In my early years with Hill Investment Group, here’s a question I would see in people’s puzzled faces almost every time I mentioned fund manager Dimensional Fund Advisors:

“Dimensional who?”

With the continued shift to evidence-based investing, the question has become something more like this:

“Who’s this ‘Dimensional Fund Advisors’ I keep hearing about?”

The name may be more familiar these days, but with their nerdy academic underpinnings and publicity-shy approach, it’s still a challenge to explain exactly what makes the firm tick. As the firm’s Investment Research Committee Chair Ken French says, “People at Dimensional care much more about getting the right answer than defending their answer.”

Fortunately, Dimensional has created a great new piece entitled “Inside Dimensional 2017.” Equal parts science, philosophy, and intellectual horsepower, it offers a fascinating tour through the firm’s inner workings – including an entire section dedicated to its “Data Dogs” and their use of computers to revolutionize the implementation of finance for investors.

Let us know if you would enjoy a behind-the-scenes peek at Dimensional’s people and culture, and we’ll gladly send you a copy of “Inside Dimensional.”

In the horse-and-buggy days, it was common to put blinders on your trusty steeds. It helped them narrow their frame of reference to the job at hand … or at hoof.

Even today, blinders remain a great strategy for those Budweiser Clydesdales. But for us humans, a similar behavioral bias known as narrow framing is more likely to knock us off-course than keep us sensibly invested.

What am I talking about? UCLA’s behavioral economist Shlomo Benartzi recently published an insightful Wall Street Journal piece on the subject. In it, he describes narrow framing as “a tendency to see investments without considering the context of the overall portfolio.”

Benartzi explains:

“The first [narrow framing] mistake involves people taking too little risk, which often leads to lower investment returns. When we engage in narrow framing, we tend to focus on short-term losses. … The second mistake involves people taking on too much risk without realizing it. When we don’t think about our entire portfolio, it’s easy to overlook the fact that many of our different investments might fall or fail for similar reasons.”

In other words, overly narrow framing can result in ignoring instead of accurately assessing your own and the market’s landscape of inherent risks and potential rewards. You end up investing like a horse with blinders on – but nobody is steering the cart.

Fortunately, Benartzi offers a few practical solutions, which just happen to coincide with our way of doing business here at Hill Investment Group.

“Rely on information that reflects the biggest possible picture,” he advises, but “remember not to look at it too often.” Sounds a lot like our motto: Take the Long View®, don’t you think? Helping families view their big picture is core to our approach.

Benartzi also notes that today’s aggregation software – like our recently released HIG’s Client Portal – makes it easier than ever to see the grand scheme of things at a glance.

If you’ve never had the chance to catch the Budweiser Clydesdales in action, I recommend it highly. (No, a Super Bowl commercial doesn’t count.) But when it comes to your investments, let your advisor and today’s technological tools help you eliminate your narrow-framing blinders. Being blinded will only lead you astray.

There’s never a lack of news in the financial press:  new studies, new reporting, new crises, new opportunities … it never ends.

Some of it is worth heeding; most of it is just noise. One of our roles at Hill Investment Group is to help you find the hidden gems in all that “new news.” Here are two worthy reminders that trying to pick individual stocks or forecast the market’s many moods remains as ill-advised as ever.

On the Dangers of Stock-Picking …

In his recently published piece, “Hot Stocks Can Make You Rich. But They Probably Won’t,” Jeff Sommer of The New York Times reflects on how investors may be tempted to chase surging stocks in hot markets. “But,” he cautions (emphasis ours), “before you jump headlong into stock picking, you may want to consider the odds … [O]ver the long run, while the total stock market has prospered, most individual stocks have not.”

This may seem counterintuitive, but for supporting evidence, Sommer cites a new study by Hendrik Bessembinder of Arizona State University’s business school (my own alma mater). Sommer points out two remarkable findings from the study, often overlooked in all the excitement:

• “58 percent of individual stocks since 1926 have failed to outperform one-month Treasury bills over their lifetimes.”
• “[A] mere 4 percent of the stocks in the entire market … accounted for all of the net market returns from 1926 through 2015.”

Professor Bessembinder’s study concludes that individual stock picks are like lottery tickets. A stock picker may beat the odds and win big, but if you’d rather focus on winning sustainably while managing the risks, you’re better off accepting wider market returns.

On the Dangers of Market-Timing …

On the same day Sommer’s article appeared, The Wall Street Journal’s Jason Zweig published a nicely paired piece, “Sorry, Stock Pickers: History Shows You Underperform in Bad Markets, Too.”

You may need a subscription to read the entire article, but the title says a lot. Based on data points going back to the 1960s, Zweig notes: “The odds of finding a stock picker who can do better in down markets have long been less than 50/50.” Not only are the odds against those who try to beat the market, the costs tend to be high in every market, up or down. So, while stock pickers often tout their ability to shine the brightest when the markets are at their darkest, the evidence again suggests otherwise.

So, What’s New?

Bottom line, a traditional active investor faces hurdles that are simply too tall to be enticing, especially when there is a more logical, evidence-based strategy to lead the way. This may not be breaking news to anyone who’s been following our work for a while, but I’d say it’s still as fresh and relevant as ever.