Welcome To Our Hawley Advisors Blog

We hope you find the articles on our blog informative and helpful. You are always welcome to chat with us if you have any questions about your personal financial situation.

Generating Alpha. What is it and Why is it Desirable?

When somone in the investment world refers to "generating alpha" or "beating alpha" they are referring to out-performing a given market indexes annual performance. Alpha is a performance indicator and a component of MPT (Modern Potfolio Theory). The objective of modern portfolio theory (MPT) which was developed in the 1950's is to find the best possible diversification strategies with the objective of achieving a greater expected return with a lower amount of risk. In order to do this it evaluates the following five risk variables:

  • alpha
  • beta
  • standard deviation
  • R-squared, and
  • Sharpe ratio.

The overall objective of MPT, as it has evolved, is for investors or rather investment managers/advisors to find a combination of non-correlated investments that have the best potential expected level of return for an appropriate level of risk. 

Investors want to be able to assess the level of performance vs. the risk they are taking. If an investor is taking outsized risk they will expect outsized performance in the event the investment performs as anticipated. If that is not the case, one would naturally have to assess whether taking outsized risk is worth it. 

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Why Navigating the Markets and Your Financial Future Require a Clear Head?

In a sea of constantly moving variables, navigating the markets (an art and science unto itself) and your financial future ( think taxation, IRA's, life insurance, pensions, other critical insurance, the amount needed for your retirement, estate planning) and the situation can be over-whelming. We cannot see the future, so at best we can imperfectly try to predict it based on historic data and patterns that can often repeat.

In order to successfully navigate and compute all of the above variables and potential changes so that you can both protect and maximize your financial future, you need an uncommonly clear head which comes from experience, expertise, knowledge and the ability to adapt. It's not unlike any profession. However, when it comes to your finances the wrong decisions can have an irreversible impact on your life and loved one's.

As a former airline pilot many years ago, you qickly learn there is no room for "error". The entire process from take-off to landing requires meticulous attention to detail and any flaws in judgement can have life and death implications. This training has served me well over the 28 years of my financial advisory career. We have a significant ammount of money under management for our clients and this alongside each families complex financial situation and requirements requires precise calculations, ongoing calibration and clear navigation.

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Short Term Trading vs. Long Term Investing - Who Are The Winners?

With so much talk in the news of day traders and investors, we thought it would be useful to discuss whether the allure and excitement of short term trading outweighs the more boring strategy of long term investing. On the surface, day trading or short term trading appears to be a relatively easy way to make money. With Tesla and Apple and other tech stocks posting such enormous gains in a relatively short time frame, what is so complicated about doing that?

The reality is that timing the markets and individual stocks in the short term is very challenging for the professional traders with all the tools and technology at their disposal, which makes the odds of success even more stacked against non-professional short term traders. There are periods in time where short term trading strategies can work swimmingly but this this is not the case over the long term.

It is well documented that in general for the most part, buy and hold investors often outperform short term traders (after tax and other costs are factored in) by 6-7% per annum. There are always a small number of day or short -term trader success stories that are promoted by the media of course, but the reality is that over the long term most day or short term traders are not successful and eventually lose money.

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Why More Stimulus is Inevitable Along With Rising Inflation & A Likely Devaluation of the Dollar

The COVID induced recession has had a severe impact on the economy with the poorer segments of the population bearing the brunt of the impact. Millions have lost jobs or seen their income significantly reduced. While the Government stepped up with over $3 Trillion in stimulus and support to small and large businesses, extending and supplementing unemployment benefits, the supplemental benefits ended last month. States have also stepped up asking utility companies to put a morotorium on payments for those who have lost their jobs. These morotorium's are also expiring in many states.

More Stimulus is Inevitable

It is estimated by the NEADA that electric and gas debts will exceed $24.3 billion by the end of 2020. In Indiana, for example, it is estimated that over 110,000 households are behind on their utility bills by over 120 days. In Wisconsin 3 in 10 households are behind on their bills. This is just the tip of the iceberg. A percentage of the very same households are behind on rent or mortgage payments. The impact on the health, security and safety of families who are impacted by this is serious. Likewise these sums will have a significant impact on the utlity companies themselves.

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Markets and Election Years - Is there a consistent pattern?

As we head into another election cycle, can history provide is with any clues about how the market or rather the institutional money behaves?

Elections and their respective winning party policy outcomes inevitably have impact on businesses, taxation and the economy. The closer the race is, the more diverse the policies and the more unknown the outcome, the less certainty the markets or investors have.

It would be logical to assume in such instances that institutional money is going to de-risk and hedge their portfolios to some extent going into an election.

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Hawley Advisors
1600 South Main Street, Suite 190
Walnut Creek, CA 94596
Phone: 925-906-9800
Fax: 925-906-9884
info@hawleyadvisors.com

 

 

Hawley Advisors is an investment advisor, registered with the State of California. Any investment ideas or strategies on this website are for the purposes of education and general information only and should not be construed as specific investment advice. For more information about our firm please check the SEC Public Disclosure website: https://www.adviserinfo.sec.gov/

 

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