The S&P 500 is a stock market index which tracks the overall performance of the 500 largest American companies (based on market capitalization). This is a great metric which can be used to understand the swings of the overall market and is also the model for some of the most popular index funds. An index fund is a fund with a portfolio which mimics that of a specific market index (for a more in-depth explanation see here). In the case of the S&P 500, the fund would be comprised of the companies represented in this index. So, instead of investing Continue reading Why Does the Total Stock Market Typically Beat the S&P 500?
On the fifth day of November in 1626, Native Americans sold the island of Manhattan to the Dutch for the equivalent of 24 dollars. The absurdity of this story has unsurprisingly compelled some historians to question its veracity, and others to try to approximate inflation. These things do not interest me. Like any normal person would, I see this as an economics lesson. Let’s suppose the legend is true, and suppose that following the sale, the Native Americans appointed a chief investment officer (CIO) of moderate intelligence to manage the 24 dollars. Said CIO achieves a respectable annual return of Continue reading The Eighth Wonder of the World
Maybe you’re a Game of Thrones enthusiast, maybe you’re not. Either way, you are most likely aware of what a moat is. You know, the classic pit filled with water which surrounds nearly every storybook castle… The concept of a moat is incredibly simple. If invaders are forced to deal with a challenging obstacle before they can attack the castle, the likelihood of a successful invasion is decreased. The concept is thousands of years old, but it has recently been given a new application in the world of security analysis and finance. The term economic moat was coined by none Continue reading The Economic Moat, a New Application for an Old Concept
With Goldman Sachs and Wells Fargo paying multi-billion dollar settlements after admitting to being less than truthful about their mortgage practices, it’s possible other banks on Wall Street might come clean. There is much debate about whether sub-prime mortgages were a conscious (and idiotic) attempt at making a ton of money, or if the banks were as in the dark about the consequences as consumers were before the financial crisis of 2007-2008. It’s easy to blame the banks, they’re the ones who had the power and they knew exactly what they were doing – right? Steve Eisman, the hot-headed portfolio manager from the Big Short Continue reading With Big Banks Coming Clean – Should We Start Breaking Them Up?
After the events in Belgium, this post seems in poor taste – but I promise it was written before the tragic events at the beginning of the week, and still offers something interesting. Did you know you could effectively bet that someone won’t lose their life in a catastrophe? And if they don’t – you could make a substantial amount of money? Insurance companies know this – and they’re prepared to offer you a once in a lifetime (literally) opportunity to buy an EMB, an Extreme Mortality Bond. Extreme mortality events are events that result in a substantial loss of life (a Continue reading Bet Against Someone’s Life and Death with Extreme Mortality Bonds