Friday, December 29, 2006

Please answer brief, anonymous survey to help me help you

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I’m planning to invite guests to post short articles and answer your questions on this blog.
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Key question for quantitative managers

"Ask 'What inefficiency do you exploit?' "

That's how a quantitative investment manager answered the question, "How can a potential investor figure out if a quantitative manager has an edge?"

I like the manager's question. Even though I figure plenty of follow-up questions would be required.

This exchange occurred at an investment conference at MIT earlier this fall.


Friday, December 08, 2006

"Have mutual fund costs gone up or down?" in Wealth Manager (Dec. 2006)

For most advisors, it’s a no-brainer to pick the fund with lower expenses, assuming the fund’s style, market capitalization and other major factors are equal. After all, expenses subtract directly from returns. And now that mutual funds seem to have settled into an era of single-digit returns, the impact of fees is more visible to investors than it was in the high-return 1990s. But controversies swirl around several topics related to fees, including their fairness, their correlation with higher fund returns, whether they’re rising or falling, and whether fund firms are responding adequately to advisor demands.

Read more of my article in Wealth Manager.


Tuesday, December 05, 2006

Investment commentary clinic: Post your questions here

As you write your investment commentary, do you have questions?

Do you wonder about grammar, punctuation or other topics that an outsider could help you with?

You can use this Investment Commentary Clinic space to post your questions. I'll try to respond within 48 hours.

Here's a client question:
What's the difference between "effect" and "affect"?

These are "words of totally different meaning, neither of which can ever be substituted for the other," according to Fowler's Modern English Usage.

Effect means "bring about, cause, produce, result in, have as result." That's different from affect's meaning of "have an influence on, produce an effect on."

Here's the Fowler's example of how the two verbs change the meaning of a sentence:
  1. This will not affect (change) his purpose
  2. This will not effect (secure) his purpose.

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Saturday, December 02, 2006

Demystifying investment jargon

Do your clients range from the very sophisticated to the financially naive?

Are you struggling to write commentary that they'll all understand? Or perhaps you're dealing with portfolio managers who bristle at your elimination of their jargon.

There's a way to keep everybody happy. Parenthetical phrases are your friends, when you feel you must use jargon. They allow you to insert a simple explanation alongside the jargon. Another possibility is to paraphrase the difficult term, eliminating the jargon.

Here are some examples of how you can explain investment jargon for the less sophisticated:
  1. "The FOMC raised the fed funds rate by 25 b.p." --> "The Federal Reserve raised its target for short-term interest rates by 25 basis points (0.25%) from 4.0% to 4.25%." The first sentence is a good way for professionals to communicate in short-hand among themselves. The second sentence substitutes more familiar words for FOMC and fed funds rate. It uses parentheses to clarify the meaning of basis points. Its spelling out of the rate hike "4.0% to 4.25%" also makes the meaning clearer.
  2. "The rally was derailed by exogenous forces." --> The rally was derailed by exogenous forces -- forces outside the stock market, such as the terrorist attacks." Personally I'd prefer to delete the term "exogenous forces," but if you've got a portfolio manager who insists on jargon, then explain the term immediately after you use it.
Have you got examples of jargon that you'd like to simplify? Enter them as a comment below. I'll try to come up with a more readable phrase.

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