By Jack Forehand (@practicalquant) Last week, I had the privilege of attending Alpha Architect’s annual Democratize Quant conference for the second time. The conference brings together leaders in the fields of quantitative investing and asset management to talk about the state of the business, and to share ideas to help all of us learn and improve our investment approaches. Given how good last year’s conference was (my summary of that is here), they were going… Read More
By Justin J. Carbonneau (@jjcarbonneau) — An object at rest stays at rest and an object in motion stays in motion with the same speed and in the same direction unless acted upon by an unbalanced force. -Isaac Newton Momentum investing, or buying stocks exhibiting strong price performance relative to other stocks nicely aligns with Newton’s principle. There are a numerous academic studies and white papers backing-up the robustness of the momentum factor. The knocks… Read More
By Jack Forehand (@practicalquant) Successful investing can be complicated. And our natural inclination as human beings is to want to address complicated problems with complicated solutions. But that can be to our detriment at times. Jim O’Shaughnessy wrote an excellent tweetstorm on Twitter this week on the benefits of simplicity and it got me thinking about how difficult the balance between simple and complex can be in investing. From what I have seen in my… Read More
By Jack Forehand (@practicalquant) There are so many biases that can hurt your returns in investing that it is hard to keep track of them. There is also no shortage of advice being given on how to recognize these biases and combat them. This advice would lead you to believe that if you just did certain things, you could escape their impact and prevent them from hurting you. There is one major problem with this… Read More
An article in CFA Institute reports that, although academic research has touted the benefits of “smart-beta,” investing, this research “largely ignores transaction costs that reduce returns significantly.” The article offers data reflecting the “flood” of academic papers on factor investing, “which provides the theoretical foundation of smart beta allocations,” but adds that creating factor portfolios in academia is “very different from building investable smart beta exchange-traded funds (ETFs).” This is due in large part to… Read More
Using the example of Henry Ellenbogen’s departure from T. Rowe Price at the end of this month, an article in Barron’s speaks to whether investors should “take your money and run” when a star manager leaves. Although Ellenbogen is working toward a smooth transition with his successor, Josh Spencer, the article notes that “manager changes do pose risks to investors. For one, a new stockpicker may not execute the fund’s strategy as effectively.” Of more… Read More
A recent study by a team at Vanguard contradicts the idea adopted by many investors and financial professionals that “broadly diversified portfolios are inferior to concentrated portfolios made up of a manager’s ‘best ideas.’ “ While the underlying premise might make sense—that performance of a manager’s most promising holdings would outperform those with a weaker outlook—the Vanguard paper makes an extensive and detailed case as to why the argument doesn’t hold up. Here are some… Read More
In recent interview with CNBC, author, investor and Columbia University finance professor Joel Greenblatt talked about the challenges faced by value investors. “My students ask the same question,” he said, adding, “I’ve taught at Columbia for 23 years, and I always make a promise to my students on the first day of class—that if they do good valuation work, the market will agree with them. I just never tell them when.” Greenblatt underscored periods of… Read More
A new technology called continual learning (CL) enables computers to apply accumulated knowledge to make better decisions in the future and is considered “one of the hottest threads of artificial intelligence (AI) research.” This according to an article in CFA Institute. “It may prove to be the single most disruptive technology for investment management,” the article says, adding that CL may be better able to apply objectivity to the investment decision-making process than humans do.… Read More
A recent article in CFA Institute provides a list of ten guidelines to use when making economic forecasts: Data matters: “Always base your forecasts on data, not qualitative arguments.” Data-mining can present an alluring trap, the article says, so “torture the data until it confesses, but don’t frame the data to the story.” Don’t make extreme forecasts: “Remember that there are only two kinds of forecasts: Lucky and wrong.” Reversion to the mean: Extremes, the… Read More
European pension funds and insurers have started divesting tobacco holdings as a push toward socially responsible investing has led to a downturn in performance. This according to an article in Bloomberg. The article cites several examples of large European investors who have abandoned tobacco holdings, including French insurer AXA SA and UK company Aviva Plc. It also offers comments from Investec analyst Eddy Hargreaves: “Clearly, selling pressure from some investor classes who have decided that… Read More