Welcome to the March 6, 2008 edition of Carnival of Everything Finance.We had over 110 really good articles submitted for this edition. Unfortunately I could not inc ……

2. You do NOT have to be incredibly gifted and intelligent to recognize the emergence of secular bull and bear markets.

3. If one wishes to pursue an indexing strategy, it should utilize equal-weighted and fundamental indices.

Is it just me, or is this essentially the same old EMH tripe that is trotted out by academic professors during the first year of business school?

In my humble opinion, Google would have done a better service for its newly-minted millionaires by introducing them to purveyors of multi-strategy funds of hedge funds with consistently superior performance.

As far as indexing; I would answer yes for Large Cap stocks. When it gets to Mid Cap and Small Cap; no if you hire the right managers and monitor carefully their work against correct Benchmarks which is why Bill Gross’s work works. He targets the Bond index and adds low risk barbell small risks where possible.

For international, indexing works against you, it provides the largest investments in the most overvalued countries and the lowest amount in the lowest valued country .Now does that make sense??

How did this work out for the USA in 1999. One in S&P 500 Index funds got compensated for investing primarily for the top 20 stocks among 500 unequally weighted stocks while ignoring the index weighted low effect of 480 stocks. When individuals realized that and said “what the heck; you might as well just invest in Cisco”- well the results were quite obvious.

And yes; with a 40 year time horizon one can take the body blows as one regresses to the mean. But investing in 1929 took until 1950 to get a return of capital; oops we forgot about inflation; well there goes my purchasing power by about 50%;
Oh my, it seems that this happens every alternating 16 to 18 years. So yes the indexers did well from 1982 to 2000 and Behavioral Finance guys will tell you that all this discussion is based on rear view investing framed on the past 18 years. It seems that the current post 2000 environment is not working out especially well and even John Bogle publicly said ’stay invested but be ready to change your sector of investment’; oops that sounds like timing!
And why did Pimco open a Commodities fund and why did Ibbotson run a test on additions of commodities on their asset allocation model; oops that old stinky asset allocation model changes again .
and in fact the range of expected returns using the indexes by Ibbotson and Associates from the pre 2000 period were dramatically different than those post 2000- post figures especially if a buy and hold had such a high level of predictability.(gosh, that must have really hurt those defined benefit plans depending on values to be funded based on long term figures- I wonder if large companies sued them for the shortfall they encumbered following the ‘best of advice’?
But what do I know?
Gerald Butrimovitz, Ph.D. CFP-tm
President Emeritus TSAASF
Board Director IFTA