The Realities of Mean Reversion

By Jack Forehand, CFA (@practicalquant)  “Importantly, reversion to the mean in the investment business extends well beyond the results for mutual funds. It applies to classifications within the market (small capitalization versus large capitalization, or value versus growth), across asset classes (bonds versus stocks) and spans geographic boundaries (U.S. versus non-U.S.). There are few corners of the investment business where reversion to the mean does not hold sway.” – Michael Mauboussin Mean reversion is one of… Read More

The Stock Market Party Must Eventually End

The market’s continued gains may “not be such good news for investors,” according to a recent article in The New York Times. The article offers insights of market historian and InvesTech Research president James Stack: “If there are any certainties, one will be that this party will eventually come to an end. A correction would be healthy. The longer we go without one, the greater the risk this will end badly.” The article points out… Read More

Small-Cap Ratings Often Fall Short

The correlation between analyst ratings of small-cap stocks and the subsequent returns of those stocks showed no statistical significance, according to analysis conducted by Barron’s. “In most cases,” the article argues, “you could have done just as well by flipping a coin.” The analysis, which used FactSet data, compiled all buy, sell, and hold recommendations outstanding as of January 1st for each of the past five years, then compared the average rating to shareholder returns… Read More

Hedge Fund Titan Ray Dalio Says American Debt Likely to be a Drag on Growth

Although Bridgewater Associates founder Ray Dalio doesn’t see a market crisis in the near term, he believes that Americans have accumulated more debt than their assets and income can support. This according to a recent article in The Wall Street Journal. This will “drag” on growth and markets, says Dalio, leaving the economy “acutely vulnerable” to higher interest rates, arguing that the Fed is now being forced to balance containing inflation through rate hikes with… Read More

Jeremy Grantham Says Market Has More Upside

In a recent essay, GMO co-founder and chief investment strategist Jeremy Grantham offered insights on the market by “looking very hard at all the great bubbles of the past,” and “searching for useful guides to the future.” His commentary was excerpted in Barron’s. While Grantham agrees that today’s market is priced “exceptionally high,” he says the typical examples of past bubbles are “not just characterized by higher-than-average prices.” Indicators of “extremes of euphoria” he says,… Read More

Most Read Posts on Validea’s Guru Investor

Below are links to our most popular posts for this week on Validea’s Guru Investor blog. [1] The Realities of Mean Reversion [2] A Fund that Profits from Investor Mistakes [3] Combining Active and Passive Investing Can “Smooth the Ride” [4] Mark Hulbert on the Reality of Buybacks ——- Photo: Copyright: arcady31 / 123RF Stock Photo  

Market Experts Offer Predictions for 2018

A recent article in Money shares the views of a panel of market experts (including Rob Arnott, Jim Paulsen and Liz Ann Sonders, among others) regarding the state of the bull market and the risks and opportunities they see going forward. Here are some highlights: Can the bull market persist? While Sonders remains bullish, she says, “I think we have to start to be mindful of some of the risks.” Paulsen adds that he doesn’t… Read More

Top Performing Stock Fund Ignores Research

Kurt Kara, head of value equities at Copenhagen-based Maj Invest, considers reading brokerage research and meeting company CEOs a waste of time, according to a recent Bloomberg article, and the approach has led to a 16 percent average return in the Maj Invest Value Aktier fund over the last five years. “The best research,” says Kara, “is the one you generate internally. We want to create our own mindset, logic and reasoning.” He and his… Read More

Four Top Fund Managers Advise Caution in 2018

A recent Bloomberg article shares market insights from six of the world’s top fund managers, four of which are “asking their clients to be cautious in 2018.” The four with cautious outlooks are: Scott Minerd, chief investment officer at Guggenheim Partners (manages $240 billion), is betting that the next recession is most likely going to occur in late 2019 to mid-2020. Minerd’s firm argues that current macroeconomic conditions are similar to those that existed 18-24 months prior… Read More

Combining Active and Passive Investing Can “Smooth the Ride”

A “partnership” of both active and passive investing can help smooth out some rough patches in portfolio performance, according to a recent Vanguard article. “The addition of a reliable investment partner—a broadly diversified, passively managed investment—can theoretically narrow the range of outcomes, helping you stick with a plan that offers the potential for outperformance while limiting the chances of significant underperformance.” Even the most skilled active fund managers, the article points out, will suffer periods… Read More

The Danger of Index Funds Heavily Weighted in Tech

Index investors now own more tech stocks than they may realize, according to a recent article in The Wall Street Journal. The weighting of technology stocks in the S&P 500 index, the article reports, has “climbed to 23.8% as of December 26, from 20.8% at the end of last year, according to S&P Dow Jones Indices,” and is up from 19.7% three years ago. The article says that investors are now faced with the quandary… Read More