Category: Risk

  • Why Farmland Might NOT Be a Great Investment

    “Investors Flock to Farmland Amid Market Volatility”[1] screams one headline. “Bill Gates Farmland: Why is the Billionaire Buying So Much?” asks another.[2] “How to Start Investing in Farmland” is a headline from the Motley Fool (The Motley Fool, June 30, 2025). When I typed “is farmland a good investment” into…

  • Is Rebalancing Really a Good Idea?

    Investing involves tradeoffs. Perhaps the primary tradeoff is between expected return and expected risk. Investing is difficult, at least in part, because we can never be sure, when we look into the future, if our expectations about future return or future risk are correct. Given that investing is a balancing…

  • Are Bonds One Asset Class, or Multiple?

    Theory and history suggest that for bonds, changes in interest rates are the dominant risk factor. Most of the rest of the risk is explained by credit risk. History also shows that in times of greatest stress, credit risk and liquidity risk can dominate interest rate risk. These characteristics can…

  • What makes an Asset Class? Bonds as a Case Study

    In a previous post, we observed that while seemingly everyone talks about “asset classes,” there is little detail on what an asset class actually is. We offered the following definition: An asset class is a set of assets that have similar expected returns, risks, and that share a high degree…

  • What Is an Asset Class? A Closer Look at a Common but Vague Term

    How would you answer the question, “What is an asset class?” This sounds like a simple question, but it turns out that even large institutions struggle to provide a well-defined answer. In this post, we’ll discuss why it matters and how to define an “asset class.” The Tangency Portfolio and…

  • The Capital Market Line—Is it the Holy Grail?

    In a previous post, we introduced the concept of the efficient frontier. The efficient frontier concept is frequently presented in a graph, such as the following. Capital Market Line Now comes the insight of a single “efficient risky portfolio.” The assumption is that an investor can choose to allocate his…

  • Does Mean-Variance Optimization Help with Risk Management?

    How many times have you heard, or said, “past performance is no guarantee of future performance” or something similar? SEC rule 482 explicitly contains the language “past performance does not guarantee future results,” and the SEC requires this language in rule 482 advertisements. While past performance may not predict future…

  • Do You Know How You’re Influenced by Modern Portfolio Theory?

    Almost everyone believes that you should diversify your assets – but there are different explanations about why. It is sometimes said (though how anyone would know is another story) that fish are not aware that they swim in water. Similarly, many investors today live in a world shaped by many…

  • The End of the World?

    Did you know the world almost ended in June? For real… The world as we know it may have come within hours of ending on June 29, 2024 when an asteroid, discovered only about one week before, passed closer to the earth than the moon is. A few hours difference…

  • Nothing Runs Like a Deere – Should You Sell John Deere Stock?

    John Deere is in the headlines because it has announced plans to eliminate about 600 jobs from three factories in the US.[1] This news attracted our attention, because we have seen selling over the past couple of years, including people using our Stock Diversification Trust to take large gains without…