Dimensional’s Mark Gochnour and Jake DeKinder offer a perspective on the 2020 financial markets and give historical context to the recent performance of value and growth stocks, as well as other segments. They also discuss how past economic events have impacted market returns and highlight the importance of thinking long term.
In a recent webcast, Dimensional Co-CEO and Chief Investment Officer Gerard O’Reilly spoke on the performance of value stocks relative to growth stocks, addressing the theory and data supporting a value premium.
A look into Dimensional's Origins from the founders and lead academic experts at the firm
In the years between 2009 and 2019, if you picked only the top 25% of funds in the previous 5 years, only 21% of global equity funds went on to continue to outperform, and 29% of global fixed income funds went on to outperform. That means if you simply picked the previous winner, expecting it to continue to be a winner in the future, you had basically a random outcome over the next 5 years.
We know that markets are efficient, but that can be an abstract concept. In this video, I used examples to demonstrate market efficiency in action. News about a company stock is almost immediately reflected in its share price.
In this video I introduce the concept of efficient markets using an example from when I was a kid - yard sales! The efficient markets theory (Efficient Market Hypothesis), is one of the most important ideas in all of finance. Once you can grasp the idea that markets are a very efficient pricing machine, it unlocks the answer to a lot of other important questions: 1) Why do stocks return more than bonds? 2) Why do professional investment managers struggle to beat plain old index funds? 3) Why should we diversify vs. own a small subset of stocks or a concentrated portfolio? 4) How do I pick an investment strategy where I can just invest and relax? I will discuss these questions and more in future videos. I hope you enjoy this video. Leave comments, feedback, and suggestions below. Thanks, Mark
VIDEO: Should you be changing your investment strategy based on what the outcome of the U.S. election next week is going to be?