Monday, January 28, 2013

aiCIO - A Neurology Lesson for Money Managers

Chief Investment Officer-CIO - A Neurology Lesson for Money Managers:

Nice short list (8 points) on how neuroeconomics effects money managers from Paul Zak.

"The crossover applications between neurology and economics don’t end there. In fact, an entire discipline has sprung up in their midst: neuroeconomics. Two leaders in this field have teamed up and crafted a list of the eight crucial takeaways from neuroeconomics for money managers.

According to Paul Zak, the head of a center for neuroeconomics at Claremont Graduate University, and Steven Sapra, a finance professor the University of Southern California, these are the key points of neuroeconomics for money managers:"
The first three points:

1. Anticipating rewards (you can get addicted to the "rush")
2. Balancing risks (you tend to take bigger chances after some success)
3. Wait for it (Delaying gratification can be difficult)

Great article.  Definitely will appear on some tests this semester! :)

Sunday, January 27, 2013

Why You Shouldn't Think Of The S&P 500 As A Diversified Basket Of 500 Companies - Seeking Alpha

Why You Shouldn't Think Of The S&P 500 As A Diversified Basket Of 500 Companies - Seeking Alpha:
The S&P, like most indexes, is a market-weighted index.  So the larger the stock, the more the influence.  This is demonstrated in this article from Seeking Alpha:

Two look-ins:
"...the top five holdings of the Vanguard S&P 500 ETF (VOO). They are Apple (AAPL), Exxon (XOM), General Electric (GE), Chevron (CVX), and IBM (IBM)....for every $100 that you invest in the Vanguard S&P 500 ETF, $3.90 gets invested into Apple, $3.10 gets invested into Exxon, $1.70 gets invested into General Electric, $1.70 gets invested into Chevron, and $1.60 gets invested into IBM. In other words, when you are purchasing a basket of 500 companies, you are really putting 12% of your wealth into just five companies alone."
"...the Vanguard S&P 500 ETF owns $5.7 billion worth of Apple stock. Let's compare that to the weighting of, say, the 400th weighted stock in the S&P 500. That would be Cincinnati Financial (CINF). The S&P 500 ETF only owns $50 million worth of the insurance firm."
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Hedge funds disappoint -- again - CBS News

Logo of CBS News
Logo of CBS News (Photo credit: Wikipedia)
Hedge funds disappoint -- again - CBS News:

While this says nothing about the hedge aspects (may be a good low correlation investment), it does suggest that at Hedge funds are not the be all and end all that some suggest.

"Over the past five years, the S&P 500 returned 1.7 percent per year, producing a cumulative return of 8.6 percent, while the HFRX Index lost 2.9 percent per year, producing a cumulative loss of 13.6 percent."
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Tuesday, January 22, 2013

Which Volatility Hedged ETF Should You Consider? -

Which Volatility Hedged ETF Should You Consider? -

A must for SIMM class where we just mentioned this in class:

"The tail risk hedge takes care of extreme market volatility which can potentially result in a crash. Therefore these events are considered to be outliers which normally do not fall within three standard deviations of the average of the implied volatility.

The Volatility Index and the S&P 500 basically have a very strong negative correlation. Therefore, to hedge against the S&P 500 volatility, the ETF takes a long position in VIX Call options"

Thursday, January 17, 2013

Are women better investors?

Female hedge fund managers outperformed male managers in 2012

"Meredith Jones, director at Rothstein Kass and the author of the report, believes there are two primary factors at play in the exceptional performance of women in alternative investments.
  1. Women tend to be more risk-averse than men. “Women may be better equipped to position a portfolio to handle market volatility which we certainly have had no shortage of over the past five years,” Jones tells The Daily Ticker's Lauren Lyster.
  2. The size of women-run hedge funds. “Women-run funds tend to be smaller pools of capital than men-run funds and as a result of that they’re more nimble and better able to navigate the market,” says Jones."
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