Kevin Kroskey's Money & Mind

We recently observed the first anniversary of the most shocking and terrifying week in most of our financial lives: the economic cataclysm of September 15-19, 2008. Even the greatest one-day stock market crash in history on October 19, 1987 did not shake us the way this Hell Week did, inasmuch as it was almost entirely contained in the equity market: the economy, the banking system, and the world at large, aided by a tsunami of liquidity from the Federal Reserve, rolled merrily along. The epicenter of the earthquake - at the corner of Broad and Wall Streets - turned out to be the whole earthquake. And the terrorist atrocities of September 11, 2001, even as they forced us to confront a whole new global geopolitics - and our position in the world as the target of an unfathomable crypto-religious hatred - had, after the initial shock, no lasting economic effect. But Hell Week 2008 shook the global financial system to its foundations. The previous week, the federal government had taken ove...

In support of Financial Planning Week which runs from October 5-11, 2009, the Financial Planning Association of Northeastern Ohio is pleased to announce a public showing of the movie I.O.U.S.A. ( http://www.iousathemovie.com/ ) at the Cedar Lee Theater in Cleveland Heights, OH. One of the missions of the FPA is to raise awareness about the the importance of personal financial planning and offer guidance in making financial decisions. As a Board Member of the association I support and encourage this pro bono event in our community. Tuesday, October 6, 2009 at 7pm Free Admission (with a suggested donation of $3 to go towards Cleveland Saves) Cedar Lee Theater 2163 Lee Road Cleveland Hts., Ohio 44118 Seating is limited, so please register at http://tinyurl.com/ydq99lh . (You must register to attend.) Although the movie is free, there is a suggested donation which will go towards Cleveland Saves, a local non-profit that encourages individuals and families to save money so that they can bui...

(Below is an excerpt from a Wall Street Journal article, written by James Grant--an esteemed market observer and usual pessimist--published on 9/19/09. In my opinion this article represents a minority voice in public economic comment today and should be heard.) From Bear to Bull: James Grant argues the latest gloomy forecasts ignore an important lesson of history: The deeper the slump, the zippier the recovery. Americans are blessedly out of practice at bearing up under economic adversity. Individuals take their knocks, always, as do companies and communities. But it has been a generation since a business cycle downturn exacted the collective pain that this one has done. Knocked for a loop, we forget a truism. With regard to the recession that precedes the recovery, worse is subsequently better. The deeper the slump, the zippier the recovery. To quote a dissenter from the forecasting consensus, Michael T. Darda, chief economist of MKM Partners, Greenwich, Conn.: "[T]he most import...

There was a good, short article in the Wall Street Journal this morning that I wanted to post. The article is entitled, "Reasons for Optimism Shouldn't be Shunned." Investors are emotional and find reasons to support the emotions they're feeling, ranging from overly pessimistic to overly optimistic. After 2008 most investors have been focusing on the negative and ignoring the positive. "Even though stocks are up nearly 50% since early March, worries about valuations, the dollar, inflation and corporate profits permeate market chatter -- chatter so loud you can barely hear all the good news." Click here to read the entire article: http://online.wsj.com/article/SB125287540315306843.html?mod=djemITP

Many academics consider the active-vs.-passive debate settled. Yet, despite the strong evidence supporting a passive, index-like approach, many investors still assume that skillful active management can increase returns, net of costs. The basis for a prescription of a passive investment strategy rests on scientific inquiry in the field of finance rather than on anecdotal evidence or 'good-sounding' stories told by the active mangers, media, supposed gurus, or others spouting investment pornography. The tests have been done and they are well documented. Unfortunately for many investors, the subjects of these tests are not lab rats, but real people with real money! Below are some common questions that can help clarify this debate and hopefully help you not to fall victim to the higher costs and subpar performance of active managers. Q: If an active manager can gather information and gain insight or knowledge through research into a company, shouldn't he be able to beat the ma...

It's common practice to look at a fund's total return number for a snapshot of what performance to expect, but that won't give you the full picture. Morningstar studies have shown that investors' actual gains frequently pale in comparison to reported total return numbers. This phenomenon frequently plays out among funds that attract assets after streaks of hot performance, only to see some investors get skittish at the first signs of underperformance . After a moment's though, even a novice investor will realize that this behavior is just the opposite of the mantra -- buy low and sell high. This practice can be more broadly attributed to bad behavior and lack of a plan or philosophy when it comes to investing. Investors are human and humans are emotional. As much as the logician in me would like to believe my left brain is working to drive my decision making, logic comes in after emotions are experienced to provide context for how we are feeling and not the other ...

After reading the title of this post, my hope is that a look of disbelief is cast on your face. Of course butter production in Bangladesh has nothing to do with prediction of US stock market returns. However, through data mining all sorts of 'relationships' can be demonstrated. Many mutual funds, ETFs, and trading strategies are built upon these data mining strategies--most often to the harm of investors that utilize them. As Jason Zweig describes in a recent article in the Wall Street Journal, entitled Data Mining Isn't a Good Bet For Stock-Market Predictions , "The stock market generates such vast quantities of information that, if you plow through enough of it for long enough, you can always find some relationship that appears to generate spectacular returns -- by coincidence alone . This sham is known as data mining." I recall in from my business statistics course in grad school, how I was able to show that ice cream consumption was correlated to the murder ra...