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Ode on Another Financial Crisis

Keats’ famous line of inquiry is directed towards a Grecian vision that is decidedly not related to today’s financial predicament, however his depiction of emptied seaside residences and the procession leading to witness the sacrifice of a fattened calf carries an ominous likeness to the unfolding debt crisis in southeastern Europe....

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Breaking Down Your Financial Future

Money is an asset with decreasing utility, which is a fancy way of saying that each dollar is less valuable than the previous dollar.  Earning your second billion dollars does not get you much that your first billion couldn’t (basketball franchises aside), so that second billion isn’t worth a whole lot more than bragging rights.  There are NO more important $’s than your first $40K/year...

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Understanding and Appropriately Sizing Your Investment

In this clip from Trend Following with Michael Covel, CCM Co-founder Scot Billington touches on understanding the fundamental drivers behind an investment strategy as well as how CCM advises clients with regards to allowing for the future to be worse than the past.

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Your Intelligence Makes You Less Rational

The work of Nobel Laureate Daniel Kahneman has become instrumental in understanding how we think and make decisions. It lays out a foundation for understanding ourselves as irrational beings, not merely prone to making isolated judgments in error but inherently illogical. We are systematically flawed.

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The Power Law and Peas

According to findings recently released by Preqin, 92% of Hedge fund allocations belong to the “$1B club�- hedge fund managers that have amassed at least $1B in assets. This exclusive group represents 11% of global hedge fund managers and now controls almost $2.8T.

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Losing a Fortune- not Just for the Billionaires

Li, who was China's richest man until this week, saw his fortune drop by as much as $15 billion in a half-hour as the stock in his company, Hanergy Thin Film Power Group, fell by nearly half. Trading in the shares was halted Wednesday and Li didn't attend the company's annual meeting.

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Are You Living in a Fairy Tale?

There’s a famous tale by Hans Christian Andersen which tells of a grand Emperor who only adorns the finest attire. He is approached by two grifters who claim to have a cloth so pure, a weave so fine, that it can be seen only by those with the utmost intellect and nobility. The Emperor immediately commissions them to tailor a suit, agreeing to pay a tidy sum for their one-of-a-kind offering.

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Building a Robust Trading Strategy

No investor has ever allocated money to a trader that didn't have a winning track record. But how do you know if that track record was luck or skill? When testing a trading strategy you should make sure to do everything you can to keep it as robust as possible. If the future is the same as the past then you won't have to worry, and if it's better than the past then you definitely don't have to worry.

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How is Ultra-Wealth Created?

There was a recent survey conducted by Spectrem in which they asked Ultra High Net Worth investors (with net worth between $5m and $25m) about how they came into their money. The survey provides an interesting look into what factors contribute to the creation of ultra-wealth and, presumably, provides some very general guidelines for those aspiring to join that class.

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A Place for High Returns

Given the opportunity to go back in time and make a single investment, many people would choose to get in early on one of the companies we looked at earlier this week. And with good reason as Google, Apple, Berkshire Hathaway and Walmart are all iconic companies that have facilitated excellent returns for those with the foresight and conviction (or just dumb luck) to have gotten in during their infancies and the patience to stick with the investment through its maturation.

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Making a Game Changing Investment

Have you ever looked at how much a $10,000 investment would be worth today if you had invested in Google on day 1?  How about Apple?  How about Berkshire Hathaway or Walmart?  It is fascinating to say the least, and a game changer for those that were fortunate enough or courageous enough to have invested. 

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Misaligned Incentives on Wall St.

If I’m the head of fixed income at Bear Stearns in the early 2000’s, I acted exactly as a rational person should have. I came up with every reason in the world to put on as much risk as possible. I made $75 million, my company went bankrupt, and I walked away with $52 million. That’s a winner.

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Wall Street Plays the Odds

We recently stumbled upon Tipranks.com, a relatively new site that tracks and ranks the recommendations of Wall St. analysts. Aside from the fact that Tipranks appears to be the first and only ...

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Billion Dollar Babies

A recent Bloomberg article announces that the 2015 class of newly launched hedge funds will include at least 6 managers touting 10-figures in assets. On the heels of a year in which many hedgies were...

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Random at Best

People think that factor A,B,C says something about the future of price movement, but (assuming you don't have information unavailable to the rest of the general public) that factor is either ...

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The Illusion of Control

The illusion of control is the propensity for people to overestimate their ability to control outcomes, particularly regarding events over which they have no influence. Over the past few days you may...

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Modeling the NCAA Basketball Tournament- simple

Kaggle, the "home of data science", holds the annual March Machine Learning Mania competition which awards $15,000 to the forecasting model that most accurately predicts the NCAA college ...

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The Death of Trend Following

In this clip from his interview on Trend Following with Michael Covel, CCM co-founder Scot Billington talks about the historical reports of "the death of trend-following" and the basis upon...

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Why Are You Here?

Every year the Commonfund Institute presents the Commonfund Prize, an award for original research on endowment and foundation management. This year’s honor was recently bestowed upon several ...

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An Entertaining Look at Loss Aversion

The above video takes an entertaining look at the behavioral bias known as loss aversion.  While one can assume that the examples are cherry picked, the refusal to take 2 to 1 on a coin flip ...

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A Brief Investment Comparison

I have two investment options with 100% correlation: Which one is better?   I invest $2M in Option B and my friend invests $10M in Option A.  Who has more risk?  If everything ...

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Warren Buffett Speaks our Language

While we tend to inhabit different realms of the financial universe, we remain quite appreciative of much of the wisdom espoused by the Oracle of Omaha. Over 50 years in the industry have given ...

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Shopping with a Sharpe

"You cannot go down to the Mercedes dealership with a Sharpe Ratio; you are going to need money." Few things seem more sacred and more obvious than the need to risk adjust returns.  ...

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The Speed of Retirement

The path to a wealthy retirement has been well mapped. It generally involves some measure of 401K contribution, debt management, and several decades of thrifty living- all of which are not unwise ...

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The Effect of Career Risk

In this clip from Trend Following with Michael Covel, co-founder Scot Billington discusses how career-risk and misaligned incentives have led to watered down returns and 'safe' ...

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Evaluating Skill in Poker and Finance

While the game continues its migration from smoke-filled basements to shiny Las Vegas showrooms on ESPN, the battle for poker's legalization continues. The debate hinges on the classification of ...

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The Simpler, the Better

To close out the week we thought we might relay a few thoughts from Nassim Taleb on simplicity. From Antifragile: "A complex system, contrary to what people believe, does not require ...

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Diminishing Returns

There was an interesting article recently penned by the Reformed Broker, Josh Brown, which takes a run at explaining why active management has not been very impressive of late (you can find the ...

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Explaining a Systematic Model in a Fundamental World

The following is a short clip from a recent interview. In it, Michael Covel asks co-founder Scot Billington about explaining the systematic nature of our model to investors used to trading strategies...

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Perspective on Performance

It is important to keep in mind that monthly performance is largely reflective of the fact that only two days of the month are used to calculate the return, the first day and the last day. If Pope ...

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Pop Quiz: How Biased are You?

With another bout of cold sweeping through the U.S., we thought it might be a great time to settle in with a warm beverage and revisit one of our favorite reads, The Little Book of Behavioral ...

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Covenant Covered by Futures Mag

CCM co-founder Scot Billington is featured in the cover story of this month's issue of Futures Magazine. In his interview with Editor-in-chief Dan Collins, Scot expounds on the powerful ...

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What Drives Covenant?

In a recent interview with Michael Covel on the Trend Following Radio Network, co-founder Scot Billington was asked about keeping the company headquarters in Nashville. In this clip he expounds on ...

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Economics in Finance

A trader listened to the firm's "chief" economist's predictions about gold, then lost a bundle. The trader was asked to leave the firm. He then angrily asked the boss who was firing...

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Hedge Funds Still Winning

Yesterday the Wall Street Journal published an article questioning how Hedge Funds Keep Winning Despite Losing, exploring the mis-aligned incentives and investor behavior that have kept assets ...

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2015 CTA Intelligence US Performance Awards

Last night, CTA Intelligence hosted their annual US Performance Awards in New York, recognizing those that have shown excellence in CTA management over the past 12 months. The downtown Manhattan ...

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Predicting the Future of Markets

Co-Founder Scot Billington was recently interviewed on Trend Following with Michael Covel. Their discussion spans numerous subjects, ranging from evaluating the broad investment marketplace to ...

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Morningstar Misses the Point

Morningstar recently published a study tracking the relationship between fees and performance for U.S. equity mutual funds. Their findings showed that on average, the higher the price of a fund, the ...

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Is There Really Any Difference?

Author/entrepreneur/blogger extraordinaire Seth Godin discusses an interesting observation about the selection process of two elite educational institutions in his post the truth about admissions: ...

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A Comment on Wealth Creation

I am talking about real wealth, ultra-wealth. I’m talking about people who have started with modest means and created fortunes in excess of $100 million.   The pathways to ultra-wealth ...

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The Efficient Market Hypothesis and Exploitable Inefficiencies

Co-Founder Scot Billington was recently interviewed on Trend Following with Michael Covel with discussion ranging from evaluating the broad investment marketplace to detailing fundamental risk ...

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Blizzard Juno Underperforms

Well the epic winter snowstorm that was predicted to bury New York City has come and gone, leaving more questions than havoc in its wake. Was that it? The Wall Street Journal had an interesting ...

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Systematic Traders Gaining Ground

Recent performance and an unprecedented move in the Swiss Franc have given systematic managers a bit more attention lately. As the focus begins to shift back towards quantitative managers, we ...

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Avoiding Hedge Fund Trouble

Well known Bloomberg Finance contributor Barry Ritholtz has made his opinion of Hedge Funds well known, and while we may not always agree with his thoughts, we do respect his no-punches-pulled ...

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Holding on to Painful Investments

Regardless of the specific reaction, we all have instinctual responses when exposed to pain. Consistent and subconscious responses are essential for our health and survival, however this intuition ...

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Scot Billington Gives Year End Review

Top Traders Unplugged recently interviewed CCM Co-founder Scot Billington for their Year End Review podcast series. You can listen to the full interview here. You can find Scot's previous ...

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How the Behavior Gap Erodes Performance

The behavior gap represents the difference between investment returns and the returns actually realized by the investors. It stems from the propensity of investors to embrace their natural (and ...

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Nobel Laureate Daniel Kahneman on Making Smarter Decisions

One of the founding fathers of behavioral finance, Daniel Kahneman's research has singnificant implications in the finance and investing world.  Here he touches on some of the cognitive ...

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The Perception and Viability of Trend Following

Co-Founder Scot Billington was recently interviewed on Trend Following with Michael Covel. Their discussion spans numerous subjects, ranging from evaluating the broad investment marketplace to ...

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Swiss Franc Makes Unprecedented Move

Today’s move in the Swiss Franc is a good example of an advantage of longer term trading.  Nearly every trend follower suffered significant losses in the SF today.  (By some measures ...

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When Statistics Drop the Ball

There is a plethora of research available on the historical performance of trend following and it seems that extending this ‘history’ further and further into the past is currently in ...

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Giving Investors What They Want- A Rebuttal

In order to fully examine both sides of the discussion, we’re revisiting yesterday’s post exploring the difference between a marketing firm and an investment firm. Today we are presenting...

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Still Putting Investors First

Almost 20 years ago Jason Zweig gave a speech to the Investment Company Institute in Washington, DC entitled Putting Investors First. This speech was later included in John Bogle’s Common Sense...

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CCM Company Update

During 2014 CCM had several notable developments. In addition to the launch of the Optimal Fund, CCM opened a new branch office in the Chicago Board of Trade building to support our staff and ...

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Man vs. Machine

CNBC recently wrote an article about robots trading better than people in 2014 conjuring up the age old question of discretionary vs. systematic, which is a subset of man vs. machine.  We people...

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Wall Street - Perpetual Back Scratching (for a nominal fee of course)

A wise man once said: “Almost everything written by investment managers is the industry’s capitulation to a consumerist culture where the primary goal is to scratch where the consumer ...

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Mandelbrot and Conventional Market Wisdom

As we close the book on the year, you have undoubtedly already been subjected to projections and pontifications on what 2015 will have in store for the financial world. As these forecasts make the ...

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On Trading and Emotions

 In 2005 researchers from Stanford, Carnegie Mellon and the Univ. of Iowa published a study focusing on the role that human emotion plays in investment decisions. (See “Investment Behavior...

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Q&A: Developing a Trading Strategy- Discretionary vs. Systematic

At CCM we strictly adhere to the scientific method, which begins with the formulation of a question. In this vein, we will post our answers to some of the questions we have received from others ...

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Correlation in the Context of Investing

Much of modern finance theory utilizes asset correlations to inform investment decisions. Asset return correlation is best described as a measure of the likelihood of one asset to do better ...

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The Anatomy of a Barbell Investment

Co-Founder Scot Billington was recently interviewed on Trend Following with Michael Covel. Their discussion spans numerous subjects, ranging from evaluating the broad investment marketplace to ...

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A Relentless Inefficiency

The following is an excerpt from a CCM research article that was published in the December 2014 issue of Futures Magazine. In it, Co-founder Scot Billington and Director of Research Rob Matthews...

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The Problem with Predicting

One doesn’t need to venture very far to find an opinion concerning the future. Weather, sports, politics, music, business, fashion, finance, education - any topic that merits conversation ...

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The Other Side of Efficient Frontier Theory

AQR co-founder and front man Cliff Asness recently released some of his thoughts analyzing how the Efficient Frontier Theory has held up over shorter (5 years) and longer (45 years) timeframes. His ...

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Contributor, Competitor, Craftsman: A Commentary on Motivation and Vocation

Clients and prospective clients often ask about our personal motivations for the ‘work we do’.  I have been asked… why we chose this line of work, what our goals are, and if I...

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Reducing Risk with High Return Investments

Co-Founder Scot Billington was recently interviewed on Trend Following with Michael Covel. Their discussion spans numerous subjects, ranging from evaluating the broad investment marketplace to ...

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Doing something different

“If you keep doing what you’ve already done, you’ll keep getting what you’ve already gotten.� The adage has been attributed to personalities ranging from Tony Robbins ...

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Taking the House

Picture this -  Warren Buffet just finished watching “Passenger 57� and heard Wesley Snipes’ infamous line “Always bet on black�. So he walks up to a roulette table...

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Q&A: CTA Performance

At CCM we strictly adhere to the scientific method, which begins with the formulation of a question. In this vein, we will post our answers to some of the questions we have received from others ...

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Risk and Reward

It’s a simple concept. If I chose to bear more risk I should expect (in the long run at least) to reap more rewards. Makes sense right?  ‘Risky’ or ‘more volatile’...

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Why are you investing?

Whatever money you invest is at risk.  Investors today get fixated on % signs and ratios and forget the purpose of an investment…to take the least amount of money as possible and to make ...

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Managed Futures Drawdowns - Been There, Done That

Our good friends at Attain Capital Management in Chicago recently reminded us of a blog they posted in May of 2012.  They discussed how all trading programs go through losing periods, and how it...

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Q&A: Trading Timeframe

At CCM we strictly adhere to the scientific method, which begins with the formulation of a question. In this vein, we will post our answers to some of the questions we have received from others ...

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Jack Schwager on Standard Deviation

In case you’ve missed it, Jack Schwager, the best-selling author of the Market Wizards books has been featured in a series of articles on Bidness Etc in which he shares some of his trading ...

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Do High Return Strategies Outperform on the Downside?

It is rumored that the great Albert Einstein once said that compound interest was the “greatest invention in human history.�  It is also rumored that he alternatively said that ...

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Q&A: Expected Returns

At CCM we strictly adhere to the scientific method, which begins with the formulation of a question. In this vein, we will post our answers to some of the questions we have received from others ...

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What the World Needs

“What the world needs now, is vol sweet vol…� (aka “All you need is vol,… vol,… vol is all you need�) Alright so what the world REALLY needs are high ...

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The Better Half of Mean Reversion

Mean Reversion –the term itself sounds highbrow and somehow scientifically advanced, particularly in investment and trading circles. Mean reversion asserts that when some process (like a ...

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Random Trading

Finding a truly losing trading strategy is both profitable and difficult.  It is profitable because one could just take the opposite of every trade and have a winning strategy.  It is ...

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Making Money Tomorrow

If I was forced to make a trade with the only goal of making money tomorrow, I would sell a handful of options.  Those would have the best chance of making money in a given day.  If I ...

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What is Risky?

The collapse of Mortgage Backed Securities (MBS) brought the world banking system to bankruptcy.  It is not that MBS’s lost 80% of their value that devastated the world banking ...

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The Prudent Allocator

An allocator has a new $100M mandate.  He does his due diligence; runs risk/return/correlation numbers on 1,000 investment managers; assesses macroeconomic conditions; and factors in the ...

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The Myth of Equity Returns

Investment A Annual Rate of Return:   8.14% Annual Volatility:              0.165    Investment B Annual Rate of Return:   ...

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What Ever Happened to High Returns?

There are only two ways to financially alter your life (and by this I mean dramatically change your station) via passive investments…a long time or high returns.  This just in, our time ...

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Financial Consumerism

Almost everything written by investment managers is the industry’s capitulation to a consumerist culture where the primary goal is to scratch where the consumer itches. But at the end of the ...

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Wall Street Unfiltered features Co-Founder Scot Billington

Wall Street Unfiltered's Mark Melin interviews David Miller of Catalyst Funds (3:01) and discusses performance and volatility with Covenant's Scot Billington (14:55).       ...

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