Tag: Stock Market
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Stock Buybacks: A Misallocation of Capital or an Easy Target?
I recently came across two interesting pieces on stock buybacks, which I’ve been meaning to cover at the Fictitious Capitalist. For those who are unfamiliar, stock buybacks—also called share repurchases—are when a company uses its own cash to buy back its shares from the open market (or directly from shareholders). Once repurchased, those shares are usually…
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Is the Lifecycle Model Dead? New Research on Optimal Retirement Asset Allocation
Recently, I’ve been exploring optimal retirement asset allocations. Conventional wisdom suggests that savers should invest more conservatively as they approach retirement. The lifecycle model of investing, for example, posits that an individual’s investment strategy should change over their lifetime based on their age, financial goals, risk tolerance, and time horizon. During accumulation, investors typically have…
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Lifecycle Investing and Stock Market Mean Reversion
A short follow-up this week to a post a couple of weeks ago when we discussed the stock market’s longest losing streak. At the time, I was working on an asset liability matching exercise to inform my asset allocation. My interest in this topic was inspired by a presentation from Bill Bernstein over at Paul…
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Don’t Panic!
Equity investing can be gut wrenching. Looking at the exchange value of your investment during a market panic or after a decade or more of lost returns is enough to challenge even the most dedicated investors. Karl Marx marveled at the way “fictitious capital” could bear almost no relationship to the intrinsic value of the…
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The Stock Market’s Longest Losing Streak
I was recently working on an asset-liability matching exercise for my financial plan. Asset-liability matching is exactly what it sounds like: a financial strategy where you match your investment assets (stocks, bonds and cash) with your liabilities (debts and spending). The core idea is to match the timing of cash needs with asset liquidation or…
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From Market Noise to Economic Footprint | Part 2
If you are interested in fundamental weighting, several prominent asset management companies have created fundamentally-weighted index funds. Many of these funds are based on the FTSE RAFI series of fundamental equity indexes, which have been compiled in collaboration with Research Affiliates since 2005. These indexes are constructed using a combination of four core fundamental measures:…
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From Market Noise to Economic Footprint | Part 1
With the Magnificent 7 stocks now representing close to 35% of the S&P 500, it might be a good time to review how these indexes are composed. If you are in the Financial Independence (FI) community, you are most likely familiar with market capitalization (cap-weighted) indexing, an approach used in major benchmarks like the S&P…
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The CAPE ratio, the Merton Share and Your Asset Allocation | Part 3
In the previous two articles, we teased the Merton Share as a rational framework for portfolio asset allocation. Now, let’s dive into how you can use both the CAPE ratio and the Merton Share to align your portfolio with your investing horizon, risk appetite, and current market valuations, without constant tinkering.
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The CAPE ratio, the Merton Share and Your Asset Allocation | Part 1
If you’re part of the Financial Independence (FI) community, you’ve probably built your retirement dreams on a pretty common assumption: stock market returns average 8–10%. To be fair, the S&P 500 has delivered, hitting a 10.2% compound annual return from 1928 through 2024. Popular FIRE calculators like Networthify err on the conservative side and dial…
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