By Jack Forehand (@practicalquant) — This is the first interview in our new Five Questions 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… Read More
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 Jack Forehand (@practicalquant) — Below are some of our favorite things we read or listened to this week and one important lesson we took from each of them. This Week’s Topics Why Factor Investing is So Hard Industry Concentration in Factor Investing Reframing the Pain of Underperformance as a Positive Article: What to do When an Investment Strategy Performs Poorly Lesson: Successful implementation of factor investing strategies requires sitting through extended periods of underperformance This… Read More
In a webcast last month, DoubleLine Capital co-founder Jeffrey Gundlach warned investors that too much stimulus could backfire, citing how the U.S. deficit has grown along with S&P returns. This according to an article in Advisor Perspectives. While tax cuts, deficits and debt have been responsible for the growth in the U.S. economy and stock market, says Gundlach, it remains to be seen what will happen now that the Fed is in tightening mode. “We’ll… Read More
In an article for Bloomberg, columnist Nir Kaissar discusses the quandary faced by many money managers who have seen the S&P 500 outperform other investments over the last decade. “No diversified portfolio has any hope of keeping up with the market, not even those belonging to elite universities,” writes Kaissar, adding, “Most stock pickers can’t keep up, either.” Therein lies the quandary, he asserts, since U.S. investors “care a lot about keeping up with the… Read More
An article in Wealthmanagement.com compares the performance of four financial gurus by outlining a simulation of their signature portfolios “using readily available index funds and grantor trusts, annually rebalanced from September 2005 through July 2018, and put them up against a classic ’60/40′ portfolio of U.S. stocks and broad market bonds”: The data shows that, over the past 13 years, the approach of David Swensen (who has been chief investment officer at Yale University since… Read More
According to an article in Institutional Investor, a new report published by S&P Global Ratings suggests “It might be worth questioning the earnings of companies being bought by private equity firms.” “In analysis of companies involved in deal making in 2015,” the article says, “S&P found that the earnings projections were unrealistically high on average across leveraged buyouts and mergers due to so-called ‘add-backs’—adjustments made to account for expected costs savings or an anticipated rise… 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