We Apply Academic Research to
Investing and Investments
Altruist's investment recommendations usually, though not always, are in the
form of no-load index mutual funds and ETFs from Dimensional Fund Advisors
(DFA), Vanguard, and a few others. For an analysis of our
current favorites in each of several asset classes, click
We usually recommend mutual funds/ETFs
instead of individual securities due to their inherent diversification
We usually advocate passively
managed (e.g., "index") funds/ETFs
rather than actively managed funds/ETFs:
Passively managed funds/ETFs usually have lower
Passively managed funds/ETFs don't exhibit "style
Passively managed funds/ETFs tend to have lower
turnover than actively managed funds/ETFs. This allows them to have lower
transaction costs and somewhat greater tax-efficiency.
Principally due to their lower
fees, passively managed funds' long-term performance must exceed that of most actively
managed funds/ETFs investing in similar securities. For more information,
see Nobel-prize winner William Sharpe's excellent brief article on the
Arithmetic of Active Management."
Generally, we use the following
criteria to select individual mutual funds/ETFs because these criteria have been
shown to have the most significant correlation with future performance:
No Load. There cannot
be any sales commissions on any mutual funds we recommend.
Passive Management (e.g.,
index funds) is preferred to active management.
Low Expense Ratios.
Lower is better. We usually recommend the fund/ETF with the lowest expense
ratio in an asset class unless we have a compelling reason not to.
Value funds should be as
"valuey" as possible. A value mutual fund/ETF should have as high as
possible a "book to market" ratio (a.k.a., "book to price" ratio). "Book
to market" ratio is simply the inverse of the more often used "price to book"
Small cap funds should be as
small as possible. The stocks in a small cap mutual fund/ETF should have
as small a market capitalization as possible.
is better. The more companies a fund/ETF invests in, the less unsystematic
risk it has. On average, investors aren't rewarded for taking
unsystematic risk, so less is obviously beneficial.
Turnover. Less is
generally better. Lower turnover means the fund/ETF pays fewer commissions to execute
trades. It also causes the fund/ETF to be more tax-efficient.
Tax Efficiency. For
taxable accounts, it is beneficial to minimize both dividend and capital gains
distributions if possible.
Note that past performance isn't
one of our criteria. That is because, contrary to conventional wisdom,
there is very little correlation between past performance and future
performance. This has been proven statistically with a high degree of
confidence in several academic studies (see relevant academic papers
In general, picking mutual funds/ETFs on the basis of their past performance is
likely to be little better (or, more likely, a little worse) than picking
funds/ETFs at random. There is a better way. That's why we use the
above criteria: they have been shown to have a correlation with future
performance (i.e., they have been shown to be fairly good predictors of
Most of our clients who are
managing their investments themselves use Vanguard
Clients of the
Management Service are typically invested in a combination of principally
DFA, Vanguard, and Bridgeway funds/ETFs,
For a comparison of
DFA and Vanguard mutual
funds, along with our current recommendations in each of several asset
classes, click here.
There are a few other investments
which we occasionally recommend when appropriate (e.g.,
continuously monitors the investment universe for additional mutual funds/ETFs and
other investments which
might be prudent additions to our clients' portfolios.
This web page contains the current opinions of Eric E. Haas at the time it is
written — and such opinions are subject to change
without notice. This web page is intended to serve two purposes:
|To educate the public; and|
|To provide disclosure of Mr. Haas' opinions to prospective clients.
We believe that prospective clients are well-served by being made aware of
what they are buying — and what they are buying is advice
that is based on these opinions.|
We believe the information provided here to be useful and accurate at the time
it is written.
Information contained herein has been obtained from sources believed to be
reliable, but is not guaranteed.
No investor should invest solely on the basis of information listed here.
Before investing, it is important to consult each prospective investment's
prospectus and consider both its risk/return characteristics and its effect on
your overall portfolio.
This information is not intended to be a
substitute for specific individualized tax, legal, or investment planning
advice. Where specific advice is necessary or appropriate, Altruist
recommends consultation with a qualified tax adviser, CPA, financial planner, or
investment adviser. If you would like to discuss the rationale or support
for any particular idea expressed on this web page, feel free to