By Jack Forehand, CFA (@practicalquant) Recency bias can be a major issue for many investors. When we analyze the probability of any event in the market occurring, we tend to rely more on the recent past than we should. That can mean that we give too much credence to the most recent year or most recent few years. But it can even go further back than that. For example, when we think about what a… Read More
By Jack Forehand, CFA (@practicalquant) Factor strategies have grown exponentially in the past decade. Almost every major asset manager now offers their variation of things like value, momentum, quality, and low volatility, and each of them has their case as to why their approach is better than the others. But at their core, all these strategies rely on one basic principle – that if you invest using factors, you will earn an excess return over… Read More
In a recent interview, Morningstar’s Alex Bryan, director of passive strategies research in North America, offered insights regarding how investors might approach foreign exposure in their portfolios. Here are some highlights: Even though international stocks tend to be a bit more volatile than U.S. stocks because they are priced in foreign currency, Bryan says, diversifying is important because U.S. stocks go through periods of underperformance relative to international shares. Bryan says that international stocks can… Read More
A recent article in The Wall Street Journalreports that the publication’s quarterly survey of actively managed U.S.-stock funds shows that “boring can be beautiful. In fact, in the midst of volatile markets, being downright dull can prove the recipe for investment.” The common denominator in the WSJ list of Winner’s Circle finalists, it says, is the “underweighting or ignoring” of the household name holdings (i.e. Apple, Google and Facebook) in favor of “lesser-known businesses able… Read More
A recent note from strategists at JPMorgan Chase says that we are seeing “the largest relative valuation bubble in modern equity market history,” with value stocks trading at the most depressed levels compared to growth stocks in almost twenty years. This according to an article in Bloomberg. The article notes that when value stocks dropped to similar levels in 2000, “they went on to surge more than 50% against their opposing cohort in the next… Read More
In a recent article for Fortune, Ben Carlson writes, ”Market valuations are an important input into the investing process. But the relationship between the markets and valuations is far from perfect and requires context when thinking about what sky-high valuations mean for today’s investor.” According to Carlson, according to data going back to 1945, a case could be made that the current market pricing should be even higher given the low level of interest rates:… Read More
Although the value strategy has fallen on hard times for the past 12 years causing many to question whether it still works, historical data shows that the value advantage exists. This according to an article in Forbes. The article offers the following chart by financial advisory firm Dimensional: The article states, “This chart illustrates that although the ten years from 2006-2015, 2007-2016, and 2008-2017 have been some of the worst decades for Value investing, the… Read More
In a recent interview with Barron‘s, GMO strategist James Montier shared his concerns about the U.S. stock market and his bullish view on modern monetary theory (MMT), which he has found to be “good model for governments’ interactions with the market.” Here are some highlights: Montier breaks MMT down into the following components: “Money exists because it’s created by the state. The U.S. dollar has value because you have to pay taxes in it.” “If… Read More
Private equity firms are raising increasingly bigger funds, but they don’t necessarily deliver bigger returns. This according to a recent article in The Wall Street Journal. “The rise of megafunds reflects the growing demand for private equity from large investors such as sovereign-wealth funds with hundreds of millions of dollars to put to work,” the article explains, adding that persistently low interest rates, private equity’s reputation for double-digit returns is enticing, even if it means… Read More
In an interview with Bloomberg earlier this year, Winton Capital Management founder and quantitative investing pioneer David Harding offered insights on the challenges faced by today’s quants, the competitive environment and the search for new strategies. Here are some highlights: Systematic strategies have become crowded according to Harding: “With low to zero interest rates, its tough to make money in the hedge fund game at the moment.” However, he added, “that’s what leads to innovation.… Read More