Five Questions: Tackling Some of the Toughest Questions in Investing with Michael Mauboussin

By Jack Forehand, CFA (@practicalquant) There are many skills that can benefit you as an investor. Being smart is certainly an asset, although it can also get you in trouble if you don’t know your limitations. The ability to control your emotions is also a huge plus. But I think the most important skill may be the ability to think critically. Having a process you use to view the investing world through and following that… Read More

One Fund’s Long Time Frame is Paying Off

The Akre Focus Fund takes the buy-and-hold strategy seriously, according to an article in The Wall Street Journal. John Neff, one of the $9.8 billion fund’s portfolio managers, explains that investment decisions are made based on four criteria: Analysis of a company’s business model, which involves looking for a “significant competitive advantage, high return on capital and attractive growth prospects.” Strong leadership in the form of “management teams with equal parts skill and integrity, because… Read More

Successful Investing: Process Elements and Personality Traits

“To be good investors or research analysts, we need the right genetic predisposition and then must create the right circumstances to practice and hone these skills,” writes Joachim Klement, CFA in a recent article for CFA Institute. Klement prefaces his argument with a discussion about how, surprisingly, the influence of genetic traits increases over time, perhaps because our environment “reinforces genetically determined talent and hones this talent through deliberate practice”. He segues the discussion into… Read More

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