The Danger of Overscrutinizing Out of Favor Investment Metrics

By Jack Forehand (@practicalquant) —   No investing factor has been maligned more than the Price/Book in recent years. In a period where value in general has performed very poorly, the Price/Book has struggled more than any of the other common value factors. When you couple that with the fact that the Price/Book’s failure to account for intangible assets makes its validity questionable in a world where more than 80% of assets are intangible, you have a… Read More

Excess Returns, Episode 1: The Mechanics of Value Investing

We are happy to announce the release of our new podcast Excess Returns. On each episode,  Validea partners Justin Carbonneau and Jack Forehand will talk about a wide range of investing topics with the goal of helping those who watch and listen become better long term investors, all in twenty minutes or less per episode. In our first episode, we talk about the mechanics of value investing and the many decisions that go into constructing… Read More

A Refresher on Stock Investing Basics

In a recent Bloomberg article, columnist Nir Kaissar argued that profits, governance and price should always be front and center in the stock investment decision-making process. Kaissar used the missteps made by SoftBank CEO Masayoshi Son and the bank’s subsequent $6.5 billion quarterly loss as a cautionary tale. He writes, “One problem, according to Son, is he overlooked that startups need solid governance and a path to profits,” citing SoftBank’s investments in WeWork and Uber… Read More

How One Stock Fund Finds Winning Picks

A recent article in Barron’s profiles Grandeur Peak International Stalwarts fund lead manager Randy Pearce and the “small army” of investment analysts his firm uses to research and identify opportunities among the world’s 40,000 publicly traded stocks. Pearce explains, “the easiest thing to do is run a lot of money in a big-cap strategy with as few resources as possible,” adding that his firm (Grandeur Peak Global Advisors) has aggressively built out its analytics team… Read More

Fidelity Warns Baby Boomers to Lay off Stocks

According to a recent Bloomberg article, in its third-quarter retirement report Fidelity Investments said that Baby Boomers (those born between 1944 and 1964) are too heavily weighted in stocks. The report argued that Boomers have been “riding a 10-year bull market into retirement, steadily upping bets on stocks to boost 401(k) returns and exposing them to unnecessary risk.” It explains that the generation has exceeded Fidelity’s recommended allocation to stocks (70% for those 10 years… Read More

A Formula to Explain the Great Decade for Stocks

A recent Fortune article by Ritholtz Wealth Management’s Ben Carlson argues that the past decade’s strong stock performance has been “almost exclusively driven by fundamentals, much to the chagrin of the perma-bears who blame everything that’s happened on the Fed.” Carlson describes a formula created by the late-Jack Bogle that “allows us to check on the recent and historical fundamentals of what has been driving the rise of U.S. stocks.” He explains that Bogle broke… Read More

Morningstar’s Revamped Ratings Deliver Hit to Active Funds

The rating agency Morningstar has spruced up its rating system, which “hasn’t proved to be very predictive for future performance and volatility” and has “lost its luster because of the indexing craze.” This according to an article in Barron’s. The article reports that the revised system applies a zero-fee benchmark hurdle when analyzing funds which, while helpful to investors, will hurt managers. According to the firm’s head of global manager research Jeffrey Ptak, of the… Read More

Here’s How Active Managers Squander Alpha

New research shows that active managers do in fact generate alpha, but have a hard time keeping it because they hold positions too long. This according to an article in Institutional Investor. The study comes from Essentia Analytics, a firm that examines fund manager decisions based on behavioral science. The article reports, “The firm found that for all the hype about active manager underperformance, these managers actually do generate alpha ‘well in excess of the… Read More

Another Hedge Fund Giant is Returning Investor Capital

Louis Bacon is stepping away from Moore Capital Management, which will return money to investors from three of its flagship funds “while continuing to invest on behalf of the firm’s partners,” according to an article in Bloomberg. Bacon, who the article describes as a “macro specialist”, became known for exploiting discrepancies between global interest rates and bond yields—but has found fewer opportunities to make money as central banks are once again easing monetary conditions. In… Read More

The Misery of Value Investing

A recent article in Institutional Investor discusses the challenges faced by value investors and the reasons behind them. “There’s no single reason for this unprecedently bad run for value investing,” the article notes, adding that investors have blamed everything from interest rates, indexing, regulation and lofty share valuations for the poor performance. The article highlights the following contributing factors: Price differential: Some investors blame the growing chasm between value and growth stock valuations, particularly FAANG… Read More