Want Consistent Market Outperformance? You May Want to Think Again

By Justin J. Carbonneau (@jjcarbonneau) —  We run over 40 quantitative models at Validea. They run the gamut of investing styles. Any time we can find a model from a respected source that uses factors and shows long-term outperformance, we will track it and add it to our arsenal. Our models range from deep value to growth to momentum. As we have studied these models over the years, one commonality has become very clear. And… Read More

The Market May Not Be As Expensive As You Think

By Jack Forehand (@practicalquant) —  The consensus opinion among followers of the market has been pretty consistent for some time now. The general belief is that the stock market is trading at one of the highest valuations it ever has, and that those lofty valuations bode very poorly for the future. I understand the narrative very well because I have been one of the people saying it. The data also backs it up. Market valuations tell… Read More

Hedge Fund Stars Losing Shine, But the Industry is Fine

Despite the fact that hedge funds have “fallen on hard times”, writes columnist Nir Kaissar in a recent Bloomberg article, “don’t shed a tear for the industry just yet.” The article reports that, although the industry hasn’t kept pace with the broader market in recent years (citing Alan Fournier’s Pennant Capital Management and David Einhorn’s Greenlight Capital as examples), on the whole it has performed better than some of the “star” managers–the HFRI Fund Weighted… Read More

Are Stock Pickers Ready to Remove Facebook from “FANG”?

Some investors are beginning to question their FANG stock holdings, according to a recent article in The Wall Street Journal. While the FANG stocks have “long risen in lockstep and helped power the long-running market rally,” the article reports that since Facebook’s recent disclosure that millions of users’ data was compromised, “stock-picking fund managers have soured on the social network’s shares, with some either partially or completely abandoning their investments.” Some managers, it adds, believes… Read More

Jeremy Grantham’s Market Update

GMO’s Jeremy Grantham predicts that in five years the U.S. market may be 20% lower but that due to a “series of advances and retreats” rather than due to a sharp crash. This according to a recent article in The Economist. The article reports that Grantham, who is known for his caution regarding long-term returns, “caused a stir earlier this year when he said the chances were high of a melt-up in the markets this… Read More

Lessons on How to Prepare for an Unexpected Crisis

A recent Harvard Business Review article outlines findings from a five-year study of “unexpected crises in all sorts of organizations” and interviews with a wide range of professionals “who have discovered valuable lessons about how to prepare for the unexpected.” Some of the “lessons learned” include the following: Learn to stop. Managers, the study found, “need to foster norms that help people overcome the sense of defeat that comes from halting an ongoing process or… Read More

Short-Seller John Hempton Taunts Ackman

An article in The Sydney Morning Herald offers a profile on Australian hedge fund manager and “fraud-hunting short seller” John Hempton, a self-described eccentric who, while known mostly for his short bets, says he makes his real profits from long-term stock picking. The article reports that Hempton’s firm, Bronte Capital Management, “has bet profitably against Valeant Pharmaceuticals International Inc. and made money on a stake in Herbalife Ltd., both of which pit him against Ackman.”… Read More

Housel on the Strength of Compounding on a Small Base

In a recent article for the Collaborative Fund, Morgan Housel addresses the topic of compounding through several interesting anecdotes about ice ages and Warren Buffett, among others. A hundred years ago, Housel explains, a Serbian scientist discovered that our earth “wobbles just enough to change how much solar radiation is let in, occasionally enough to wreak havoc.” But Housel points out that subsequent studies found a more layered explanation, that moderately cool summers were the… Read More

Summers Says Next Recession Could Be Longer Than Last One

Former Treasury Secretary Larry Summers believes that the next U.S. recession could “drag on longer than the last one that stretched 18 months.” This according to a recent article in Bloomberg.   Even if the Fed were to tighten the reins considerably, he argues, it would take time before rates would get high enough to allow for a 500 basis point reduction typical for a recession.  The article quotes Summers: “That suggests that in the… Read More

Artificial Intelligence is About to Hit Your Portfolio

“Ask almost any money manager what they’re most interested in these days and it’s not proselytizing new investing styles—it’s artificial intelligence,” says a recent Barron’s article. “Artificial intelligence is the ultimate competitive edge.” The article quotes Andrew Lo, MIT’s director of the Laboratory for Financial Engineering, who says, “We are in a technological arms race. Financial institutions have to participate just to keep up with the competition” for cost savings, among other things. Delving into… Read More

Factor Investing Tips

For investors interested in factor-based strategies, a recent Barron’s article suggests that it can “take longer than most investors are willing to wait for signs of success.” The article cites comments from Gregg Fisher, founder of Gerstein Fisher (which managed $3 billion using a factor-based approach), who say investors should “shift their factor mixes as time goes on to reduce the likelihood of an ugly surprise shortly before retirement.” According to Barron’s, Wall Street is… Read More