A Different Definition of Risk

By Jack Forehand (@practicalquant) —  Investment professionals like to use a myriad of fancy terms to measure risk. The problem with almost all of them is that they are in no way understandable for the average investor. Words like standard deviation, max drawdown, tracking error and Sharpe ratio are often thrown around to judge how risky a portfolio is. Those concepts are not only very difficult for investors to understand, but they also aren’t all that… Read More

Want Consistent Market Outperformance? You May Want to Think Again

By Justin J. Carbonneau (@jjcarbonneau) —  We run over 40 quantitative models at Validea. They run the gamut of investing styles. Any time we can find a model from a respected source that uses factors and shows long-term outperformance, we will track it and add it to our arsenal. Our models range from deep value to growth to momentum. As we have studied these models over the years, one commonality has become very clear. And… Read More

Active Share Is Not a Silver Bullet

While active share, which measures the extent to which a stock fund’s holdings overlap with a specified benchmark index, can be useful information for investors, a recent article in Morningstar argues that “it’s probably not a must-have.” The assertion came in the wake of New York Attorney General Eric Schneiderman’s recent announcement that 13 companies had voluntarily agreed to disclose active share to retail investors, describing it as “critical information” to be used in making… Read More

Joel Greenblatt Combines Active and Passive Investing

 In a recent episode of WealthTrack, Consuelo Mack interviewed Gotham Asset Management’s Joel Greenblatt, who shared his thoughts on active and passive investing and how he has combined the two in an effort to discourage investors from bailing out of a strategy in tough times. Greenblatt explained that human nature leads investors to pile into well-performing funds and pile out of underperformers—which ends in lost opportunity and dollar losses as well. He discussed the genesis… Read More

“Black Swan” Investor Says Market Increasingly Fragile

Fund managers who oversee contrarian “tail-risk” funds—those created with the objective of preparing for crisis events—say conditions are ripe for a “full-blown financial earthquake,” according to a recent article in Bloomberg. In an interview with Bloomberg, Richard “Jerry” Haworth of 36 South Capital Advisors LLP, whose contrarian approach reaped huge rewards from the 2008 crisis, said: “The financial system is a lot more fragile than it was in 2007. Leverage is up on every single… Read More

Southern Europe Weathering Stormy Markets

As market volatility increases, one region that seems to be keeping a firm footing is Southern Europe, according to a recent article in The Wall Street Journal, that says, “If the events of 2018 haven’t dented the global growth outlook too much, then that could persist.” Italian, Portuguese and Greek stock markets are all in positive territory this year, the article reports, and Southern European government bonds are also performing well. “The mix of good bond-market… Read More

Signs that a Bear Market May Be Coming

A recent article in Barron’s reports that while a flattening yield curve is “no reason to bail out of stocks,” bond yields could provide investors with “a sell signal in the years ahead.” A flattening of the yield curve occurs when short-term bond yields rise faster than long-term yields, which can happen, the article explains, if investors “think the Fed is making a mistake” in hiking interest rates and may have to reverse its course.… Read More

Ray Dalio on the Odds for Trade and Other Wars

A recent Bloomberg article recounted comments made my Bridgewater Associates founder Ray Dalio on LinkedIn. Here are a few: “Recent geopolitical developments have led me to raise my probabilities of trade and other types of wars, such as capital wars, cyber wars (and possibly even shooting wars).” Dalio described current trade talks with China as a “public game of chicken” since President Trump “raised the stakes by another $100 billion.” While he initially “thought trade… Read More

Mario Gabelli Isn’t Worried About the Passive Trend

During a recent interview with Institutional Investor, Gamco CEO Mario Gabelli shared insights about the current market environment. The article says that Gabelli “isn’t too worried about the trend toward passive investing that has robbed active-management firms like his of assets,” but believes a passive approach makes sense for long-term investors that “don’t have much knowledge.” Gabelli refers to himself as a “bottom-up stock picker,” the article says, and is currently interested in the “companion-pet”… Read More

Yale Says its Endowment “Crushes” Indexes

The 2017 Yale University annual report argues in favor of active management strategies used by the investment offices of the country’s ivy league schools, according to a recent article in Institutional Investor. In the report, Yale rebuts Warren Buffett’s suggestion–stated in his 2016 letter to Berkshire Hathaway shareholders, that endowments and other institutional investors would be better off investing in an index like the S&P 500—by claiming that the top ten U.S. university endowments “amaze,” and… Read More

Boring Stocks are Winning

For emerging-market and European equity investors, low-volatility stocks are “paying off by the most in two years,” according to a recent Bloomberg article. “Low volatility—sorting stocks based on the magnitude of price swings—tends to beat the market over time,” the article states. “The factor’s performance in the U.S. has lagged lately, but calm stocks elsewhere have picked up the slack.”