Predictable Returns For Market Cap Monsters?

In 1999, I joined an investment club comprised of fellow school teachers.

We used the service at Bivio.com to track our returns. On the company homepage, they list the most popular holdings among America’s investment clubs.  After thirteen years of accessing Bivio’s site, I noticed something interesting.

The most widely held stock by investment clubs is usually the biggest (or nearly the biggest) company in America.  More than one third of investment clubs are drawn to the same monster market cap stock.

Should you follow their lead? Perhaps not. 

According to a study by finance professors Brad Barber and Terrance Odean the average investment club underperformed the market by 3.8 percent from 1991-1997. Their love for market cap leaders could explain their lackluster performance.

Read the rest of the article at Assetbuilder





Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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6 Responses

  1. Chris says:

    Does this article address the value of investments after dividends?

  2. Ed says:

    Hi Andrew, can we use your strategy on EM Local currency Bonds such as LEMB or EMLC as the Bonds component in the total portfolio? Or Total World Bond is still the preferred Bond ETF? I do find their returns after tax and mgmt fee really low.

    • Hi Ed,

      I don't know where you live or what your nationality is, so the question isn't easy for me to answer.

      The bond you choose should depend on your country of residence. It pays to keep a bulk of your money (if possible) in your home currency. If you are from the U.S., you could keep it in short term U.S. government bonds. If you are from Singapore, you may consider the fact that your CPF is a bond. In that case, you could just rebalance your equity indexes between themselves or try a value averaging approach to investing in those equity indexes. Many Singaporeans are mathematically inclined and would probably warm to this strategy of boosting returns: http://www.theglobeandmail.com/globe-investor/inv

      If you're Canadian, you could choose a short term Canadian government bond, like VSB.to.

      Andrew

      • Ed says:

        Hi Andrew,

        Thanks for your reply. I am from Singapore and based here. Correct me if I am wrong, I think the CPF money cannot be retrieved once you deposit money into it and depending on the govt policy at that time, we can only take the CPF money back when we are above 65. Although the 4% interest is really attractive in today market.

        What is your opinion of TIPs vs Short term US Govt bonds vs Asian Local currency bonds?

        Much appreciated and thanks!

        Ed

        • You are right. The money in a CPF can't be retrieved once you deposited it. This is why I suggested a method of value averaging your stock ETFs. I suggest that any bonds you own should be (if possible) in the currency with which you pay your future bills. You could always get a higher yield elsewhere, but why take currency risk on a currency that might drop against the currency you will be paying your bills with?

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