In the latest edition of Sound Investing podcast, published by FundAdvice.com, Paul, Tom and Don share their insights into a range of topics including hedge funds, emerging markets and the importance of staying calm. They also interviewed Bob Deere, Dimensional's Investment Director and Senior Portfolio Manager.
One warning, the radio show is 51 minutes in length and will suck up 23MB of download. If this is not an issue for you I highly recommend you take a look at the latest podcast - Sound Investing - June 27, 2008
For those who have limited time and/or download capability the following is a brief summary of the material covered:
The key question to ask is do you understand how they work and the internal risk involved with the strategy. They looked at a particular example where a hedge fund set up by Nobel Laureates lost 4.6 billion dollars for their investors.
Bob Deere - Dimensional's Investment Director and Senior Portfolio Manager
Bob discussed the main advantages of the Dimensional approach - low level of transactions and transaction costs, very highly diversified portfolios, portfolios are tilted to the dimensions of risk which provide slightly higher returns. He also discussed the definition of a value stock as being a low price relative to something. E.g. earnings, cash flow, adjusted book value. Bob also explained why he thought Dimensional funds are better structured than ETFs to capture the dimensions of risk and return particularly in the more exotic parts of the market where the higher returns can be found.
Frontier / Emerging Markets
Paul, Tom & Don looked at he recent performance of frontier markets with some performing strongly like the Bangladesh and Bulgaria markets while others have gone poorly like Vietnam and China. The key to investing in this area of the world is to be extremely well diversified. Just like individual stocks can "blow up", so too individual national markets can blow up. However, emerging markets as a whole are likely to have the highest returns over the next 20+ years. The reason why - they are riskier investments.