We were recently discussing the cable television show “Mad Money” because it takes a lively and entertaining perspective on the typical format of a show that dispenses financial advice/information. However, as with all such hot news, by the time the information has been disseminated, it is already incorporated into stock pricing within our highly efficient markets, and thus no longer useful information on which to base decisions about trading. Instead, we would suggest that, rather than following recommendations that may or may not match an individual’s ability, need and willingness to take risk, prudent investors continue to adhere to their well-developed plan based on their long-term financial objectives.

On August 16th, about forty-five Anheuser-Busch executives heard Rex Sinquefield, co-founder of Dimensional Fund Advisors and one of the creators of the first index fund, present evidence from an important study conducted in the United States and Great Britain. Not surprisingly, the study reveals the dismal performance of active fund managers in both countries. Rex went on to explain how one can build a portfolio that captures better than market returns by adding small and value stocks to increase the expected return and lower the standard deviation.

Anheuser-Busch is just one of a growing number of corporations who have switched to a passive investment philosophy in their pension and 401(k) programs. When faced with the data presented by academic studies as discussed in this presentation, more executives are beginning to understand how capital markets really work.

What is Monte Carlo? It is a statistical method for analyzing random phenomena such as market returns.

How can it help you? This basic overview of Monte Carlo explains why this tool is so helpful in viewing an uncertain future.

Download “Understanding the Basics of Monte Carlo” (PDF)