A Framework to Evaluate Value Strategies

By Jack Forehand, CFA (@practicalquant) Earlier this year, I wrote about the mechanics of value investing and the many decisions that go into building value portfolios. Many investors believe that all value-based strategies will produce similar performance. But in reality, the many portfolio construction decisions that value managers make, which I highlighted in the article, can lead to major differences both in their performance and in the ability of investors to stick with their strategies.… Read More

The Facts About Buybacks

By Jack Forehand, CFA (@practicalquant) There might not be a more controversial topic right now in investing than stock buybacks. The debate over buybacks, which started out as a debate over their investment merits, has morphed into a political one that touches many of the controversial topics of our day such as income inequality and whether Wall Street continues to profit at the expense of average Americans. The negative press that buybacks have received has… Read More

Why Value Has Been Lagging Growth

Amidst continued speculation that the value strategy is dead, asset manager Dimensional Fund Advisors argued that its growth performance that has been abnormally high relative to historical levels. This according to a recent article in Institutional Investor. A research report by Dimensional contends that, over the past decade, value performance “has been more or less in line with its historical average: 12.9 percent versus 12.7 percent. We can see value has performed similarly to how… Read More

Investing Lessons from the Best Poker Players

Researchers on game theory say that poker strategies can translate into lessons for investors, according to a recent article in The Wall Street Journal. Carnegie Mellon professor of philosophy Kevin Zollman says that investors dislike losing more than winning and are prone to what behavioral finance refers to as the disposition effect, which leads them to sell assets that have increased in value but hold onto those that have decreased in value. The same behavior… Read More

Testing the Buy-and-Hold Gospel

A recent Wall Street Journal article by columnist Jason Zweig dispels myths regarding history’s market crashes and offers insights regarding how they relate to today’s market and to a “buy-and-hold” strategy. Zweig writes, “Everybody ‘knows’ the market collapsed in 1929 because euphoric speculators bingeing on borrowed money drove stocks to absurd heights. That isn’t true.” Although at the time some stocks were expensive, Zweig points out that most weren’t. “Many major companies traded at 14… Read More

Ed Yardeni on Lifestyle of the Rich & Famous President

In a recent posting on Yardeni.com, Ed Yardeni outlines some factors contributing to the current economic climate. “In my opinion,” he writes, “consumers are doing what they do best because their real disposable incomes are growing along with employment and real wages.” He points out the following: Growing wages drive consumer spending, noting that President Trump’s policies or deregulation and tax cuts “undoubtedly contributed to the strength in personal income.” Uncertainty from trade wars and… Read More

After 2,600% Gain, Epic Run Fizzles

Philippine money manager Wilson Sy says his strategy of betting on lesser-known companies outside his benchmark index has been upended by the flood of cash into passive index funds, a challenge he says more stock pickers will face. This according to an article in Bloomberg. After generating gains of more than 2,600% over the twenty years through 2014, Sy’s fund is up by just 4% over the past five years, lagging the 19% return in… Read More

Dividends Can Help When Value Trails Growth

Dividend stocks maybe help “narrow the performance gap for a value investor,” according to a recent article in Barron’s. But the article adds, “whether a company pays a dividend isn’t the only factor to consider.” It cites comments from T. Rowe Price Dividend Growth fund Tom Huber, who warns investors to be mindful of sectors before “diving in to add dividend investments.” Huber cites utilities, real estate investment trusts and consumer staples as examples of… Read More

Who Needs a Hedge Fund? Not Jeffrey Vinik

After relaunching Vinik Asset Management earlier this year (it was closed in 2013), Jeffrey Vinik found that it was much harder to raise money than he anticipated, according to a recent Bloomberg article by columnist Nir Kaissar. The problem, Kaissar explains, is that “no one needs equity hedge funds anymore,” adding, “investors can turn to low-cost funds for nearly every style of stock picking.” During the heyday of hedge funds (1990s and 2000s), Kaissar notes,… Read More

AI, Big Data and Finance

A recent article in CFA Institute addresses the question of how Artificial Intelligence (AI) might impact the world of investing. Investment professionals have watched AI emerge with what the article describes as “a mixture of excitement and anxiety,” wondering if the technology will eventually displace humans. The application of both AI and big data, it argues, are likely to bring big change in the industry because they allow analysts to perform more thorough analysis and… Read More

Mark Mobius: No Recession and Trump in 2020

In a recent interview with Barron’s sister-publication Financial News, veteran investor Mark Mobius said, “I don’t see a recession risk,” explaining, “the simple reason is that with interest rates going down and down, it will be much easier for people to raise capital. There is a lot of money sloshing around the world looking for a home.” Mobius suggested there might be a “slowdown” due to trade tensions but added that a recession in Europe… Read More