Bitcoin: Investment or Bubble?

Bitcoin: Investment or Bubble?

By Larry Swedroe As the director of research at Buckingham Strategic Wealth and The BAM Alliance, it’s not surprising that I’ve been getting lots of calls lately about investing in bitcoin. Just seven years ago, bitcoins were trading at about 10 cents. Four years ago, their value had jumped to about $125. About a year ago, their value had reached about $600. On Wednesday, Nov. 29, 2017, their price had risen to more than $11,150. Then, by the following morning, it had fallen to about $9,100, a drop of almost 20% in less than 24 hours. By that evening, they were again trading at about $10,000. Prices continued to climb, north of $10,500, early Friday, possibly on news that a new bitcoin futures contract received regulatory approval. Nothing attracts the attention of the public like the possibility of missing out on the latest craze. Regret aversion is a powerful emotion. What Are Bitcoins? Bitcoin is a worldwide cryptocurrency and digital payment system called the first decentralized digital currency — there is no central repository or single administrator. It was invented by an unknown person or group of people under the name Satoshi Nakamoto, and released as open-source software in 2009. Bitcoins are created as a reward for a process known as mining. There are no physical bitcoins, only balances kept on a publicly distributed ledger. The system is peer-to-peer, and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes and, like balances, are recorded in a publicly distributed ledger called a blockchain. It’s important to understand they are not issued or backed by...
How to Fill That Career-Shaped Hole

How to Fill That Career-Shaped Hole

By Tim Maurer Michael Brundage had everything working for him: a great marriage, healthy children and a successful career in commercial real estate. But something—something big, but invisible—was missing, and the result was a depressive streak that led my friend and colleague to pursue therapy. Then, in the middle of an early session, his therapist discerned the problem, which she immediately shared with Michael: “You hate your job. That’s the problem.” Initially, Michael protested, somewhat confused. He was good at his job—very good—and it paid well, ensuring a more than comfortable lifestyle for his family. Wasn’t that what a job was supposed to be about? Indeed, several generations of Americans have bought into the notion that our work is primarily—if not solely—a means, not an end in itself. “As a culture, we’ve collectively bought into the lie that work has to be miserable,” writes career expert Jon Acuff in his newest book, Do Over. Michael had learned, in his words, “what a long shadow not liking your job can cast over the rest of your life.” So he decided to do something about it. He read voraciously, including Do Over, in which Acuff offers a method to career management regardless of where you stand on the love/hate job continuum. Acuff’s counsel applies to four different types of career transitions that everyone faces: 1. A “Career Ceiling” is a negative, but voluntary, experience when “you willingly go to a job where you know you are stuck.” 2. A “Career Jump” is a positive, voluntary move when “you decide to change companies, start your own company, or take a continuing education class to get better at your current job.” 3. A “Career Opportunity,” such as a surprise...
Why Trend-Following Works

Why Trend-Following Works

By Larry Swedroe Similar to some better-known factors, such as size and value, time-series momentum historically has demonstrated above-average excess returns. Also called trend momentum, it is measured by a portfolio long assets that have had recent positive returns, and short assets that have had recent negative returns. Time-series momentum differs from the traditional (cross-sectional) momentum factor, which considers an asset’s recent performance only relative to other assets. The academic evidence suggests that inclusion of a strategy targeting time-series momentum in a portfolio improves the portfolio’s risk-adjusted returns. Strategies that attempt to capture the return premium offered by time-series momentum are often called “managed futures,” as they take long and short positions in assets via futures markets—ideally in a multitude of futures markets around the globe. Today I’ll dive into the time-series momentum factor and examine some of its specific qualities, and those that make a managed futures strategy a good portfolio diversifier. In general, an asset that has low correlation with broad stocks and bonds provides good diversification benefits. Low or near-zero correlation between two assets means there is no relationship in their performance: If Asset A performs above average, it doesn’t tell us anything about Asset B’s expected performance relative to its average. The addition of a low-correlation asset to a portfolio will, depending on its specific return and volatility properties, improve risk-adjusted returns by increasing the portfolio’s return, reducing the portfolio’s volatility, or both. Research From AQR AQR Capital Management’s Brian Hurst, Yao Hua Ooi and Lasse Pedersen contribute to the literature on time-series momentum through their June 2017 paper, “A Century of Evidence on Trend-Following...
The Elephant in the Room: How the Financial Industry’s Shunning of Emotions Fails Its Clients

The Elephant in the Room: How the Financial Industry’s Shunning of Emotions Fails Its Clients

By Tim Maurer I don’t think professor Richard Thaler is going to return my calls anymore. Sure, he was gracious enough to give me an interview after his most recent book, Misbehaving, a surprisingly readable history of the field of behavioral economics, was published. But now that he’s won a Nobel Prize, something tells me I’m not on the list for the celebration party. (Although, if that party hasn’t happened yet, professor, I humbly accept your invitation!) But I’m still celebrating anyway, because Thaler is a hero of mine and I believe that the realm of behavioral economics–and behavioral science more broadly–can and should reframe the way we look at our interaction with money, personally and institutionally, as well as the business of financial advice. Behavioral Economics In Action Of course, even if you’re meeting Thaler for the first time, his work likely has already played a role in your life in one or more of the following ways: Historically, your 401(k) (or equivalent) retirement savings plan has been “opt-in,” meaning you proactively had to make the choice–among many others–to do what we all know is a good idea (save for the future). But our collective penchant for undervaluing that which we can’t enjoy for many years to come led most of us to default to inaction. Thanks largely to Thaler and Cass Sunstein’s observations in the book Nudge, more and more companies are moving to an “opt-out” election, automatically enrolling new employees in the plan with a modest annual contribution. Better yet, many auto-election clauses gradually increase an employee’s savings election annually. Because most receive some form of cost-of-living pay increase in concert...
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