The March 2019 AAII Journal is Now Available Online



To Beat the Market, Invest Differently Than the Market

By Charles Rotblut, James O’Shaughnessy

Decisions based on less than five years of performance returns are mostly based on noise. Many strategies look good over shorter periods, but fare much worse over longer periods.




Revisiting the “What Works on Wall Street” Screen

in First Cut

O’Shaughnessy helps to find strategies that have the highest “base rate” with the belief that a composite strategy can help achieve both higher and more consistent performance than single-variable strategies.

The Top Mutual Funds Often Don’t Continue to Outperform

in Mutual Funds

Analysis of mutual funds with the best five-year performance suggests the existence of some sustained momentum, but not consistently.

Rebalancing Update: The Market’s Volatility Eliminated the Need to Adjust Allocations

in Portfolio Strategies

The volatility incurred in 2018 was high enough to bring the equity allocations back toward their targeted range, preventing the need for rebalancing.

The Index Fund Approach: Tracking the Market

in From the Archives

This interview originally appeared in the January 1987 AAII Journal, at a time when the index fund concept was in its infancy.

Remembering John Bogle: Personal Reflections From AAII Members

in Member Stories

John Bogle’s influence went beyond introducing the world to low-cost index funds. His integrity and passion carry equal weight with his wise counsel in the eyes of individual investors.

The Most Popular Tax Preparation Services Used by AAII Members

in Computerized Investing

TurboTax is the most used service among AAII members, followed by H&R Block. Members particularly favor TurboTax Premier and H&R Block Deluxe.

The Level3 Approach: Getting Exposure to Segments That Have Performed Well

in Level3 Passive Portfolio

The portfolio looks to improve upon the long-term return of the market-cap-weighted S&P 500 using index funds of smaller companies, value-oriented stocks and real estate.



Letters to the Editor

Members speak out on the effect of the new tax rules, broker features overlooked, not saving enough for retirement and Shadow Stock decisions. Plus, strong opinions in response to a recent Investor Update on stock buybacks.



AAII Journal Editor photoIn this issue, we have interviews with two people who have had a personal impact on me.

The first interview is with the late John Bogle. Jack died in January at the age of 89. He will be forever known for what was once derided as his “folly”: The launch of the first S&P 500 index mutual fund. Vanguard’s First Index Investment Trust flopped when it was first launched in 1976, attracting far fewer dollars than expected. A decade later, in 1986, we asked Bogle to explain the concept of indexing for the first interview we ran with him. You can read this interview, which originally appeared in our January 1987 issue, here. We’re republishing it as part of the AAII Journal’s 40th anniversary.

Decades later, Vanguard is among the world’s largest asset managers and its S&P 500 Index fund (VFIAX) ranks among the largest funds. Bogle’s concept of indexing has gone from being called “unpatriotic” to being the method followed by most exchange-traded funds (ETFs) today. [The first ETF—the SPDR S&P 500 (SPY)—wasn’t launched until 20 years after Bogle started Vanguard. It, too, was designed to mimic the performance of the S&P 500 less fees.]

While contemplating what to say in this month’s Editor’s Note, I ran some mental calculations about the impact Bogle has had on my personal wealth. Just considering what’s held in our workplace retirement plan—which is run through Vanguard—I conservatively estimated the savings from Vanguard’s low fees to be in the thousands of dollars. These calculations exclude compounded returns realized off of those savings. Every dollar saved is a dollar that can be grown.

Those of you who have been Vanguard shareholders—or shareholders in other low-cost funds—may have realized even bigger savings. Given enough time, reducing fees by even a half of a percentage point could result in cumulative savings approaching $100,000 for a person with a portfolio of $1 million or more. Actual savings will depend, of course, on several factors, including starting balance, compounded returns of those savings and both contributions and withdrawals.

Many AAII members are Vanguard shareholders or use other index funds. Following Bogle’s death, we asked AAII members to share their memories of him. We received many responses, including from those who knew Bogle and those who were influenced by his writings. As a special tribute to this legendary investor, we’re sharing many of those letters here.

Also in issue, you will find a recent interview with James O’Shaughnessy. Many of you are familiar with Jim either through the AAII stock screening strategies based on his methodologies or through his book, “What Works on Wall Street” (4th edition, McGraw-Hill Education, 2011). I’ve looked at the book so many times that I’m surprised my hardcover copy isn’t dog-eared. It’s a great compilation of how various measures of value, growth and financial strength have translated into long-term returns. I have incorporated O’Shaughnessy’s research into my process for analyzing stocks. The VMQ Stocks strategy also incorporates O’Shaughnessy’s research.

What many of you may not know is that O’Shaughnessy is very active on twitter (@jposhaughnessy). He shares articles and research of interest as well as comments on other tweets (often with memes or other images). O’Shaughnessy also shares insights about investing. In fact, you’ll see here what led to the interview: a multi-tweet thread about what he has learned over the course of his 30-year-plus career. I thought there would be interest in having O’Shaughnessy expand on his observations and we had a great conversation in January. As far as the aforementioned thread, we’ve republished it in its entirety alongside the interview, which starts here.

With the tax filing deadline approaching, we’ve also included a comparison of the three major tax preparation services: TurboTax, H&R Block and TaxAct. Of the three, TurboTax is the most popular service among AAII members. I’ve personally used it for years (quite possibly two decades). H&R Block is also used by many members. I tried it once but preferred TurboTax’s interface.

As you prepare your returns, be aware that refunds are running about 8% below the average level of last year. This is because many people—particularly salaried workers—received the bulk of their savings from the tax cut in their paychecks. Your refund or balance due will, of course, depend on your personal tax situation.


Charles Rotblut, CFA
Editor, AAII Journal



Leave a Reply

Your email address will not be published. Required fields are marked *