Contact Us
    Browse by topic
    Subscribe to our blog

    Chart of the Day (11)

    Be Wary of Non-Traded REITs

    Today’s Chart of the Day comes from the Wall Street Journal and highlights why investing in Non-Traded, or illiquid, assets pose additional risk. The additional risk is present because they open the opportunity for some investors to game the system and leave the remaining investors holding the bag. As an example, today’s Chart of the Day shows the tremendous increase in the quarterly withdrawals from non-traded REITs (real estate investment trusts) where to sell, you have to ask in advance, can only sell back to the company, are typically only allowed to sell once a quarter, and generally are only allowed up to 5% in redemptions at a time. The reason for the large withdrawal rate from non-traded REITs is because investors expect future losses in real estate as the real estate market starts to struggle. Non-traded REITs typically base their valuations on periodic appraisals, which are slow to adjust to the current price. This could keep current valuations artificially high for a time. Investors know this and sell out before the price declines as appraisals catch up to reality. As Nori Lietz, Senior Lecturer of Business Administration at Harvard Business School, said in the article, “Appraisals look backwards, and markets look forward, and people are trying to arbitrage and get their money out before the write-down occurs.” This does not happen to REITs that are publicly traded on the stock exchanges since the price is determined throughout the day, every day. The pricing inaccuracies of non-traded REITs is one of the reasons we do not use these types of investments. “Experience is a good school, but the fees are high.” Heinrich Heine (December 13, 1797 – February 17, 1856)
    Read

    Chart of the Day (11)

    Year End Comment

    What a wild ride. In 2022 we experienced:
    Read

    Chart of the Day (11)

    Retiring Sooner Causing Inflation

    Today’s Chart of the Day comes from the Financial Times and includes an article asking if higher wage demands will increase inflation like in the 1970s. However, this time it is different since the workforce is shrinking as shown by the Participation Rate, the falling orange line in the chart. The participation rate is defined as the percentage of healthy people 16 or older who are actively working or looking to do so.
    Read

    Chart of the Day (11)

    Dow vs. S&P

    Today’s Chart comes from Benedek Voros from S&P Dow Jones Indices. I always like to point out firsts, and this year there have been many.
    Read

    Chart of the Day (11)

    20 Year Active to Passive

    Today’s Chart of the Day comes from FinancialTimes.com and shows that starting in 2015, and each year after, investment funds left actively managed funds, in red, and were reinvested into passive funds, in blue, which have grown each year for the last 22 years. The interesting part is the year over year growth is accelerating in 2022 as the downturn in both stock and bond prices provided an opportunity to sell out of many funds and not pay capital gain taxes. Any further downturns in 2023 could accelerate this trend even more.
    Read

    Chart of the Day (11)

    Average Can Be Hard to Achieve

    Today’s Chart of the Day comes from Compounding Quality, @QCompounding on Twitter, and shows that over the last 20 years, the average investor realized only an annual return of 3.6%. This is less than 4.3% on bonds, and not much higher than inflation of 2.2%, meaning that many just barely broke even after inflation and taxes. This can be compared to a return of 9.5% on the large-cap stock index, or 7.4% for even a conservative generic portfolio of 60% stocks and 40% bonds.
    Read

    Chart of the Day (11)

    Housing Un-Affordability

    Today’s Chart of the Day is the history of the Housing Affordability Composite Index provided by the National Association of Realtors going all the way back to 1986, with the average line in dotted red.
    Read

    Chart of the Day (11)

    Lack of Persistence in Mid- and Small-Cap

    Today’s Chart of the Day from S&P Dow Jones shows the percentage of time the top 25%, or top quartile, of active investment managers stayed in the top 25% after five years. A higher-than-average figure will tell us if the active managers have genuine skill or merely experienced good luck. If you flipped a coin, randomness would assume 25% of them would stay in the top 25%; however, the evidence does not support this. Yes, 27% of large-cap managers do, which shows that by and large their performance is merely good luck. However, the chilling figures are only 1.5% mid- and 0.9% of small- do. These are terrible odds. To add insult to injury, 15% and 23% of mid- and small-cap managers end up at the bottom 25%, meaning that even in the unlikely event you picked a good one, odds suggest you should sell it right afterward. There are many theories to why this is, and we’ve discussed them in previous blogs including Why Indexing Works. In the end, the significantly worse than average probability of active managers constantly beating the market in mid- and small-cap stocks is why we only use passive index funds.
    Read

    Chart of the Day (11)

    Median Sale Prices in US

    Today’s Chart of the Day comes from @WallStreetSilv on Twitter, with data provided by Redfin, covering the median sale price for a single-family residence in the United States. Often the price of a house is constrained by the cost to build the structure which limits a wide range. For instance, why pay more for an existing house than you can build a new one for? So, the $200,000 to $600,000 range is quite alarming. Although the size of the home will impact the price, I suspect a large part of the wide range is in the cost of the underlying land, which is influenced by places with better weather, proximity to better employment opportunities, and scarcity of useful land to build on. For instance, places near the water, mountains and lakes could be influenced by these factors.
    Read

    Chart of the Day (11)

    Change of Market Shares

    Today’s Chart of the Day comes from @MorningstarInc and @MstarBenJohnson on Twitter. It shows the change from actively to passively managed investments over the last 10 years. We often talk about this shift from active to passive, but it's interesting to see that it is not uniform throughout the different types of investments. For instance, in “alternative” investments such as private equity, hedge funds, and long-short funds, the industry’s use of passive investments only went from 1% to 11%. In commodities, however, passive investments went from 0% to 70%. I suspect passive works better in commodities since the alpha, the opportunity to outperform, is low and low costs are a primary driver of returns. We primarily use Taxable Bonds and US Equity, and they went from 6% to 40% and 17% to 57%, respectively. Again, primarily from the low alpha and low costs. It will be interesting to see what the percentages are in 2032.
    Read

    Want more articles like this in your inbox?

    Subscribe to our blog for a weekly roundup of our latest financial blogs and resources.