Knowing When Your Investment Process Has Failed

By Jack Forehand (@practicalquant) —   It is widely accepted in investing that process is more important than outcome. Investing strategies that have no long-term basis can work very well in the short-term, and strategies that have proven themselves over time can struggle for long periods of time. So the most readily available information to evaluate an investment process (short-term performance) is usually the least reliable. The balance of evaluating process vs. outcome is crucial to investing… Read More

What Gambling and the Oakland A’s Can Teach You about the Importance of Process

By Jack Forehand (@practicalquant) —  I have a friend who is an infrequent gambler and won money almost every time he went to the casino. He did it by exclusively playing the slot machines. His approach involved sizing up the room and using his gut feeling to determine which machine to play. He used a similar approach to determine how much to bet. When that gut feeling approach said one machine was no longer likely to… Read More

Creativity in Investment Process

A recent article in the CFA Institute’s enterprising Investor explores the role of creativity in investing, highlighting legendary investor Peter Lynch’s comment to “invest in what you know,” but also pointing out that Lynch believed “it was also necessary to support [creative] insights with traditional, in-depth research.” Freelance author Ed McCarthy asks: “Where do creative investment ideas originate? Are investment managers at the mercy of serendipitous, eureka-like moments and automated screens, or can creativity be… Read More

How Your Brain Hurts Your Returns – And What You Can Do To Stop It

What’s the biggest obstacle to investment success? Validea’s John Reese says it may well be our own brains. “The capabilities of human beings’ brains are staggering,” Reese writes in his latest piece for Forbes.com. “Over the course of many millennia, the development of our brains has allowed us to outsmart dangerous predators, build enormous cities and create complex machines like computers and automobiles. Our brains let us think abstractly, plan for the future and create… Read More