The Dow’s Dilemma

In June, the Dow Jones Industrial Average ejected General Electric Co. in what a recent Wall Street Journal article describes as an “effort to adapt a 19th-century index to a 21st-century economy.” But the path to modernization of the index, the article says, is complicated, largely because of its price-weighted methodology. This differs from indexes such as the S&P 500, which is weighted by its components’ market capitalizations. “Critics also contend,” the article reports, “the index’s selection… Read More

Trouble for Quant Hedge Funds

The rise in market volatility has resulted in poor results for many quant funds, according to a recent Bloomberg article that says, “They were caught flat-footed in February when markets turned turbulent on concern over rising interest rates, followed by trade wars with China and the election in Italy.” The article reports that Renaissance Technologies, the world’s most profitable hedge fund, is trailing its benchmark in one fund this year (through mid-June) and that Jaffray Woodriff,… Read More

Wall Street Looks to Superforecasting

The importance of accurate forecasting is leading some firms to using so-called superforecasting—a statistical approach in which “large numbers of estimates are averaged to find the most likely answer.” This according to a recent article in The Wall Street Journal. “In finance,” the article asserts, “a good forecast can mean the difference between bumper earnings and bankruptcy.” Superforecasting involves a complex process whereby individual predictions are “combined and weighted, based on timeliness and past accuracy,… Read More

Morningstar on Investment Truths

A recent article in Morningstar recounts insights from AQR’s Cliff Asness on the following two questions: Can current stock valuations help predict future returns?  “Probably yes,” writes Asness, “but not for the reason you think.” The article cites an AQR paper that highlights the problem with making predictions from long-term stock market figures such as the Shiller P/E ratio. The paper concludes that “without building economic structure into the modeling, there is little hope of… Read More

If You Take Risk, Get Compensated for It

By Jack Forehand (@practicalquant) —   Investing can seem incredibly complex at times. With the rise of complicated computer-based strategies, more and more factors being discovered every day, and even more advanced techniques like machine learning rising to prominence, it can feel like investing is something that shouldn’t be attempted without a PhD. But underneath all that complexity are some very simple facts that have always held true historically and will continue to regardless of how complex… Read More

In a Trade War, Investors Hide in Small-Caps

Small-cap stocks, which tend be “insulated from overseas turmoil” have been performing well against the backdrop of a looming trade war with China. This according to a recent article in The Wall Street Journal. Since the beginning of the year, the article reports, the S&P Small Cap 600 is up 12.4% (versus 3.5% for the S&P 500) and the Russell 2000 has gained 11.2%. “A rising dollar and concerns about weaker global growth are also… Read More

Economist Says U.S. Recession Possible in 12 Months

David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates Inc., said that January’s high in the S&P 500 “will prove to be the peak of the bull market and the U.S. recession may start in the next 12 months.” This according to a recent article in Financial Advisor. Rosenberg, who the article reports was one of the first economists to warn of the Great Recession, spoke last month at the Inside ETFs Canada… Read More

Hedge Funds Share Best Ideas Before Dumping Stocks

A recent article in Bloomberg discusses the tendency for hedge funds to pitch their best investment ideas at investor conferences, only to then “sell pitched stocks after the conferences to take profit and create room for better investment opportunities.” The article reports that a new study by Harvard doctoral student Patrick Luo (in which he reviewed nearly 30 investment conferences that took place between 2008 to 2013) shows that “on average, a hedge fund manager… Read More

Will Future Robo Advisers Be More Ethical?

According to a recent article in The Wall Street Journal, the robo-advisers of tomorrow are expected to be smarter, and “might even have a conscience.” Today’s robo-advisers, the article explains, use algorithms to “provide low-cost, automated portfolio-management services to investors seeking discount advice,” but the tools have limitations. “Critics say not only are robots incapable of providing the kind of personalized, sophisticated financial-planning guidance that human wealth managers can deliver, they don’t understand right or… 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] Considerations in Momentum Investing [2] Howard Marks: Computers Won’t Replace the Best Investors [3] Paul Tudor Jones Sees Year-End Rally Spoiled by Fed [4] Top Strategist Tells Investors to Focus on Growth ——- Photo: Copyright: arcady31 / 123RF Stock Photo