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Editor’s Note Investors Do The Darndest Things Somehow the study of behavioral finance has always seemed a good fit with index investing. Indexers are focused on taking the emotion out of investing, carefully calculating a sound asset allocation plan and then sticking to it. So it seems natural that we would want to understand how we act and why. If we can understand our investing id, perhaps we can exist in our economic ego, and thereby graduate to our financially self-realized superego. You may think it’s a bunch of Psychology 101 nonsense, but Jason Zweig certainly thinks it’s important. There’s no one who is more of an “old school” indexer than Jason, and he has completely immersed himself in the science of behavioral finance in recent years. We’re delighted to have both an interview and a book excerpt from Mr. Zweig in this issue. The writing has sizzle and substance, a rare combination these days. Following the Zweig contributions, we’ve got one of our always-popular roundtables—this one focused on behavioral finance with an academic tilt. Sit back and enjoy the side-by-side responses of William Bernstein, David Blitzer, Francis Kinniry, Ed McRedmond, Ross Miller, Terrance Odean and John Prestbo as they debate just how nuts we are as investors. Is it just me or is Craig Israelsen the ultimate fit for what we’re doing in the Journal of Indexes? This issue, Professor Israelsen weighs in with another smart, practical and accessible analysis—this one on asset allocation and the efficient frontier. From here we really enter the ETF world, first with an outstanding analysis of ETF spreads by our own Matt Hougan, a provocative and skeptical look at the potential of ETF investing on 401(k) platforms by David Blanchett and Gregory Kasten, and a look at the range of ETFs available from beta through alpha and their corresponding costs from Rick Ferri. Bringing us home in the issue is David Blitzer discussing real estate, the current poster child of erratic investor behavior, and finally The Curmudgeon with a bit of a different take on behavioral finance. Jim Wiandt Editor Jim Wiandt Editor 8 July/August 2008
From the world’s leading ADR experts, The Bank of New York Small Cap Select ADR Index One of the many indices available to investors, issuers, and brokers at www.adrindex.com Also available through: New York New York New York London Julio Lugo +1 212 815 2122 Cheryl Workman +1 212 815 2732 Michael Finck +1 212 815 2190 Michael Cole-Fontayn +44 20 7964 6318 bnymellon.com/dr Who’s helping you? ©2008 The Bank of New York Mellon Corporation. This information is provided for general purposes only and is not investing advice. The Bank of New York Mellon Corporation provides no advice nor recommendations or endorsement with respect to any company or security. Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities. Depositary Receipts: NOT FDIC, STATE, OR FEDERAL AGENCY INSURED. MAY LOSE VALUE. NO BANK, STATE, OR FEDERAL AGENCY GUARANTEE. Products and services are provided by various subsidiaries of The Bank of New York Mellon Corporation.
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Page 3 and 4: Contributors David Blitzer Matt Hou
Page 5: David Smith Publisher dsmith@fa-mag
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Page 41 and 42: The ABCs Of ETFs Alpha, Beta and Co
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