NewsLetter - June 2020


Even for those who may not be big fans.


Bankrupt in Just Two Weeks—Individual Investors Get Burned by Collapse of Complex Securities, The Wall Street Journal, 6/1/2020

“When William Mark decided to get back into investing after the 2008 financial crisis, he looked past stocks and bonds. Needing to play catch-up with his retirement portfolio, the piping engineer decided to bet on a complicated product he hoped would deliver double-digit annual returns.

It worked so well—earning him 18% a year in dividends, on average—that he eventually poured $800,000 into the investments, called leveraged exchange-traded notes, or ETNs. When the coronavirus pandemic hit, he lost almost every penny.

‘I’m 67 years old and I’m basically bankrupt in just two weeks,’ Mr. Mark said.” My friend Larry Swedroe, whom I’ve often quoted, hit it on the head:

“Some traders said large asset managers, turned off by the complexity, mixed record, and relatively high fees, hardly ever bought the products.

‘If institutions aren’t buying this, the retail investor shouldn’t be either. Otherwise they’re the sucker at the poker table that doesn’t know it,’ said Larry Swedroe, chief research officer at wealth-management firm Buckingham Wealth Partners. ‘If a product is so complex that you can’t explain it to your partner, then you shouldn’t buy it.’” complex-securities-11591020059


From my #1 son

  • How important does a person have to be before they are considered assassinated instead of just murdered?
  • How is it that we put a man on the moon before we figured out it would be a good idea to put wheels on luggage?
  • Why is it that people say they "slept like a baby" when babies wake up every two hours?
  • Why are you IN a movie, but you are ON TV?
  • Why do doctors leave the room while you change? They're going to see you naked anyway.
  • Why is "bra" singular and "panties" plural?
  • Why do toasters always have a setting that burns the toast to a horrible crisp, which no decent human being would eat?
  • Why do the Alphabet song and Twinkle, Twinkle, Little Star have the same tune? Why did you just try singing the two songs above?
  • Did you ever notice that when you blow in a dog's face, he gets mad at you, but when you take him for a car ride, he sticks his head out the window?
  • How did the man who made the first clock know what time it was?


“The Problem with All Things Being Equal,” The Wall Street Journal, 3/2013

"The market has a nasty tendency of over relying on the good companies and paying too large a premium [for them] on the tacit assumption that recent success portends long-term future success," says Rob Arnott, CEO of investment firm Research Affiliates LLC.

However, the Journal warned, “Equal-weight indexing has been getting more attention lately. But perhaps it's time investors scaled back their enthusiasm: This niche strategy may not deserve equal billing with traditional index strategies.”

“Cap Weighted Versus Equal Weighted, Which Approach Is Better?” Forbes, 7/18/2016
So which approach is better, if there is one? Can we outperform the S&P 500 using the S&P 500, but changing the selection approach? The chart below shows this has been happening.

The blue line is the Vanguard Index 500 Fund (VFINX). The red line is the Invesco Equally Weighted S&P 500 Fund Class A (VADAX). Prices are adjusted for dividends and capital gains. Both prices are set to $100 on Jan. 1, 1998. The graph ends on June 30, 2016. VADAX ended at $440, while VFINX ended at $305. This is even more remarkable given the much lower internal costs at Vanguard.

In March, the S&P Dow Jones Indices Dashboard published an update of the U.S. Equal Weigh

Index versus the traditional S&P Index. The S&P 500 Equal Weight Index underperformed the S&P 500 by 0.8% during February and by 6.8% over the past 12 months.

S&P DJI Commentary [email protected]