These posts share our insights into the financial industry.

Noted economist Frank Knight formalized a distinction among various types of risk associated with uncertainty. He defined three levels of uncertainty. The first is the type associated with a roulette wheel- where it is not possible to know the final outcome, yet one can reliably define the probability of an event’s occurrence. The second type of uncertainty is associated with s ...

On April 3, 2020, New Frontier Chief Investment Officer Robert Michaud sat down with Money Life host Chuck Jaffe to discuss how New Frontier approaches optimality in a time of tremendous uncertainty in the market. You can listen to the interview in its entirety using the player above, and below is a partial transcript of Robert's responses with timestamps for reference. 1:30 P ...

In the midst of periods of extreme volatility as we have recently experienced, investors may want to remember some fundamental investment axioms:  The performance of actual investor portfolios is generally not well represented by equity indices. A well-defined long-term investment program can help withstand short-term volatility. Historically, markets recover after periods ...

A market milestone was reached this past August when assets invested in index-based mutual funds and ETFs surpassed the amount invested in active equities for the first time. Passive investment strategies have been growing for decades at the expense of actively managed funds. Of course, index-based mutual funds have been around since the 1970s, yet the explosive rise of passive ...

The invention of Markowitz (1952) mean-variance (MV) optimization altered the course of 20th century finance from security valuation to portfolio risk management.  The Markowitz frontier is a model of long-only institutional investment behavior representing a universal framework for asset management theory and practice.  The Capital Asset Pricing Model (CAPM) is MV preference theory based on Von Neumann and Morgenstern game theory rationality axioms.  CAPM theory was instrumental in the development of a 20th century multi-trillion dollar institutional quantitative asset management industry. 

 

In a recent article, French (2017) describes an intriguing property of Markowitz (1959) optimization.  He notes that the Markowitz optimizer (nearly) always populates the efficient frontier with a relatively small subset of the securities in the optimization universe.  Is the optimizer telling us something important about the investment value of the...

It is a common academic mantra, and of many respected investment professionals, that investing in an index fund is best for the majority of investors.  There are two reasons for this view: 1) Experience has shown that active investment strategies charge more and perform less well on average relative to many common index funds; 2) Twentieth century financial...

Our January commentary (1/3/17) discussed some critiques of index-fund ETFs topical in the investment community.  The argument was that ETFs, because they trade like stocks, tend to encourage investors to trade actively as opposed to traditional mutual fund investing.  But it is always true that anything can be misused however otherwise beneficial.  In our view...

Widespread investment wisdom dictates that there are two “irrational” tendencies of human behavior that harm investment performance when acted on excessively: greed and fear. In a simple sense, “greedy” investors want maximum participation in rising markets and “fearful” investors want minimum participation in falling markets. Upside and downside capture...

“Dow 20,000”

Those two words encapsulate three concepts: 1) the Dow is a relevant economic indicator; 2) 20,000 is a noteworthy milestone; 3) special consideration should be given to investing at all-time highs.  I’ll examine each in turn...