By Jack Forehand (@practicalquant) — When it comes to market valuation, investors love certainty. They want to hear definitively that the market is cheap, or the market is expensive, and that they can use that information to predict where it is headed in the short-term. As a result, strategists that make these type of market calls (particularly the ones who do so on the negative side), can generate significant headlines and attention for themselves. None of… Read More
By Justin J. Carbonneau (@jjcarbonneau) — The $1.5 billion Mega Millions jackpot had a lot of people daydreaming about what they would do if they won such a windfall. With odds of about 1 in 250 million, you can almost guarantee with 100% certainty that you and everyone else you know that bought a ticket woke up on last Wednesday to be disappointed. Still, someone was lucky enough to become a multi-millionaire overnight. While luck… Read More
This is the first article in our new Validea Interview series. Each month, we will take an in depth look at a specific issue in the market through a conversation with a leading expert in the area. The goal of this series is to move beyond the high-level discussion typically available in the media and to learn from someone who has studied the issue in depth. In our first interview, we talk with Wes Gray… Read More
In his new book Farsighted: How We Make the Decisions That Matter the Most, author Steven Johnson offers case studies on some of life’s most important decisions and examines the process behind them, according to an article in Inc. In business settings, Johnson argues, there are often more tools at your disposal than you may be aware of. He outlines three steps he suggests including as part of making any significant decision: Don’t be too… Read More
In a recent article for Financial Advisor magazine, Robert Shiller discusses whether today’s share prices are justified by the growth in reported earnings. “With prices and earnings moving together on a nearly one-for-one basis,” Shiller writes, “one might conclude that the US stock market is behaving sensibly, simply reflecting the US economy’s growing strength.” But Shiller argues that earnings are volatile, adding that “sudden sharp increases tend to be reversed within a few years. This… Read More
Below are links to our most popular posts for this week on Validea’s Guru Investor blog. [1] The Inexact Science of Market Valuation [2] The Mental Roadblocks Faced by Investors [3] Quant Investor Cliff Asness Defends Factor-Based Strategies [4] Hulbert: Is the Traditional Method for Measuring Value Stocks Wrong? ——- Photo: Copyright: arcady31 / 123RF Stock Photo
In a vlog posted in July, Jerome Schneider, head of short-term portfolio management for PIMCO, argues that the front end of the U.S. bond market may provide investors a good balance of liquidity, capital preservation and income in a rising rate environment. Schneider outlines the following five reasons: The potential for positive absolute return exists in a diverse, short-term portfolio that includes U.S. Treasuries, corporate bonds and “structured products.” The market’s gently increasing volatility increases… Read More
In an article for The Wall Street Journal, columnist Mark Hulbert addresses what he describes as the “urgent” question of whether value investing or dead or merely suffering from an incorrect valuation method. Noting that value stocks—when defined by the traditional criterion of low price-to-book-value ratio—have fallen behind growth stocks for at least ten years, Hulbert cites growing concern as to whether they will come back as they have in the past. “That’s because,” he… Read More
Prompted by a lackluster performance year, AQR Capital Management founder Cliff Asness wrote a 23-page essay defending his factor-based investing strategies according to a recent Bloomberg article that features an interview with the billionaire. Here are some highlights: Asness believes that there is a “minor crisis in confidence” for some quants, but that it’s misplaced. “We’ve seen periods like this quite a few times before.” He contends that his firm expects to “win long term,… Read More
An article in CNBC.com offers an overview of seven cognitive biases that can significantly impact investor decision-making. “Given the foundational level at which these biases exist,” the article contends, “they have the capacity to affect practically all decisions, but can have an especially profound impact on financial planning and investment choices:” Overconfidence bias—having an “inflated view of one’s own decision-making abilities.” This can lead investors to make “wrong-headed—and ultimately harmful—investment decisions.” Confirmation bias—can prompt investors… Read More
A recent Vanguard blog addresses the issue of the Fed’s ongoing rate hike program and how it will affect investors. Here are highlights: “Higher yields on cash are good news for savers”—the article notes that since the Fed started raising rates in December 2015, investors have moved more than $60 billion into money market funds, and those inflows could rise with further rate hikes. Mixed outlook for bonds—”Bond investors might cringe at our outlook for… Read More
A recent article in The Economist discusses what has become a long-term decline in the number of publicly-listed firms in America. The article explains that while regulatory headaches and red tape have increased the cost of going public, the trend is really a referendum on the supply side of capital markets. “In the 1990s, specialist venture-capital firms were almost the only option for startups seeing money to finance their expansion,” the article explains, adding, “Nowadays… Read More