There is so much great information on personal finance forums. I participate on several message boards, including the Bogleheads and White Coat Investor forums. Here are some of the discussions happening around the internet.
1. Bogleheads: The Madness and Wisdom of Crowds
Question: Kayanco noticed that the titles of two books on investing he recently encountered seemed to have opposite opinions on the behavior of the stock market:
Extraordinary Popular Delusions and the Madness of Crowds (by Charles MacKay), and
The Wisdom of Crowds (by James Surowiecki).
He was wondering whether these two book titles could be reconciled (i.e. can the stock market “crowd” both be mad and wise).
WSP’s Take: I have not read either of these books, but I would argue that the stock market can act both rationally and mad (a rational madman?).
The concept that the stock market is wise should be intuitive to most investors who choose to invest in index funds. The stock market as a whole prices stocks in a way where it cannot easily be consistently beaten. Academics have generally assumed an efficient market where market participants price in all publicly available information. If every stock is priced correctly, then it is no surprise that most actively-managed mutual funds fail to beat the market.
On the other hand, markets can also be mad. Bubbles are a classic example of this. A year ago, everyone was talking about Bitcoin and its meteoric rise. Some may argue that this is an example of markets acting irrationally, and that “of course” Bitcoin was overvalued. But if someone bought Bitcoin as it crossed $10,000 in December 2017, they were not necessarily making a losing investment. Bitcoin could have just as easily risen to $100,000 as it could have fallen to $4,000, so $10,000 was likely a fair value for Bitcoin at that time. Bubbles and other investment manias are not counterexamples to the efficient market hypothesis.
2. Bogleheads: Total Stock Market Randomness
Question: Masonstone asks why the total stock market seems to move so erratically.
WSP’s Take: If you believe in the efficient market hypothesis where the price of a stock is based on the accurate evaluation of all publicly available information, then it makes sense that the movements of the stock market are random. New information becomes available in a random fashion, so the stock market should move randomly as well.
3. Reddit: Changing Recommendations on the Pay Off Debt vs. Invest Question
Question: The decision to pay off low-interest debt or invest in assets with higher expected returns (i.e. stocks) is one of the most common questions in personal finance. ImOscarDotComm makes the observation that the reader recommendations to this question have changed as the stock market has begun to fall (i.e. more people are recommending paying off debt).
WSP’s Take: This is not surprising and is not limited to just the invest vs. pay off debt debate. For example, I’ve noticed an uptick in articles questioning index fund investing as the markets have become more turbulent. I’ve argued in a previous post that part of the rapid growth in index fund investing in recent years is because the stock market was rising. I believe that the flow of money into index funds would slow in a bear market as investors search for a way to stop losing money. The desire to beat the market is stronger in down markets than in rising markets, and actively-managed mutual funds offer the promise of returns that can outperform the market (but rarely deliver).
4. Reader Question: Big Discrepancy Between Mutual Fund NAV Change and Tracking Index Move
Question: A concerned reader e-mailed me the following question.
He owned PLFIX (an S&P 500 index fund) in his 403(b). On 12/19/18, it decreased by 6.48%, while the S&P 500 decreased by 1.54%.
He was wondering whether it is possible for an index fund to decrease/increase by more than the index that it tracks?
WSP’s Take: Great question. I would certainly be worried if I saw this discrepancy in my investment account. My guess is that the mutual fund paid out their annual capital gains and distribution on 12/19/18.
Looking at the historical distributions on the right side of Fidelity’s page describing the distributions for this mutual fund, you see that they pay out a portion of their assets in the form of dividends and capital gains near the end of each year. It varies from year to year, but it’s completely plausible for the 2018 amount to be the 5% discrepancy between the change in NAV value and the performance of the S&P 500 on this day. The NAV goes down by the amount of the capital gains and dividend, but that money is being reinvested back into the fund (or distributed out as cash).
Wall Street Shares: 5 Articles To Read This Week
- The Boss MD: How To Maximize A Physician’s Salary — Excellent tips from internist Dr. Robert Glass.
- White Coat Investor: Why You Should Not Give Up On Public Service Loan Forgiveness — PSLF is the centerpiece of many physician’s loan repayment plans, but it has gotten some recent bad press.
- The Physician Philosopher: How Should I Save For My Kid’s College? Plus a 529 Plan Hack — TPP explains why you should not hesitate to contribute to a 529 plan even if you think your child might get a scholarship.
- Passive Income MD: Things to Know About Investing in Turnkey Real Estate — an FAQ on investing in this form of property.
- Millionaire Doc: Success is a Process, Not an Event — It’s about the journey, not the destination.
What do you think? Do you agree or disagree with any of my responses? What’s your take on the topics in this week’s forum mailbag?
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Being a scam victim can be depressing, you were given empty promises. They usually stop replying after achieving their aim which hurts even more, i have been there too as I was too ambitious and wanted to get back my lost Btc worth $412,000. I never thought I would be getting back a dime back and already lost hope until I contacted this Verified Recovery expert Morris Gray which was with a leap of faith, as I wasn’t going to go down without a fight. I was able to recover a significant part of my BTC through these recovery experts. Do not brood alone, make a move too. Write to him on email at ( MORRIS GRAY 830 @ GMAIL COM ) or whats app +1 (607) 698-0239 for Quick responds.
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My $1.65 million dolllars was stolen by a phoney wallet that refused to let me withdraw it. Their moniker was Coinbox/vip. When I launch the browser on my phone, the platforms page opens with the Coinbase logo. The legal description of their app wallet mentions Coinbase, and the help centre button links to Coinbase help. However, when I contacted Coinbase, they responded via email that they are not affiliated with Coinbox. Coinbox has now informed me that I must pay a 185k tax before receiving my funds. I immediately opened a case with Owlet tech recovery . com, a guaranteed recovery company, they patched me through MR MORRIS GRAY their smart contract developers on Whatsapp with [+1 (607) 698 0239 ] who then immediately performed a smart contract audit using digital triangulation from outsourced wallets. I’m crying right now as I just received a deposit of 127.4 Btc in my trust wallet. I’m now waiting for the Ethereum gas fee to come through so I can detach the remaining from outsourced wallets. his Email is: Morrisgray 830 @ gmail . com…
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