CFA Institute

Why do smart investors repeat the same mistakes generation after generation? Because financial instincts — like fear, envy, and overconfidence — are ancient, stubborn, and terribly unsuited for modern markets. Fortunately, financial history leaves behind a paper trail of wisdom, wit, and hard-won lessons. Sometimes, a single quote can do more to correct a bad habit than a hundred charts. That’s what brought us together. On March 19, 2025, I met Rachel Kloepfer. It was right after my keynote presentation at the Second Annual Institute of Advanced Investment Management (IAIM) conference at the University of Utah. My talk emphasized how investors can use financial history to gain a deeper understanding of current financial events and a clearer vision of the future. I closed with a few quotes from the past — concise and enduring truths which I hoped attendees could use to make better decisions. Afterward, Rachel — a former journalist and fellow financial history enthusiast — suggested expanding the list. We sifted through hundreds of quotes. Some are serious, some are funny, but all come from people who lived through the financial highs and lows of the past 200 years. The result is a curated set of 30 quotes exclusively for Enterprising Investor grouped by the vices to avoid, the virtues to adopt, and a little humor to stay sane through it all. We chose timeless quotes designed to resonate across generations, reminders that whether you’re new to investing or decades into your career, history still has something to teach you. VICES The most tragic mistakes in finance are those we could have avoided — if only we had learned from the past. Yet these errors persist because our instincts, once essential for survival, often backfire in markets. Until evolution catches up, our best remedy is historical awareness. The quotes that follow highlight some of the most damaging investor vices. Committing them to memory can help you resist these patterns — and free the mental capacity needed to cultivate more productive virtues. Envy “Nothing so undermines your financial judgement as the sight of your neighbor getting rich.” —J. PIERPONT MORGAN, financier Impatience  “The delusion lies in the conception of time. The great stock-market bull seeks to condense the future into a few days, to discount the long march of history, and capture the present value of all future riches. It is [their] strident demand for everything right now — to own the future in money right now — that cannot tolerate even the notion of futurity.” —JAMES BUCHAN, author of Frozen Desire: The Meaning of Money Dishonesty “A business model that relies on trickery is doomed to fail.” —CHARLIE MUNGER, late vice chairman of Berkshire Hathaway Hubris “The weakness of human nature prevents men from being good judges of their own deservings.” —LOUIS BRANDEIS, author of Other People’s Money Overconfidence  “When a speculator wins, he don’t stop till he loses.” —GEORGE H. LORIMER, 19th century merchant Complacency “Always remember that somewhere someone is making a product that will make your product obsolete.” —GEORGES DORIOT, founding father of venture capital Denial “Faced with the choice between changing one’s mind and proving that there is no need to do so, almost everybody gets busy on the proof.” —JOHN KENNETH GALBRAITH, financial historian  Overthinking It’s remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” —CHARLIE MUNGER, late vice chairman of Berkshire Hathaway Herd Behavior “Once a majority of players adopts a heretofore contrarian position, the minority view becomes the widely held perspective.” —DAVID SWENSEN, late CIO of the Yale University Endowment Blind Faith “The investing public is fascinated and captured by the great financial mind. That fascination derives, in turn, from the scale of the financial operations and the feeling that, with so much money involved, the mental resources behind them cannot be less.” —JOHN KENNETH GALBRAITH, financial historian  VIRTUES Shedding harmful instincts is only the beginning. The next step is to fill that space with virtues — a far more difficult task. Vices are common and instinctive; virtues are behavioral anomalies. The most powerful virtues are rare, easy to dismiss, and even easier to forget. The following 10 quotes come from financial minds who successfully navigated some of the most unforgiving markets in US history. Committing them to memory is a powerful next step toward becoming a more adept investor. Passion “All the genius I have lives in this: when I have a subject in hand, I study it profoundly. Day and night it is before me. My mind becomes pervaded with it. Then the effort that I’ve made is what people are pleased to call the fruit of genius. It is the fruit of labor and thought.” —ALEXANDER HAMILTON, first US Secretary of the Treasury Thrift “I smoke four-cent cigars and I like them. If I were to smoke better ones, I might lose my taste for the cheap ones that I now find quite satisfactory.” —EDWARD ROBINSON, father of Hetty Green, the Queen of Wall Street  Self-Discipline “Several decades would pass, and many vicissitudes to be undergone before I could master the simplest and most important of all the rules of material welfare: The most brilliant financial strategy consists of living well within one’s means.” —BENJAMIN GRAHAM, founder of the value investing philosophy  Competence “A small bunch of people who know what they are doing can accomplish more than a big group of people who don’t know what they are doing.” —ROBERT NOYCE, founder of Intel Corporation Historical Awareness “You can’t really understand what is going on now unless you understand what came before.” —STEVE JOBS, founder of Apple Computer Education “Proper education is one long exercise in augmentation of high cognition so that our wisdom becomes strong enough to destroy wrong thinking maintained by resistance to change.” —CHARLIE MUNGER, late vice chairman of Berkshire Hathaway Humility “There is a prudent maxim of the economic forecaster’s trade that is too often ignored: Pick

Equities can compound in value in a way that investments in bonds, real estate, and other asset classes cannot: Companies can distribute anywhere from 0% to 100% of their profits to investors as dividends or share buybacks, while the remaining 100% to 0% can be reinvested in the business.  S&P 500 firms tend to retain about half their earnings and distribute the other half through dividends and buybacks. This reinvestment of earnings feature is unique to equity investing. By comparison, bond owners receive interest payments, but no portion of those interest payments is automatically reinvested back into that same bond or into other bonds. Landlords receive rental income, but that rental income is not automatically reinvested into the property.  Commodities and cryptocurrencies, among other asset classes, don’t pay cash flows to their owners since they have no cash flows to begin with. Owners can only redirect their investment into other assets by selling all or part of their stake. Thus, an “investment” in these asset classes is merely a punt that the prices will go up due to changes in supply and demand.1 Earnings reinvestment is unique to equities, but that quality alone is not what attracts investors. The appeal is the superior compounding that equities have relative to other asset classes.  The Median Quarterly ROE of US Nonfinancial Corporations Has Averaged 10.7% over 75 Years Source: St. Louis Fed US nonfinancial companies earn a return on equity (ROE) of around 11%, according to the St. Louis Fed. S&P 500 companies earn an average ROE closer to 13%, according to S&P data. (This is no surprise: The more profitable a company, the more likely it will grow large enough to be included in the S&P 500.) That means if the average S&P 500 company reinvests half its profits at a 13% return, then its profits should grow by 6.5%. The current dividend plus buyback yield on the S&P 500 is 3.5%, according to S&P data. Combining profit growth with the dividend plus buyback yield delivers a 10% expected return from the S&P 500. That’s before accounting for any changes in the index’s earnings multiple or any taxes on dividends or capital gains. The outcome is even better if rather than the entire index, we own several above-average companies that achieve above-average returns on capital. If we can buy them at an attractive yield on the cash profits they generate and if they can reinvest much of their retained earnings at high rates of return for a long time to come, we may very well outpace that 10% pre-tax, pre-multiple compression (or expansion) return figure. In fact, we’d rather our above-average companies not pay us taxable dividends at all when they could instead reinvest that money at high rates of return to drive business growth and create shareholder value.  And let’s not forget, dividends are subject to double taxation (once at the corporate level and again at the individual level), while retained earnings are only taxed at the corporate level. Depending on the index and time period, long-term US equity returns have ranged from 7% to 10%. So, between reinvesting earnings at 13% or distributing those earnings for shareholders to reinvest in stocks at a 7%-to-10% rate of return, the choice should be obvious. Internal reinvestment is the better bet. Of course, not all companies have such rich prospects for reinvestment. That’s why the choice to retain and reinvest earnings or pay them out to shareholders depends on four factors, in particular: The price that the company trades at relative to its future cash earnings potential. The attractive reinvestment opportunities available to the company. The expected returns on capital it can generate on those reinvestment opportunities. The prevailing corporate tax rates and tax rates on dividends vs. capital gains. If the dynamic among these inputs plays out well, companies should maximize the equity advantage and reinvest their earnings rather than distribute them as dividends or buybacks. For more on the equity advantage and stock buybacks, in particular, check out Stock Buyback Motivations and Consequences: A Literature Review by Alvin Chen and Olga A. Obizhaeva from the CFA Institute Research Foundation. If you liked this post, don’t forget to subscribe to the Enterprising Investor. 1. Investors in such asset classes are mere speculators in a Keynesian Beauty Contest. Gold can be turned into jewelry and other products and sold. So, there is value in gold. But cryptocurrencies must be sold at a higher price than was paid for them for the investment to be “successful.” Whatever value one investor extracts, another has to pay. Money has changed hands, net of transaction costs, but nothing productive has been delivered. All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer. Image credit: ©Getty Images/Nikada Professional Learning for CFA Institute Members CFA Institute members are empowered to self-determine and self-report professional learning (PL) credits earned, including content on Enterprising Investor. Members can record credits easily using their online PL tracker. source

For more insights on the equity risk premium (ERP) from Rob Arnott, Cliff Asness, Mary Ida Compton, Elroy Dimson, William N. Goetzmann, Roger G. Ibbotson, Antti Ilmanen, Martin Leibowitz, Rajnish Mehra, Thomas Philips, Jeremy Siegel, and Laurence B. Siegel, check out Revisiting the Equity Risk Premium, from CFA Institute Research Foundation. “How many here think the next 10-year equity returns are going to be below the long-run average? I certainly do. Is there anyone here who doesn’t?” — Jeremy Siegel In the latest installment of the Equity Risk Premium Forum conversation, Laurence B. Siegel, Rob Arnott, Cliff Asness, Mary Ida Compton, Elroy Dimson, William N. Goetzmann, Roger G. Ibbotson, Martin Leibowitz, and Jeremy Siegel conclude their earlier exploration of the CAPE ratio’s utility, or lack thereof, as a forecasting and market-timing tool and then take a broader look at their expectations around the direction of the equity markets and the equity risk premium. In particular, they focus on how to respond when equities are predicted to underperform their historical average. How should investors and pension funds adjust their allocations? How should the former change their spending habits when the returns they anticipated don’t look likely to materialize? From there, the participants move from the abstract to the particular and consider how equities will fare over the next 10 years. The consensus was not a bullish one. They all believe that stocks will fail to match their long-term average performance in the years ahead. What follows is a lightly edited and condensed transcript of this portion of the discussion. Will We Be in a Low-Return Environment? Cliff Asness: I think CAPE has been an empirical failure for timing. It has still been a success if all you want to know is whether you expect the next 10 years to be better or worse than average. Rob Arnott: Very much so. Laurence B. Siegel: I agree that CAPE is a tool for forecasting, not timing — but some people will use long-term forecasts as a timing tool, although they should not. Asness: We’ve all been guilty of that. When you are forecasting poor 10-year returns, even if you don’t explicitly say to underweight equities, sometimes that’s what it sounds like. But we should remember that CAPE is not that good for that. The forecast is, nevertheless, important. If you’re a pension plan and expect 2% instead of a 6% return on stocks in the next 10 years, that information might be relevant to you. L. Siegel: No kidding. Asness: It helps you answer questions like “How much do you have to save? How much can you spend?” It is an important number. It’s just not an important number for deciding when to get in and out of the market. Jeremy Siegel: But what happens if you say that stocks are going to return less, but bonds will return much less? William N. Goetzmann: Then Mary Ida has a problem when she talks to her clients. L. Siegel: She sure does. J. Siegel: That means you go into stocks. They’re going to return less, but you go into stocks. Mary Ida Compton: It’s a strategic asset allocation decision, not a tactical one. Stick with it over the long term, but what you as a pension plan sponsor are going to have to do is suck it up and put some more money into the fund. Asness: Yes, you’re exactly right. When expected returns on everything are low and you don’t have the ability to know when those low returns will be realized, you simply lower your expectations. L. Siegel: That’s what Jack Bogle said: budget for it. Asness: It’s important to note that saying “Returns on an asset will be lower than normal” is different from saying “They have a negative expected return.” So, when we say stocks will be worse than bonds, do we mean that stocks have a negative expected return? If you actually believe that, you should underweight them or short them. But if you believe that they have a healthy positive risk premium, just half of the normal amount — and if you underweight them now and overweight them later on when they’re more attractive — you could still make money, if the timing signal is any good. Underweighting a positive hurts you, but overweighting a positive helps you more. This is a very long game. Arnott: And it will be wrong at times. Martin Leibowitz: On the other side of that coin: How often have you heard the argument that “I have to be in stocks because bonds don’t give me any return”? Compton: A million times. Leibowitz: When will that argument be false? L. Siegel: When the expected return on stocks is lower than the expected return on bonds. J. Siegel: You’re right. Arnott: That was the case in the year 2000. J. Siegel: That was about the only time. Arnott: Mary Ida’s task is very challenging. Any sort of timing mechanism is going to be suggesting buying when equities are fiercely out of favor, unloved, cheap — and will suggest trimming when they’re relatively fully priced and people are comfortable with them. So, for far too many institutional investors, that sort of information, while useful, is not actionable. Compton: The problem with timing, which we never do, is that there just aren’t enough data points to prove anybody can do it. So, why bother? You’re just shooting yourself in the foot. L. Siegel: Mary Ida faces a situation that I believe most of us don’t, which is that her clients have fixed liabilities. As individual investors, we can adjust our consumption to the varying fortunes of our portfolios, but a pension fund really can’t. They have to come up with outside money. Moreover, the fortunes of markets and of pension plan sponsors are correlated. When the market’s down, the company is usually also not doing well. It really puts you in a terrible situation. You are supposed to earn something like 7% to meet your pension obligations,

Last month, the US House of Representatives passed a bill banning the Federal Reserve from issuing a central bank digital currency (CBDC), heading warnings from the American Banking Association about “unacceptable risks and costs to the US financial system.” While I don’t dismiss concerns raised by the American Banking Association and others, I argue in favor of a more measured approach that allows exploration and experimentation with guardrails. H.R. 5403 – the CBDC Anti-Surveillance State Act – has been referred to the Senate Committee on Banking, Housing, and Urban Affairs for consideration. My hope is that lawmakers will embark on a dispassionate review of the pros and cons of CBDCs and keep the door open for a pilot program that potentially could preserve our position as a global financial leader. A CFA Institute global survey of its members provides an objective view of the attitudes of a professional segment of potential CBDC end users. Instead of focusing on the preferences of central banks, the survey explores the demand side of the debate. To put things in a global perspective, 134 countries and regions now are exploring a CBDC, of which 68 are in the advanced phase of exploration; that is in development, pilot, or launch. The BRICS (China, Russia, India, Brazil, and South Africa) are piloting their own CBDCs. China is running the largest CBDC pilot in the world: the digital yuan e-CNY reaches 260 million wallets. China is considering expanding cross-border applications. Since Russia’s invasion of Ukraine and the resulting G7 sanctions, cross-border wholesale CBDC projects (i.e., used by financial institutions for transfers and settlements) have roughly doubled to 13. The absence of US leadership in setting global standards could have geopolitical consequences, and there are national security implications related to impaired ability to track cross-border flows and enforce sanctions. Perhaps being open to carefully weighing benefits against the costs — and maybe even considering running a pilot eventually — would be preferable to an outright ban on a US CBDC. Benefits One benefit would be in the US payments market, in terms of increased efficiency, lower transaction costs, and enhanced resiliency. Another is the ability to create programmable money bound to smart contracts. CBDC would also increase financial inclusion for the unbanked/underbanked. Not only could fiscal policy be optimized, but also monetary policy could be carried out more effectively and thus financial stability improved. According to a Bank for International Settlements (BIS) paper, CBDCs’ transmission mechanism makes it an especially effective tool at smoothing the effects of domestic financial shocks. The BIS researchers also point out that the effects of global financial shocks could be diminished because optimized CBDC policies could substantially reduce both exchange rate volatility and the volatility of gross cross-border banking balances. Last, CBDCs could help limit global and local illicit activity. CFA Institute survey respondents across all markets cited the acceleration of payments and transfers as the top reason to support launching a CBDC. Concerns I don’t deny that there are justifiable concerns about CBDCs. One is that traditional banks could be disrupted if too many people were to pull their deposits out at once. This could trigger bank runs, which in turn could escalate into a bank panic. This would be of particular importance to countries with unstable financial systems. In addition, CBDCs could be vulnerable to cyber-attacks, and there are privacy concerns due to CBDC’s transparency and traceability, but legislative guardrails could be put in place to address confidentiality concerns. Instead of outright banning a US CBDC, wouldn’t it be preferrable to establish clear and enforceable legislative guardrails for a CBDC? We could then focus on using one of our greatest competitive strengths — innovation. source

Pim van Vliet, PhD, is the author of High Returns from Low Risk: A Remarkable Stock Market Paradox, with Jan de Koning. High inflation and expensive equities lead to a negative risk-return relationship and shrink the equity premium to zero. In years following this “everything expensive” scenario, low-volatility, quality, value, and momentum factors yield sizeable positive premiums. Given today’s market dynamics, investors should avoid high-volatility stocks or hope for a different outcome than the historical reality illustrated in this blog post. I will demonstrate that, while the immediate future may not be promising for the equity premium, it looks bright for factor premiums. Money Illusion Money illusion means that investors fail to take inflation into account. It is a cognitive bias that makes it difficult to switch from nominal to real returns, especially when inflation is 3% or higher. A study by Cohen, Polk, and Vuolteenaho (2004) on inflation and the risk-return relationship remains relevant today. They use Gordon’s Growth Model, where an asset price is determined by G, the growth rate of future earnings, and R, the discount rate: Price = G / R They cite money illusion – the theory that investors discount real earnings with nominal rates rather than real rates. An example is the widely used “Fed model,” where a real stock earnings yield is compared with a nominal bond yield. Asness (2003) criticizes the Fed model. Academically, this is known as the Modigliani-Cohn inflation illusion hypothesis. And it leads to market mispricing, causing the empirical risk-return relationship to flatten. The figure from their paper, “Money Illusion in the Stock Market,” empirically supports their hypothesis. Exhibit 1. Source: Cohen, Polk, and Vuolteenaho (2004). Annualized returns on vertical-axis and betas on horizontal-axis. When inflation is low, the risk-return relationship is positive, but it turns negative when inflation is high. This explains the capital asset pricing model’s (CAPM’s) poor performance during high inflation periods like the 1950s and 1980s and it supports the Modigliani-Cohn inflation illusion hypothesis. Inflation: First Nail in the CAPM’s Coffin It has been 20 years since the Cohen et al. (2004) CAPM study was published, and US inflation has been above 3% for the past couple of years. Therefore, it is an opportune moment to update and verify these earlier results. We focus on predictive relationships, rather than contemporaneous ones, to provide practical insights for investment decisions. Using data for 10 portfolios sorted by volatility, going back to 1929 from paradoxinvesting.com, we can test how the CAPM relationship holds in different inflationary regimes. We split the sample into two parts using rolling one-year CPI with 3% as the threshold and consider the next one-year real returns. Exhibit 2. Source: Paradoxinvesting Using this extended database, we can confirm that the cross-sectional risk-return relationship is negative in periods following periods when inflation is above 3%. The relationship is not exactly linearly negative. Rather, it is at first slightly positive before becoming downward sloping for higher-beta stocks. Valuation: Second Nail in the CAPM’s Coffin In 2024, the Cyclically Adjusted Price Earnings (CAPE) ratio for the US reached 33, nearing the historical peaks seen in 1929 and 1999. The reciprocal of this measure, the equity yield, stands at 3.0%. With the real 10-year bond yield currently at 1.8%, the excess CAPE yield is 1.2%. This metric is free from the Fed model’s money illusion. Exhibit 3. Source: Robert Shiller Online Data In March 2009, the excess yield was 7.8%, marking the start of a prolonged bull market. Today’s value is much lower than in 2009 and has fallen below the historical median of 3.3%. This low CAPE yield suggests that equities are expensive and expected returns are extremely low. In addition, risk is higher when equity yields are low, as I explain in my 2021 paper. How does the CAPM relationship hold in years following high and low equity yields? The two graphs in Exhibit 4 illustrate the risk-return relationship when the excess CAPE yield is above 3% (“equities cheap”) and below 3% (“equities expensive”). Exhibit 4. Source: Paradoxinvesting High-risk stocks perform poorly in low-return environments that follow expensive markets (low excess CAPE yield). This relationship is stronger and more inverse than during periods of inflation above 3%. After inflation, valuation is the second nail in the CAPM’s coffin. Investors should either hope for a different outcome this time or avoid high-volatility stocks. Factor Performance in a Low-Return World If inflation and valuation have indeed undermined the CAPM — resulting in a negative risk-return relationship — it becomes interesting to evaluate the performance of value, quality, and momentum factor strategies. To do this, we supplement our data with data from Kenneth French. We consider long-only strategies with similar turnover, focusing on the top-quintile portfolios for low-volatility, value, and quality, and the top-half portfolio for momentum. Quality is defined as operational profitability and backfilled with the market portfolio. Value is defined by the price-to-earnings (P/E) ratio and backfilled with the market portfolio. Momentum is defined by 12 minus one month returns, and Lowvol is defined by three-year volatility. We analyze periods following 1) inflation above 3% and 2) the excess CAPE yield below 3%. These regimes have historically low overlap (-0.1 correlation) and both characterize today’s market environment. Exhibit 5. Sources: Kenneth R. French Data Library and Paradoxinvesting In the year following periods where inflation exceeds 3%, all factor premiums are positive, contributing about 3% to the equity premium. This aligns with a recent study in the Financial Analysts Journal, which shows that factor premiums — including low-risk, value, momentum, and quality — are positive and significant during high-inflation periods. In addition, in the year following expensive equity markets (excess CAPE yield <3%), the real equity return was a meager 0.5%, while strategies focused on low-risk, value, momentum, and quality still provided positive returns. When these two regimes are combined — representing 17% of the observations — the equity premium turns negative. However, all factor strategies continue to offer positive returns, averaging approximately 3%. Key Takeaway In this blog

1. The 10 Greatest US Investors and the Virtues That Made Them Who are the greatest investors of all time? Andrew Mitchell, founder of Ophir Asset Management, asked ChatGPT to name the top 10. The artificial intelligence (AI) responded with its list. Mark J. Higgins, CFA, CFP, was intrigued by both the question and ChatGPT’s response. He’d just completed writing Investing in U.S. Financial History, and had many legendary investors on his mind. While ChatGPT’s list was not terrible, it included four people who he believes were undeserving and excluded several more who were very much worthy. So where did ChatGPT go wrong? 2. ChatGPT and the Future of Investment Management “So, do we human advisers and analysts stand any chance in the post-ChatGPT world?” Larry Cao, CFA, the editor of Handbook of Artificial Intelligence and Big Data Applications in Investments, asks. “Absolutely. But authenticity will be key. Originality has always come at a premium, and that premium will only increase in the ChatGPT era. In investment analysis or portfolio construction, if we’re offering little more than the conventional wisdom, then ChatGPT and similar applications could very well take our jobs.” 3. ChatGPT and Generative AI: What They Mean for Investment Professionals “ChatGPT has launched a new era in artificial intelligence (AI),” Michinori Kanokogi, CFA, and Yoshimasa Satoh, CFA, write. So, what does this mean for investment management and how will all the ChatGPT- and large-language-model (LLM)-related developments affect how investment professionals work? 4. A Sea Change: Howard Marks, CFA, on the End of Easy Money “I’m not saying that interest rates are going to go back up. I just think they’re done coming down,” Howard Marks, CFA, told Marg Franklin, CFA, as quoted by Mark Fortune. “One of the basic tenets of my thesis is that in the next five to 10 years, interest rates will not be constantly coming down or constantly ultra-low. And if that’s true, I think we’re in a different environment, and that’s a sea change.” 5. The Active Management Delusion: Respect the Wisdom of the Crowd That few active managers add value is a conclusion supported by numerous studies going back decades, Mark J. Higgins, CFA, CFP, observes. Yet many investors still refuse to believe that very few can regularly outperform a cheap index fund. Outside a small and shrinking group of extraordinarily talented investors, active management is a waste of money and time. So, why is the active management delusion so persistent? 6. The Six Stages of Asset Bubbles: The Crypto Crash Investors can protect themselves from the next bubble by recognizing the trajectory that most follow, Mark J. Higgins, CFA, CFP, contends. Using the cryptomania of the 2010s and 2020s as a guide, he lays out the path that most bubbles take. 7. ChatGPT: Copilot Today, Autopilot Tomorrow? “Based on what we have learned about the new, dark art of prompt engineering, how can quant and fundamental analysts apply LLMs like ChatGPT? How effective a copilot can these technologies be?” Dan Philps, PhD, CFA, and Tillman Weyde, PhD, pose and answer these questions. 8. The Predictive Power of the Yield Curve “The predictive power of the yield curve is a widely accepted causal narrative,” Joshua J. Myers, CFA, explains. “But the history shows that the causal correlation between long and short rates is actually quite weak.” 9. Redefining the Retirement Income Goal David Blanchett, PhD, CFA, CFP, discusses his research on perceptions around retirement spending flexibility for the Financial Analysts Journal and provides evidence that households can adjust their spending and that these adjustments tend to be less disastrous than success rates and other common financial-planning-outcomes metrics suggest. 10. ChatGPT: The Origins, the Hype, the Opportunity “What are the LLM opportunities and risks in investment management?” Dan Philps, PhD, CFA. and Tillman Weyde, PhD, writes. “To answer that question . . . we will introduce how to apply LLMs in investment management and explore the new dark art of ‘prompt engineering.’” If you liked this post, don’t forget to subscribe to Enterprising Investor. All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer. Image credit: ©Getty Images/ JamesBrey Professional Learning for CFA Institute Members CFA Institute members are empowered to self-determine and self-report professional learning (PL) credits earned, including content on Enterprising Investor. Members can record credits easily using their online PL tracker. source

Digital assets have had a wild ride over the last year. Several centralized crypto companies, from the hedge fund Three Arrows Capital to the crypto exchange FTX, have failed, while the SEC, the Commodities Futures Trading Commission (CFTC), and other US agencies have initiated a regulatory onslaught against crypto-related businesses. Further, amid high inflation, a banking crisis, and a potential recession, all risk assets face an uncertain macro future.  But we can’t forget the long-term asymmetric opportunity that digital assets may offer. Fundamental investors are searching for the digital projects that stand the best chance for mass adoption despite the negative overhang. With that in mind, five important themes have emerged in digital asset markets that could lead to wider blockchain adoption in the medium to long term. 1. The Big Players Are Here: Web2 Partnerships and the Next Wave of Web3 Users To date, digital asset adoption has been mostly the domain of native Web3 innovators. To continue along this curve, more early adopters need to come onboard. Several companies with pre-crypto origins made significant progress in 2021 and 2022 through initiatives that helped expand Web3’s user base beyond crypto natives. Four projects in particular have leveraged Polygon, an Ethereum-based scaling solution, to facilitate these efforts. Polygon + Projects In many of these cases, customers don’t even know they’re interacting with blockchain technology. Web2 companies have effectively abstracted the blockchain away. To date, Web3 onboarding has been fairly technical; by making it less so, brands can help encourage mass adoption. Google and Amazon have also seen the value of partnering with blockchains for node operation. Amazon Web Services has paired up with Avalanche and Google with Solana.  Why are all these brands implementing Web3 plans? To improve their user experience and customer relationships, attract Gen-Z digital natives, and unlock alternative sources of revenue, among other reasons. Amid continued positive momentum in 2023, we expect more big brands to follow their lead and develop their own blockchain initiatives. 2. Ethereum Dominates, But Must Scale to Service Mass Adoption With 60% of decentralized finance (DeFi) total value locked (TVL) and 85% of NFT transaction volume, Ethereum is the clear leader among smart contract platforms. However, should millions of people stampede to Web3, the Ethereum network could be overwhelmed and the price to transact on its blockchain could become prohibitively expensive. So, how can blockchains scale up? We see three possible approaches. Three Blockchain Types Monolithic blockchains like Solana offer execution, settlement, consensus, and data availability all in one. Apps are built directly on top of the blockchain. But this can create scalability issues — the so-called blockchain trilemma — if the blockchain is both decentralized and highly secure. Modular blockchains like Ethereum 2.0 separate the execution, settlement and consensus, and data availability layers. “Layer 2s,” in the form of sidechains and rollups, help the original “Layer 1” blockchain scale without sacrificing decentralization or security. Applications are built on top of both Layer 1s and Layer 2s. Universes of interconnected blockchains like Cosmos are ecosystems with relatively secure inter-blockchain communication protocols, so different blockchains can exchange data and value between them. Due to the Lindy effect and the current dominance of Ethereum and its Layer 2s in new project launches, we anticipate modular blockchains to prevail. Though smaller positions in the other blockchain-scaling models, especially those with solid tokenomics and attractive relative valuations, may be a good hedge.  3. Tokenization Will Bring Various Exogenous Assets On-Chain Tokenization creates digital representations of various assets, from securities and funds to artwork and other collectibles, and is among the most important current Web3 narratives. The benefits of tokenizing assets explain why this theme is gaining such traction. The Benefits of Tokenization TokenizedSecurities TokenizedFunds Tokenized RealEstate, Art, andOther Collectibles BetterAccessibility Opens upsecurities marketsto a global poolof investors Makes institutionalprivate market strategiesmore accessible toindividual investorswith lower investmentminimums, improvedonboarding, and potentially better liquidity Allows for fractionalization BetterEfficiency Increased liquidity,faster settlement,and lower costs Transforms relativelyliquid resourcesinto easily tradable goods The opportunity is massive. According to HSBC estimates, tokenized market volume will reach $24 trillion by 2027. How is this theme expressed in liquid token portfolios or non-fungible assets (NFAs)? Through smart contract platforms that provide the public blockchain and settlement infrastructure for these tokenized assets. KKR tokenized its health care fund and Hamilton Lane its $2.1B flagship fund through Avalanche and Polygon, respectively. Decentralized applications (DApps) — Maker, Centrifuge, Maple Finance, and Ondo Finance, for example — help users bridge real world assets (RWAs) to DeFi. 4. RWAs Can Help Counter DeFi’s Circularity DeFi’s “self-reference” has been a perceived shortcoming of the sector. For example, a DeFi user may take out a loan on lending protocol Aave for leveraged trading of assets on the Uniswap decentralized exchange. We are bullish on opportunities that break this circularity problem by integrating outside information and “real world” use cases onto closed blockchain networks. There are many recent examples of non crypto-native businesses turning to DeFi. Through the lending protocol Maker, users can borrow their DAI stablecoins by locking collateral in Maker’s smart contracts. Built on Ethereum, Maker determines which collateral they accept as well as the collateralization ratios for each collateral type. Most collateral on Maker today is in the form of stablecoins, like USD Coins (USDCs) pegged to the US dollar, but RWAs are a fast-growing segment. At the beginning of Q4 2022, RWAs made up only 2% of the collateral on Maker, but that has grown to 13%, and RWA income currently accounts for over half of Maker’s revenue. Indeed, RWA collateral now includes US Treasury bonds through MIP65, loans from Huntingdon Valley Bank in Pennsylvania, and investment grade asset-backed securities through BlockTower Capital. RWA Activity Built on the Ethereum and Solana blockchains, Maple Finance is another lending protocol that provides infrastructure for credit experts to run on-chain lending businesses. Earlier this year, it announced a $100 million receivables financing pool, enabling Intero Capital Solutions to borrow USDC against receivables and investors to lend their USDC for a 10%

Cross-border healthcare M&A is gaining momentum in 2025, though policy shifts and geopolitical uncertainty continue to keep dealmakers cautious. Yet even in more favorable conditions, many deals fall short after the ink dries. What separates the success stories in this highly regulated, operationally complex sector? One critical but often overlooked driver is strategic finance leadership. In cross-border healthcare deals, CFOs and finance teams are uniquely positioned to shape outcomes. In this blog, I outline a hands-on framework for aligning financial systems, delivering synergies, and bridging regulatory and cultural divides. Drawing on real-world observations across Europe, the Middle East, and Asia, I offer guidance to help financial professionals turn complexity into opportunity. Case studies in this blog are composite illustrations.   Demographic shifts, capital inflows, and strategic ambitions for scale and specialization have been the driving forces behind the uptick in global healthcare M&A this year. But the real work begins after a deal closes. Value isn’t created by signing a term sheet; it’s captured through seamless execution, cultural cohesion, and financial discipline. Mismatched systems, regulatory fragmentation, and operational divergence can and often does derail even the most promising cross-border healthcare deal. Strategic finance leadership is often the difference between smooth integration and organizational turbulence. Beyond managing the numbers, finance professionals help shape the strategy, track synergies, guide governance, and provide the clarity needed to drive performance post-acquisition.     Why Cross-Border Healthcare PMI Is Different Cross-border post-merger integration (PMI) in healthcare introduces unique challenges that extend beyond the standard M&A playbook. Regulatory structures differ dramatically across geographies. Clinical protocols, insurance reimbursement mechanisms, and data privacy rules are not only varied, but they’re also often incompatible. Cultural dynamics also present barriers. What works in a consensus-driven public hospital system might clash with a top-down, investor-led model. Moreover, healthcare systems often straddle public-private interfaces. Integrating a for-profit chain into a public-payer environment requires more than financial modeling. It requires diplomacy, trust-building, and a deep understanding of how patient care is delivered and funded. Currency fluctuations and cost structures further complicate post-deal operations. Decisions about centralizing services, optimizing procurement, or even setting performance KPIs must factor in economic realities that vary by country. These factors necessitate an approach to integration that is not only operationally robust but strategically led by finance. The Strategic Finance-Led PMI Framework A strategic finance-led integration goes beyond bookkeeping. It revolves around four key pillars: financial harmonization, synergy realization, capital discipline, and compliance alignment. Financial Systems Harmonization: Aligning financial systems starts with standardizing the chart of accounts, synchronizing ERP platforms, and establishing a common reporting cadence. Doing so ensures that leadership teams can compare apples to apples and act quickly on data-driven insights. For instance, without a common definition of contribution margin, performance tracking and investment prioritization will remain fragmented. Synergy Validation and Realization: Initial synergy estimates are just that — estimates. Post-close, finance must validate these assumptions on the ground. This includes identifying quick wins in procurement, diagnostics, and administrative overhead. Tracking synergy realization separately from business-as-usual financials enhances accountability and helps management stay focused on tangible value creation. Working Capital and Capex Governance: An integrated treasury function must be equipped to manage liquidity across borders. Establishing joint cash flow protocols, aligning vendor payment terms, and standardizing capex prioritization based on ROI are critical. Without a unified view of working capital, even well-capitalized deals can face post-close cash crunches. Risk and Compliance Alignment: Finance must also ensure alignment with local tax regimes, audit requirements, and data protection laws. This is especially critical in healthcare, where breaches of compliance, whether financial or clinical, can have reputational and legal consequences. Integrating internal audit frameworks and whistleblower policies across the combined entity helps foster a culture of transparency. From Framework to Execution To illustrate how the four pillars of strategic finance-led integration can be applied in practice, consider the following composite example  drawn from real-world observations in the Gulf and Eastern Europe. A regional hospital network based in the Gulf acquired a chain of specialty clinics in Eastern Europe. Rather than simply merging balance sheets, the organization launched a cross-border integration office with balanced representation from both entities. It rolled out a 90-day integration blueprint anchored in weekly milestone tracking and cultural exchange sessions. Financial Systems Harmonization: The team standardized the chart of accounts and unified ERP platforms across the organizations. This enabled consolidated reporting and allowed leadership to track contribution margins consistently across regions. Synergy Validation and Realization: Quick wins were identified early in areas like procurement savings on medical supplies and administrative consolidation. A separate synergy tracking dashboard was established, ensuring that value creation remained a visible and accountable priority. Working Capital and Capex Governance: Treasury operations were centralized, providing an integrated view of liquidity across markets. Vendor payment terms were aligned, and a capex committee was formed to prioritize investments based on a group-wide ROI framework. Risk and Compliance Alignment: A single internal audit methodology was adopted, and compliance teams collaborated to align GDPR, local healthcare regulations, and tax obligations, ensuring regulatory consistency across the combined entity. This structured, finance-led integration approach helped achieve an 8% operating margin improvement within the first year, alongside higher employee retention rates and improved clinical throughput. Strategic Lessons from Integration Pitfalls Many integrations falter not due to bad strategy but due to overlooked execution risks: Overestimating synergies without operational validation leads to disappointment and distrust. Planning for integration should begin during due diligence, not after the deal is signed. Finance leaders must also appreciate the soft factors — clinical autonomy, leadership dynamics, and staff morale. Ignoring these can turn even the most compelling financial model into a cultural mess. Equally, imposing uniform solutions without local context often backfires. Finance leaders should treat local management as partners, not targets of change. Recommendations for Finance Leaders In cross-border healthcare M&A, value is captured through execution, not just dealmaking. Finance leaders should engage early, stay visible, and define success beyond cost savings to include efficiency, patient outcomes, and team morale. Synergy realization must be

A portfolio manager’s job is to make decisions — all day, every day. Some of those decisions result in trades, but many more do not. So, an important question for a portfolio manager is which of their decisions are helping and which are hurting performance? Which types of decisions are they skilled at making, and which would be better made by someone, or something, else? And could they be using their own energy more efficiently by making fewer, better decisions? Enter decision attribution analysis, the largest and, for investors, most consequential area of behavioral analytics. Until recently, these questions were nearly impossible to answer. The best performance attribution analysis — the primary evaluative tool for many investors and fund managers — starts with the outcome and works backwards to explain it by comparing it to the performance of an index alternative. But that doesn’t really help the manager: While it is useful for explaining why the portfolio performed the way it did during a certain period, this analysis cannot identify what the fund manager could do differently to achieve a better result. Decision attribution analysis has been greatly refined in recent years with the exponential growth in machine learning capabilities. Decision attribution is a bottom-up approach, compared to the top-down approach provided by performance attribution analysis. It looks at the actual, individual decisions a manager made in the period being analyzed, along with the context surrounding those decisions. It assesses the value those decisions generated or destroyed and identifies the evidence of skill or bias within them. To be sure, managers make different decisions in different market environments, but there’s more to it. Of course, fund managers pick different stocks at different points in the economic cycle. But the selection decision is only one of many choices that a fund manager makes during the life of a position. There are also decisions about when to enter, how quickly to get up to size, how big to go, and whether to add and trim the position as time goes on. Finally, managers make decisions about when to get out and how quickly to do so. These decisions are less conspicuous, less analyzed, and, it turns out, a lot less variable. Having studied equity portfolio manager behavior for the better part of a decade, I’ve seen proof, time and again, that while we change our picking behavior as the market environment changes, the rest of our “moves” are more habitual and consistent. Anyone who has historical daily holdings data on their portfolio has the raw material required to see where they are skilled as investment decision makers, and where they are making consistent errors. I wouldn’t want to mislead: decision attribution is a complex endeavor. Any investor who has tried to do it can attest to that.  And while it’s interesting to do as a one-off exercise, it is only really useful if it can be done on an ongoing basis; otherwise, how can we tell if our skill (and not just our luck) is improving? Only recently has technology made it possible to conduct decision attribution analysis on an ongoing basis in a reliable way. It’s particularly useful in a market like the current one: It helps managers understand what they can do not only to get a better performance result but also to prove their skills to investors when their performance is negative. None of us is a perfect decision-maker. Sophisticated allocators of capital harbor no illusions about that. But as portfolio managers, being able to show our investors — with data-driven evidence — that we know exactly what we are good at and the steps we are taking to improve goes a long way. And given the availability of the underlying data and, now, the analytical toolset, there’s really no good excuse not to do it. If you liked this post, don’t forget to subscribe to Enterprising Investor. All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer. Image credit: ©Getty Images/ portishead1 Professional Learning for CFA Institute Members CFA Institute members are empowered to self-determine and self-report professional learning (PL) credits earned, including content on Enterprising Investor. Members can record credits easily using their online PL tracker. source

Mexico has become an increasingly attractive destination for investors. The country boasts several economic advantages, particularly its proximity to the United States. It’s also home to a youthful population that is well-equipped for the workforce — a median age of 29 with 45% of its citizens younger than 25.  The Mexican government has developed programs to upskill its young citizens and prepare them for a tech-centric future. The country’s information technology market surpassed $2 billion in 2022. Outside the workforce, Mexico’s youth are significant drivers of consumer spending, forming the bulk of 126 million Mexican consumers whose purchasing power continues to increase. Mexico also represents an excellent opportunity to invest in women’s future. For a country with a firmly embedded patriarchal culture in the form of machismo, powered by an exaggerated sense of masculinity, the country’s recent election of its first female president, Claudia Sheinbaum Pardo, who takes office this October, provides evidence of social change. Coupled with the country’s sizable youth population, this historic event could catalyze increased opportunities for women in Mexico. Investors can seize the opportunity for early investments in helping establish a gender-equal future for the country’s economy. The demographics and the country’s historical moment make Mexico an exciting opportunity for investors.  Geographic and Economic Advantages Mexico has a massive economic advantage in its proximity to the United States, the world’s most powerful and influential economy. Sharing a 2000-mile border with the United States, Mexico can boast of being America’s #1 trading partner, with more than $614 billion in trade conducted in 2022. The simplified transportation logistics between the countries and the relative ease of importing raw materials and machinery have helped Mexico attain this enviable position. Since 2020, the United States-Mexico-Canada Agreement has regulated the strong partnership between the United States and Mexico, providing a framework for generally seamless trade, reduced tariffs, and eased investment between both regions. The agreement also allows for duty-free imports, reducing logistics expenses by as much as 30%. Many companies produce their goods in Mexican facilities, taking advantage of these savings and subsequently importing their goods into the United States. Mexico also has substantial tax treaties with America, allowing for doubled tax exemptions on all income, a particularly enticing incentive for investors. Mexico boasts other competitive advantages in the form of its wages and tax benefits. The country’s wages remain significantly lower than that of the U.S., Canada and most European countries. Reduced labor costs mean lower production costs, which benefits facility construction and promotes land acquisition. Meanwhile, their government also offers benefits for foreign investors, including tax credits for research and development activities, accelerated depreciation on capital investments, and exemptions on imports of equipment used in manufacturing. These wage and tax incentives have transformed Mexico into an attractive destination for companies looking to reduce operational costs and investors looking to generate maximum returns. Startup Ecosystem Mexico is home to a thriving startup economy that includes more than 2,000 active startups as of 2024, and the Mexican government is supporting them with various initiatives, including funding programs, incubators, and accelerators. Through this assistance, Mexico hopes to instill in its next generation the entrepreneurial spirit needed to further strengthen this startup ecosystem. Already, inspiring success stories have emerged. Kavak, a used car marketplace startup, became the country’s first “unicorn” in 2020, and Bitso, a cryptocurrency exchange platform, reached a valuation of more than $2 billion in 2021. Although these represent two of the most prominent startup successes, other Mexican startups are inspiring investors with their entrepreneurship and tenacity. Startup 99 Minutos specializes in providing fast and affordable delivery service, and Flat.mx, a real estate tech startup, has become the go-to application site for real estate in Mexico and a leading data layer for residential real estate. Nearshoring Following a string of supply chain disruptions and incidents largely due to the COVID-19 pandemic, industries have seen a global shift toward “nearshoring,” the trend of production companies sourcing their inputs closer to their home countries. Mexico’s proximity to the United States has positioned it favorably for this trend. According to Morgan Stanley, nearshoring could increase the value of Mexican manufacturing exports to the US from $455 billion to $609 billion by 2030. Investment Themes and Opportunities One crucial area for investment in Mexico is infrastructure. The Mexican government plans to invest $44 billion in infrastructure by 2025. Much of this will go toward transportation — investments that will improve the efficiency and proximity of transportation hubs, remodeling them into major consumer centers. Mexico currently hosts 77 airports, 117 maritime ports, and 27000 km of railway line. Real estate is another key investment opportunity. With 80% of the population living in urban areas, investors are taking advantage of demand for residential, commercial, and industrial properties while the government focuses on developing affordable housing and modernizing infrastructure. Real estate is also driven by international tourism. Cities such as Tulum and Merida have become popular tourist centers sought after by investors. In Tulum alone, the price of a square meter sits at $1777. In addition to tourism, growing demand for warehouse development has prompted the government’s pledge to construct 100 new industrial facilities. Supplying power to each of them will present a challenge, but with Mexico’s investments in green energy the new government should be prepared to meet it. Finally, the fintech sector has also shown promise to investors, particularly concerning Mexico’s environmental projects. In conjunction with the country’s clean energy commitments, demand remains strong for fintech solutions that support green initiatives, and the government’s regulatory environment has evolved to foster more support for fintech innovation. In 2018, the country introduced the Financial Technology Institutions Law to promote and regulate fintech innovation and technology. Since then, Mexico has cultivated a fintech ecosystem of more than 500 active companies and more than 400 startups, becoming Latin America’s most dynamic fintech environment. Key Takeaway With its large youth sector, thriving startup and fintech ecosystems, and a close relationship with the United States, Mexico represents a significant investment