Kevin Kroskey's Money & Mind

If you don't already read Jason Zweig's regular column in the Wall Street Journal, you should. He is one of the few financial journalists worth reading. His recent article on the psychology of the recent market drop is rational and instructive. ==== Click here to read the article in it's entirety: http://blogs.wsj.com/moneybeat/2015/08/24/the-cruel-psychology-of-the-1000-point-drop/ See below for a snippet: Experiments have shown , for instance, that people believe cancer is riskier when they are told that it kills “1,286 out of 10,000 people” than when they hear that it kills “24.14 out of 100 people.” Hearing “1,286” immediately brings a large number of victims to mind, while “24.14” is simply a much smaller number. To notice that the first number is less than 13%, while the second is more than 24%, you have to focus on the denominators of the fractions and do some quick division. But your emotions will likely hijack your brain long before you get to that poi...

"The inflation-adjusted income of the median household—smack in the middle of the populace—fell 4.8% between 2000 and 2009, even worse than the 1970s, when median income rose 1.9% despite high unemployment and inflation. Between 2007 and 2009, incomes fell 4.2%." The above paragraph is from a Wall Street Journal article describing the pain the American middle class has experienced over the "lost decade." The media has generally referred to the "lost decade" for the lack-luster results of the S&P 500 from 2000-2009. While I disagree that this time period was a lost decade for a well-allocated investor, I do agree with the author of this article that it was a lost decade in terms of real or inflation-adjusted income. In his autobiography, Alan Greenspan describes this phenomenon and says how the mass influx of labor from China and India kept prices and inflation relatively low world-wide for an extended period of time. The good news, he says, is tha...

Through my experience as a Certified Financial Planner(r) in counseling clients and in staying abreast of changes of the financial product companies, it has become quite evident time and again that it is a lot easier to sell consumers what they think they want rather than to educate them on what they need. From insurance carriers and financial sales people selling 'guaranteed products' at exorbitant costs to mutual fund companies seeding multiple new funds and then promoting the ones that do well while silently closing the unsuccessful funds before they receive their Morningstar ratings, consumers are preyed upon and have to side step a mine field of damaging advice and products if they're to be successful and reach their life's goals. The Wall Street machine certainly isn't slowing down. Rather than educating consumers on market history, so they can learn why the negative returns from The Great Recession-- while not pleasant nor frequent--are in fact a part of ...

(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

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...

In an article published today in the Wall Street Journal, entitled "The New Bond Equation," the author attempts to educate readers about the potential risks involved in investing in bond mutual funds, given the current economic environment. He writes: "As the financial crisis heads into its third year, investors in bond funds are facing some difficult choices. Investors usually turn to these funds for safety. But bond funds are facing a host of pressures that are driving down returns, raising long-term risk—and making it tougher to settle on the right investment strategy." While I agree with the author's statement above, he makes some statements that mislead bond investors. ( Click here to read the full article. ) For example, he writes: "....they’re buying vehicles that invest in intermediate-maturity bonds. These funds also typically hold a mix of government, mortgage and investment-grade corporate bonds, which spreads risk around. Even cautious intermedi...