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Investors with varying risk preferences and sensitivities to market risks should consider tilting their portfolios away from or towards securities that hedge different states of the world, according to the ICAPM theory. While the market portfolio is optimal for the average investor, those aiming for the highest Sharpe ratio or mean-variance efficiency may need to deviate from total market index funds to achieve their investment goals.
The recent events in the crypto market have been turbulent, with FTX facing liquidity problems and failed acquisition attempts by Binance. Furthermore, the US Department of Justice managed to recover 50,676 Bitcoins stolen from the Silk Road in 2012, showcasing how law enforcement can trace and seize ill-gotten crypto assets.
Amazon made history by becoming the first company to lose a trillion dollars in market cap, highlighting the unprecedented scale and significance of the company within the market. This milestone underscores the volatility and dynamic nature of the stock market, even for industry giants like Amazon.
The podcast episode discusses the market trends, including Amazon's market cap approaching a trillion dollars, and the shift in Facebook or Meta becoming a value stock. It highlights the reaction to market news like layoffs impacting stock prices positively, and mentions the fluctuation in bond prices based on CPI data and interest rate expectations.
The episode delves into tax loss harvesting strategies, emphasizing the importance of factors like capital gains offsets, new cash flows into portfolios, and liquidation timelines. It explains the impact of varying tax rates on harvesting outcomes and the significance of return environments. The analysis using boosted regression trees reveals key drivers of tax alpha and underscores the role of investor characteristics and return environment variability.
In today’s episode, we pull relevant quotes from past guests (namely John Cochrane, Gene Fama, and Jonathan Berk) to extricate who should own market cap funds. We look at the variable risks of value stocks and factor investing and hear counter-views on owning the market. We also delve into the hot topic of tax loss selling, with an overview of a recent Financial Analyst Journal paper on loss harvesting outcomes, sorted by investor profiles. This episode will get you up to date on the biggest finance news of the week, from crypto collapses to Amazon’s catapulting gains and losses. Tune in to hear all of this and more, including a recap of our conversation with Dave Goetsch and our Financial Literacy Month book reviews.
Key Points From This Episode:
Participate in our RR CE Credits Survey: Participate in our Community Discussion about this Episode: Books From Today’s Episode:
The Geometry of Wealth: How to shape a life of money and meaning — https://amzn.to/3Od9J3N
Retirement Income for Life: Getting More without Saving More — https://amzn.to/3GpkHRN
We're Talking Millions!: 12 Simple Ways to Supercharge Your Retirement — https://amzn.to/3UI3uaE
Common Sense on Mutual Funds — https://amzn.to/3AjUsIM
The Investment Answer: Learn to Manage Your Money and Protect Your Financial Future — https://amzn.to/3UWeSPM
Money Like You Mean It: Personal Finance Tactics for the Real World — https://amzn.to/3g9bT7Q
Links From Today’s Episode:Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.
Rational Reminder Website — https://rationalreminder.ca/
Shop Merch — https://shop.rationalreminder.ca/
Join the Community — https://community.rationalreminder.ca/
Follow us on Twitter — https://twitter.com/RationalRemind
Follow us on Instagram — @rationalreminder
Benjamin on Twitter — https://twitter.com/benjaminwfelix
Cameron on Twitter — https://twitter.com/CameronPassmore
'An Intertemporal Capital Asset Pricing Model' — https://www.jstor.org/stable/1913811
'Risk and Return of Value Stocks' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=112553
'The Value Premium' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=351060
'A Consumption-Based Explanation of Expected Stock Returns' — https://repository.upenn.edu/cgi/viewcontent.cgi?article=1146&context=fnce_papers
'Who Are the Value and Growth Investors?' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2426823
'Is There a Replication Crisis in Finance?' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3774514
'Amazon Becomes World’s First Public Company to Lose $1 Trillion in Market Value' — https://www.bloomberg.com/news/articles/2022-11-09/amazon-hits-unwelcome-milestone-with-1-trillion-in-value-lost?leadSource=uverify%20wall
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