Investing in the stock market is a risky activity. The obvious risks like losing a large portion of your portfolio during a bear market, or underperforming the market by a wide margin if you employ an active strategy can be more than many investors can handle. Given th high level of risk that is inherent in investing, it doesn’t make sense to take more risk than you have to. But many of us do. The… Read More
By Jack Forehand, CFA (@practicalquant) Recency bias can be a major issue for many investors. When we analyze the probability of any event in the market occurring, we tend to rely more on the recent past than we should. That can mean that we give too much credence to the most recent year or most recent few years. But it can even go further back than that. For example, when we think about what a… Read More
By Jack Forehand, CFA (@practicalquant) Factor strategies have grown exponentially in the past decade. Almost every major asset manager now offers their variation of things like value, momentum, quality, and low volatility, and each of them has their case as to why their approach is better than the others. But at their core, all these strategies rely on one basic principle – that if you invest using factors, you will earn an excess return over… Read More
A new study shows that TV commercials can have a real-time effect on investor behavior, according to a recent article in The Wall Street Journal. Researchers found that “TV ads create an immediate—and unexpected—spike in curiosity among individual investors” which leads to a slight bump in trading activity in the advertiser’s stock. Specifically, the study shows that within 15 minutes after a commercial has aired, there is on average a 3% uptick in queries to… Read More
Even after 12 years of U.S. mega-cap outperformance, Principal Global Investors argues that the asset class will provide some measure of protection to investors as markets adjust to slower global growth and continuing low interest rates. This according to an article in Institutional Investor. After performing a “peak-to-peak” analysis of the asset class’s performance between October 2007 and April 2019, Principal determined that the outperformance of mega-caps was driven primarily by a “consumer and technology… Read More
In a recent interview, Morningstar’s Alex Bryan, director of passive strategies research in North America, offered insights regarding how investors might approach foreign exposure in their portfolios. Here are some highlights: Even though international stocks tend to be a bit more volatile than U.S. stocks because they are priced in foreign currency, Bryan says, diversifying is important because U.S. stocks go through periods of underperformance relative to international shares. Bryan says that international stocks can… Read More
A recent article in The Wall Street Journalreports that the publication’s quarterly survey of actively managed U.S.-stock funds shows that “boring can be beautiful. In fact, in the midst of volatile markets, being downright dull can prove the recipe for investment.” The common denominator in the WSJ list of Winner’s Circle finalists, it says, is the “underweighting or ignoring” of the household name holdings (i.e. Apple, Google and Facebook) in favor of “lesser-known businesses able… Read More
A recent note from strategists at JPMorgan Chase says that we are seeing “the largest relative valuation bubble in modern equity market history,” with value stocks trading at the most depressed levels compared to growth stocks in almost twenty years. This according to an article in Bloomberg. The article notes that when value stocks dropped to similar levels in 2000, “they went on to surge more than 50% against their opposing cohort in the next… Read More
In a recent article for Fortune, Ben Carlson writes, ”Market valuations are an important input into the investing process. But the relationship between the markets and valuations is far from perfect and requires context when thinking about what sky-high valuations mean for today’s investor.” According to Carlson, according to data going back to 1945, a case could be made that the current market pricing should be even higher given the low level of interest rates:… Read More
Although the value strategy has fallen on hard times for the past 12 years causing many to question whether it still works, historical data shows that the value advantage exists. This according to an article in Forbes. The article offers the following chart by financial advisory firm Dimensional: The article states, “This chart illustrates that although the ten years from 2006-2015, 2007-2016, and 2008-2017 have been some of the worst decades for Value investing, the… Read More
In a recent interview with Barron‘s, GMO strategist James Montier shared his concerns about the U.S. stock market and his bullish view on modern monetary theory (MMT), which he has found to be “good model for governments’ interactions with the market.” Here are some highlights: Montier breaks MMT down into the following components: “Money exists because it’s created by the state. The U.S. dollar has value because you have to pay taxes in it.” “If… Read More