A Fund that Profits from Investor Mistakes

A recent Barron’s article offers a profile of Raife Giovinazzo, a former student of Nobel Laureates Daniel Kahneman and Richard Thaler, who has managed the $370 million Fuller & Thaler Behavioral Small-Cap Equity Fund since 2013. The fund, which the article says, “employs the principles of behavioral finance,” has risen nearly 17% per year over the past five years, beating 99% of its small-cap fund peers. According to the article, Giovinazzo argues that “behavioral mistakes… Read More

Tips for Being a Smarter Investor

A recent Kiplinger article offers an overview of an interview with Raife Giovinazzo, Ph.D., a partner at Fuller & Thaler Asset Management, a firm that invests based on behavioral finance principles (Giovinazzo earned his doctorate under Nobel Laureate Richard Thaler). The following are some highlights: Why don’t markets behave rationally? According to Giovinazzo, “It’s not that we’re stupid or overly emotional. It’s just that being human means that sometimes we’re going to make mistakes.” Giovinazzo’s… Read More

Ritholtz on Why We’re Bad at Forecasting

Forecasts are unproductive, writes Barry Ritholtz in a recent Bloomberg article, and we should not make investment decisions based on them. Ritholtz offers a list of reminders for readers of “what we know about forecasts and predictions, and why they are so rarely right.” Here are some highlights: We’re generally bad at it. “Examples are everywhere,” Ritholtz argues, citing how data provides clear evidence to support our failings at economic forecasts, expectations of future technologies,… Read More

Can Behavioral Economics Be a Channel to Profits?

Psychological biases lead to market overreaction and underreaction, and it can be difficult to discern which is happening at any given point, according to a recent article in Bloomberg. “For an investor, the idea that other people are making poor decisions is a tantalizing one,” the article states, which raises the question of if and how the predictable irrational behavior of humans can translate into stock market patterns that can be exploited by traders. ”… Read More

Lessons From Over a Decade of Managing Money Using Quant Strategies

By Jack Forehand — When we started managing money, I used to focus on what I knew. Today, after over 12 years doing it, I have learned it is best to focus on what I don’t know because no matter how much you learn in this business, what you don’t know will always far exceed what you do. Looking back on everything I’ve learned, I’m pleased to say that the principles I initially believed have… Read More

Investor Behavior Shows Delayed Reaction to News

A new study by Columbia Business School economists shows that the influence of news on financial markets is “often greater a year after the report than a month,” according to a recent article in Barron’s. The study analyzed how stock markets in 51 countries reacted to “millions of news items written by Reuters over a 19-year period ended in 2015.” The researchers conclude that the delayed reaction to news occurs because “of the time it… Read More

Investor Returns Hurt by Attempts to Time the Market

The average investor has lagged behind the average fund for the past 10 years, writes Russel Kinnel, Director of Mutual Fund Research at Morningstar. The reason, he says, is that “in aggregate, investors’ timing is not very good.” Kinnel cites data showing that, for the ten years ending 2016, the average investor saw mutual fund returns of 3.96% even though the average return for those funds was actually 4.33%. Kinnel points out that there are… Read More

Stock Picks for the Level-Headed Investor

When buying stocks, it is essential for investors to value process over outcome, says guru James O’Shaughnessy during a recent speaking engagement. This according to a recent Nasdaq article by Validea CEO John Reese. O’Shaughnessy shares a cautionary tale of a client who would knee-jerk when the market rose or dipped, often buying or selling based on emotion rather than on fundamentals. He stresses, writes Reese, how this practice will “get you into trouble, since… Read More

Greenblatt Blends Active and Passive Strategies in New Fund

Joel Greenblatt, managing partner of Gotham Asset Management, may have figured out a way to make active strategies appeal to passive investors, according to a recent article in Forbes. The legendary investor and author of The Little Book that Beats the Market (2010) has started a new fund called the Gotham Index Plus Fund that seeks to bend passive an active management strategies by tracking the S&P 500 and using it, the article says, as… Read More

The Realities of Pretend Investing

At the end of November, The New York Times ran an article by columnist and CFA Carl Richards that addresses how the tendency to invest based on emotion rather than reality can be dangerous to the investor. Richards contrasts “pretend” versus “real” investors as follows: “Pretend” Investors “Real” Investors Are drawn in by what they see and hear on television. Would never make an investment decision based on television news. Think it makes sense to… Read More