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
There may not be a more polarizing topic in investing right now than cryptocurrencies. On one side, believers in the technology think it will change the world and will generate massive investment returns for those who invest in it. On the other, many believe that even after the recent significant declines, any money invested in the space is bound to be lost. Because of the strong opinions that exist on the topic, most articles and… 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
In an article for ETF.com, BAM Alliance director of research Larry Swedroe points out that, despite the attractive valuations and growth outlooks for emerging market stocks, most U.S. investors dramatically underweight this asset class in their portfolios. According to Swedroe, the underweighting is primarily the result of two mistakes by investors: Country bias: Swedroe writes, “investors tend to believe that not only is their home country a safer place to invest, but it will produce… Read More
A survey by the National Association for Business Economics (NABE) released last month shows that more than three-quarters of business economists expect the U.S. to enter a recession by the end of 2021, according to a recent article in Bloomberg. The article also notes that most survey participants believe the Fed will continue raising rates this year. Of the nearly 300 NABE member survey participants, the article reports that “ten percent saw a recession beginning… Read More
Before the California wildfires started last November, billionaire hedge fund manager Seth Klarman’s firm Baupost Group bought 14.5 million shares of PG&E stock, according to an article in Chief Investment Officer, then hedged its bet by purchasing insurance claims against the power company. Baupost’s stake in the power company, worth about $49 a share before the fires started, fell to near $8 in January as a result of the utility’s bankruptcy filing (in the wake… Read More
At the CFA Society Portland’s Annual Investment Strategy Dinner last month, Oaktree Capital co-chair Howard Marks said the two most important factors for investing success are managing risk and understanding where we are in the market cycle. This according to an article in CFA Institute. “We never can be sure of an outcome,” Marks told the audience, “but I think we can get the odds on our side by understanding where we are in the cycle.”… Read More
In a recent interview with Yahoo Finance, Berkshire Hathaway CEO Warren Buffett fielded questions on a variety of subjects. Here are some highlights: Tax cuts: “I don’t agree with the philosophy,” Buffett said, “but it helps Berkshire shareholders.” In economics, he added, “you can never just do one thing. You always have to ask yourself, and then what?” Buying cryptocurrency, argues Buffett, is more speculation than investing. When investing, he explained, you’re looking to the… Read More