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chart shows that 27% of large-cap managers stay in the top quartile, however, the chilling figures is only 1.5% mid- and 0.9% of small- do.

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..

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Adm. David Farragut

Investing in a Recession? “D@*! the torpedoes, full speed ahead”

According to Mighty History, “maybe one of the Navy’s finest moments came at the 1864 Battle of Mobile Bay, where Adm. David Farragut forced his way..

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Chart shows a map of the United Stated marked by state with the following colors based on price: dark green, light green, yellow, orange and red. Florida is light green in the 300 - 400 range

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..

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Chart talks about the shift from active to passive throughout different types of investments

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..

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Year Zero Coupon Treasury (ZROC) in blue vs. the 20 Year US Treasury Yield in orange.  Since the peak at $189 in 2020, the value of the PIMCO fund has declined 70% to only $90

In Fixed Income, the Dip is Not Always an Opportunity

Today’s Chart of the Day is the five-year performance of the PIMCO over 25-year Zero Coupon Treasury (ZROC) in blue versus the 20-year US Treasury..

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three charts speaking about indexing

Why Indexing Works

The theory that index/passive funds perform better than actively managed funds is backed by the fact that 90% of active funds underperformed their..

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Least-regretted majors include: Computer and information sciences, Criminology, engineering, Nursing, Health, Business administration and management, Finance, Psychology, Construction trades, and Human resource management

Least Regretted Majors

As high school seniors finish out the school year, some may be asked, “What are you going to major in at college?” Today’s Chart of the Day comes..

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chart explains how bond ETFs are absorbing cash amid record exodus from mutual funds, years shown 2013 - 2022

Bonds to ETFs

We often talk about how over the last 10+ years investors have, in general, been moving out of mutual funds and into Exchange Traded Funds, also..

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chart showing car prices going down

Car Prices Are Falling

Today’s Chart of the Day is from S&P Dow Jones Indices. Year-to-date, the S&P Composite 1500® Automobiles is down 43%, and is the

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infographic includes comic strip that explains the fence paradox

The Fence Paradox

Today’s Chart of the Day is an infographic from Pasquale Cirillo, @DrCirillo on Twitter. We see this often when investors say, “They wouldn’t be..

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during this time the cumulative return has been an incredible 18,750%, which works out to an annual return of 10.4%

That's a lot of Down Time

Today’s chart comes from Wealthmanagement.com. It shows the drawdowns, which is the percent the market is down from the previous record high, going..

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chart shows the cumulative returns based on 1, 5, 10, and 20 years for all stocks (in green), all bonds (in blue), and a 50/50 mix (in grey) since 1950

Longer Equals Higher Probability

Today’s chart from JP Morgan Asset Management’s Guide to the Markets quarterly presentation shows the cumulative returns based on 1, 5, 10, and 20..

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the yield went from 1.50% to the current 4.00%, which equates to a 166% increase, causing the price to fall an incredible 20%

Worst Since 1788

Today's chart comes from Bank of America’s Global Investment Strategy team. We have all heard that this was a bad year for longer term bonds, but how..

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chart shows that $100 invested 30 years ago is still worth only $100 today

China's Lost 30 Years

Today's chart from Refinitive shows that over the last 30 years, China has delivered a cumulative return of zero dollars, meaning $100 invested 30..

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computer with crypto symbols

Crypto / FTX Bankruptcy

Today we’re taking a quick side note away from the Chart of the Day to make a couple of comments on cryptocurrencies and FTX’s bankruptcy. FTX is a..

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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. 

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Investing in a Recession? “D@*! the torpedoes, full speed ahead”

According to Mighty History, “maybe one of the Navy’s finest moments came at the 1864 Battle of Mobile Bay, where Adm. David Farragut forced his way through a Confederate minefield and fought the Confederate Navy to a standstill.

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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.

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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.

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In Fixed Income, the Dip is Not Always an Opportunity

Today’s Chart of the Day is the five-year performance of the PIMCO over 25-year Zero Coupon Treasury (ZROC) in blue versus the 20-year US Treasury Yield in orange.  Since the peak at $189 in 2020, the value of the PIMCO fund has declined 70% to only $90.  

According to VettaFi, “ZROZ invests exclusively in . . . the final principal payments of U.S. Treasuries with at least 25 years remaining until maturity. As such, this product will be very sensitive to changes in interest rate movements, performing very well when rates fall but likely struggling if rates begin to climb.”

The reason for the volatility is the fact that there are no interest payments during the life of the loan, and only one payment of principal at the end, there is no chance to reinvest periodic interest payments at higher rates when rates rise. Or conversely, run the risk of reinvesting the interest payment at a lower rate when rates decline.

Why invest in such a product you may ask? Where does the stated return of 3.80% come from? Well, as an example, when a zero coupon bond was issued it could be purchased for $40, then held for 25 years until you get $100 back at maturity.  

When the 20-year rates were 1.00% in the summer of 2020, the 3.80% guaranteed appreciation in your principal for the 25 years looked very attractive, hence the near doubling of the price.  However, when rates are at their current yield of 4.00% the price fell just as dramatically and is now back to its normal “pre-pandemic” price. 

What can we learn?

We can learn that in fixed income, just because bond’s price is down 70%, this does not mean it is “on sale” or provide an opportunity to “buy the dip.” The 3.80% yield you see is what you get when you hold it to maturity. No more, no less. The rate will not change and therefore provides no real “buying opportunity.”

This is evident in this investment, since despite the wild ride up and back down, the investor simply is back to where they started, earning their original 3.8% for the next 25 years.  

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Why Indexing Works

The theory that index/passive funds perform better than actively managed funds is backed by the fact that 90% of active funds underperformed their benchmarks over the last 10 years. So, it begs the question, “Why?”

Firstly, index funds do not have the added expenses of investment analysists and advisors, lowering overall cost and ultimately leaving more returns for investors to keep.

The chart above from S&P Dow Jones Indices shows the average actively managed fund costs 0.68% versus index funds of only 0.06%. So, right off the bat, every year the actively managed fund starts 0.62% in the hole.

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Least Regretted Majors

As high school seniors finish out the school year, some may be asked, “What are you going to major in at college?” Today’s Chart of the Day comes from CNBC.com who surveyed 1,500 job seekers for the percentage of graduates who would choose the same major again. The article also included the “most regretted” majors; however, you’ll have to click on the link to see that.

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Bonds to ETFs

We often talk about how over the last 10+ years investors have, in general, been moving out of mutual funds and into Exchange Traded Funds, also known as ETFs. However, this year the pattern is even more prevalent with bonds. So far this year, a record $446 billion exited bond mutual funds and went into bond ETFs and bank accounts.

Why do we use bond ETFs instead of actively managed bond mutual funds? Bond ETFs have substantially lower costs, more liquidity, increased transparency, and over the last 10 years had a better return than 90% of actively managed mutual funds.

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Car Prices Are Falling

Today’s Chart of the Day is from S&P Dow Jones Indices.

Year-to-date, the S&P Composite 1500® Automobiles is down 43%, and is the

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The Fence Paradox

Today’s Chart of the Day is an infographic from Pasquale Cirillo, @DrCirillo on Twitter. We see this often when investors say, “They wouldn’t be allowed to sell this, if it wasn’t safe.” Yes, there needs to be fences, but don’t let their security lull you into forgetting the risks on the other side.

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That's a lot of Down Time

Today’s chart comes from Wealthmanagement.com. It shows the drawdowns, which is the percent the market is down from the previous record high, going back to 1970. As you would expect, the chart shows most the time the market is “down” and investors spend a lot of time having “lost” money.

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Longer Equals Higher Probability

Today’s chart from JP Morgan Asset Management’s Guide to the Markets quarterly presentation shows the cumulative returns based on 1, 5, 10, and 20 years for all stocks (in green), all bonds (in blue), and a 50/50 mix (in grey) since 1950.

Essentially, the longer you hold your investments, the higher probability you have of positive returns. In fact, there was never a period over 20 years that any of the options lost money.

The chart also shows the average annual total return for stocks was an impressive 11.5% during last 20 years. It will be interesting to see how the next 20 years look.

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Worst Since 1788

Today's chart comes from Bank of America’s Global Investment Strategy team. We have all heard that this was a bad year for longer term bonds, but how bad? Well, for the 10-year treasury this is the worst year since 1788, so basically the worst year ever.

The reason is, since the beginning of this year, the yield went from 1.50% to the current 4.00%, which equates to a 166% increase, causing the price to fall an incredible 20%.

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China's Lost 30 Years

Today's chart from Refinitive shows that over the last 30 years, China has delivered a cumulative return of zero dollars, meaning $100 invested 30 years ago is still worth only $100 today.

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Crypto / FTX Bankruptcy

Today we’re taking a quick side note away from the Chart of the Day to make a couple of comments on cryptocurrencies and FTX’s bankruptcy. FTX is a popular online cryptocurrency exchange, and its bankruptcy may turn out to be the biggest in history.

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