February 14, 2008 at 3:00 pm by Tom Lydon
A research paper about how financial professors do their investing with stocks and exchange traded funds (ETFs) showed some enlightening things.
The paper, conducted by professors at Florida State University and Central Michigan University, revealed that when it comes to putting words into action, most professors practice what they preach.
Mary Dalrymple for the Motley Fool rounded up the findings. Two-thirds don’t try to beat the market and instead invest in index funds. They tend to stay away from individual stock-picking, and nearly 15% had never purchased a single stock.
But the other third did nearly the opposite of what they taught their students. Instead of using models and theories about risk and asset pricing, they did what amounted to chasing performance. Shame, shame.
Dalrymple finds the survey to be a good example of something that can just be human nature: ignoring the fundamentals that we know are true.
It just goes to show - even the oldest cliche can contain a grain of truth: don’t chase performance. That’s sound advice.
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February 16th, 2008 at 8:58 am
ETFtrends content is head and shoulders above the numerous media advisories, but some how we have the above article, that states: Don’t chase performance and just use index funds. This is plain ridiculous. The S&P500 is near the same level it was 8 years ago. The top performing ETFs like DBA, GLD, SLV etc exhibit high performance and thats why I own them. further stocks in these hot sectors are doing even better.
February 16th, 2008 at 8:24 pm
I also buy what is going up. The S&P 500 is not a good example of that at the moment. Why else would one buy an ETF if not to make a profit? Those with very deep pockets may be able to buy with the expectation, and likelihood, that something good will happen in the distant future. However, most of us need to have our investments working to greatest extent possible. A high yield might be one reason to be satisified with low price appreciation. Dislike of volatility might be another. There are all kinds of investors in this world, but I must agree with the comments posted by Schippi.
February 19th, 2008 at 9:17 am
ETFs track indexes, making it easier for investors to participate and not have to cherry-pick individual stocks. There are some investors who take the buy-and-hold approach and others who look for areas that are performing and trending up. ETFs are tools that can help both types of investors no matter what their investment criteria may be. -Tom