody's executive quoted in the article says "The rebound is breathtaking." The graph below shows that default rates on junk bonds have returned to their pre-crisis level.


We generally recommend owning "junk", known as high-yield bonds, as part of a diversified investment portfolio, precisely because they behave differently than safer bonds, and this diversification can help the long-term performance of a bond portfolio.

Friday, September 10, 2010

Lessons Learned

I recently saw Nick Murray speak. He is a well know advisor to financial professionals. He pointed out that we are approaching the 3-year anniversary of the all time high for the Dow Jones Industrial average (14,164 on October 9, 2007). We all know what has happened since then. Mr. Murray is quite good at keeping things simple and providing a clear perspective on financial markets.

Here are his five lessons learned from the past three years:

  1. You can't call the economy in the short or intermediate term and neither can anyone else.
  2. Neither can you or anyone else call the markets.
  3. The more dramatic the next series of economic/market events will be, the less likely you can predict them.
  4. a) There is no statistical evidence for the persistence of investment performance; "future relative performance with respect to past relative performance is random."
    b) At critical turning
    points in an investor's life, relative performance will not matter.
  5. The world did not end because it does not end.

Friday, September 3, 2010

Optimism

This article was in last week's Wall Street Journal. The author, Ross DeVol, lays out a case for economic optimism. I'm not sure if he is right, but it's nice to hear an argument that the economy will improve going forward, as opposed to all of the doom and gloom that has dominated the media.

Here is a video with Mr. DeVol from CNBC:

And here's a link to the actual research report. Let's hope the optimists are right.