Hindsight Capital’s Decade of Wins

A recent article in Bloomberg chronicles the past decade’s track record of a “mythical” hedge fund called Hindsight Capital LLC with a tongue-in-cheek account of its wildly successful trades. The article begins with an account of the “simple truths” grasped by Hindsight’s managers at the start of 2010: That the global economy would suffer “shock” so severe that inflation wouldn’t return. The Fed would not allow asset prices to fall. “The euro zone and its… Read More

As Stocks Hit New Highs, Money-Losing Companies Mushroom

The number of loss-making companies in the U.S. has bloated to 40% over the last 12 months, the “highest level since the late 1990s of post-recession periods,” says a recent article in The Wall Street Journal. The article cites Tesla as the biggest of the loss makers, noting that its share price doubled within three months: “Tesla shows a desire by investors to back disruptive companies as they build their sales.” General Electric, with a… Read More

Move Your Money to Increase Say on Corporate Behavior

While fund manager fees and performance are widely covered, “relatively little attention has been given to their role in corporate governance,” says an article in The New York Times that argues, “C.E.O.s have performed an artful head fake with their high-sounding promises.” The article shares some interesting findings on the subject from a Morningstar study that analyzed proxy votes cast by large mutual fund companies in 2019. The study found, for example, Vanguard and BlackRock—the… Read More

The Biggest Mistake of My Career, And What l Learned From It

By Jack Forehand (@practicalquant) It was a cold October day in 2016. I woke up at 3 AM to fly to see the biggest institutional client we had in our investment management business. We had jointly launched two funds with them in 2007 with a small seed investment they provided. Their head of new products had been a subscriber to our research website and had the idea to develop funds based on the quantitative strategies… Read More

Capitalism is Ruling Without Capital

The stock market is “increasingly populated  by intangible companies,” according to a recent article in Bloomberg that discusses the trend’s implications. “Some 40% of public stocks quoted in the U.S. have negative tangible book value, meaning that their tangible assets aren’t worth enough to repay all their debt,” the article says, comparing the situation to twenty years ago when this was true for only 15% of companies (data from INTL FCStone Inc.). While this might… Read More

Damadoran on the Dilemma of Disruption

At the 2019 CFA Institute Equity Research and Valuation Conference, NYU finance professor Aswath Damadoran spoke about disruption and the challenge associated with valuing disruptors. “As human beings, we don’t like to deal with uncertainty,” he said, adding that we typically respond with either prayer, denial, heuristics, herding behavior, or by outsourcing to experts. For investment professionals, however, Damadoran argues that the “disruption dilemma” goes much deeper because it brings uncertainty into “every number that… Read More

Thaler Warns to Sell Losers Before 2019

In a recent interview with Barron’s, behavioral economist and Nobel Laureate Richard Thaler said that although investors should sell their losing stocks at year-end, they resist doing so. Thaler said, “The most common mistake at the end of the year has an interesting behavioral twist, which is the failure to sell losers. We all know that if you have a choice between selling a winner and a loser, it’s a good idea to sell a… Read More

Buffett’s Resolutions for 2020

This past year was “unremarkable” for Warren Buffett’s Berkshire Hathaway as the conglomerate’s cash hoards continued to grow and any “elephant” acquisitions remained elusive. This according to a recent article in Bloomberg. The article notes that although the past year was “boring” for Berkshire, it marked the end of a “transformative” decade that included the following events: Berkshire’s purchase of BNSF, “America’s most expansive railroad systems” as well as recognizable brands such as Duracell and… Read More

Excess Returns, Episode 6: The Case Against Value Stocks

Confirmation bias is one of the biggest problems in investing. We all have a set of core beliefs, and we tend to surround ourselves with people who also believe them and focus on information that validates them. That can be dangerous, though, because it can blind you to valid arguments that contradict your own. In this episode, we challenge our belief in value investing and discuss some of the reasons why we could be wrong.… Read More

Stock Market Forecasts are Mostly Worthless

A recent article in The New York Times suggests ignoring the predictions of Wall Street strategists in favor of investing in cheap, diversified index funds. “Strategists, some of whom are very smart, are issuing precise predictions for where the market will be in 12 months and they look authoritative,” the article says, adding, “The record shows that they are not as rock-solid as they appear. In fact, many Wall Street strategists are flagrantly inaccurate.” While… Read More