A History of Trust: Crews Banking Corporation

Duration describes the time it takes for a bond holder to get all their money back and/or the change in price for each 1% change in the interest rate.

This chart from an article in today’s Wall Street Journal shows the percentage of funds that underperformed the S&P 500 in the last 12 years. Again, passive indexes beat 85% of the active managers last year, and the majority have done so for 12 consecutive years. This is one of the reasons why we champion passive index funds.

I am reminded of this chart every time I drive by a car lot. Before the pandemic, financing and insurance profits made up 70% of the dealer’s profits. Now, due to price appreciation of their inventory, that percentage has changed. However, the dollar profits from financing and insurance continue to increase. Car dealers have become more like finance and insurance companies.

Below is a great chart from Putnam, which shows that over the last 15 years, if you missed the top 10 best days of market gains, your return would have gone from 10.66% to only 5.05%.

Since we use both Vanguard and iShares by BlackRock Exchange Traded Funds (ETFs) extensively, one of my pleasures over the last few years has been seeing each company try to outdo the other by lowering costs. As they continue to lower costs, they gather more and more investments. As referenced in a recent Bloomberg article, together they account for 64% of the ETF market as Vanguard is getting close to the size of BlackRock.

In a compelling article by BlackRock, they make an argument that even though we are facing higher than normal inflation and turmoil, that fear is driving investors to hold too much cash.

The duration of the corporate bond indexes have crept up from 5.5 years to 8.0 years over the last 12 years. Both from companies desires to lock lower rates for longer and due to the lower coupon payments (which increase duration since you don’t get your investment back sooner.)