New evidence suggests that investors may be shifting their habit of buying high and selling low, according to a recent article in The Wall Street Journal. The article reports that a Morningstar study published in June found that the average mutual fund gained 5.79% annually over the 10 years ended March 31st while the average investor gained 5.53%–the 0.26 difference representing a much narrower gap than in the past. Over the decade ending 2013, for example,… Read More
By Jack Forehand (@practicalquant) — Certainty is often seen as a sign of strength in life. When someone is telling us the best course of action within their field of expertise, we want them to do so with a level of conviction that implies no other outcome is possible than the one they are telling us is going to happen. Think about it. You bring your car into the shop, you want to know definitively what… Read More
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
In a recent episode of WealthTrack, Consuelo Mack interviewed Gotham Asset Management’s Joel Greenblatt, who shared his thoughts on active and passive investing and how he has combined the two in an effort to discourage investors from bailing out of a strategy in tough times. Greenblatt explained that human nature leads investors to pile into well-performing funds and pile out of underperformers—which ends in lost opportunity and dollar losses as well. He discussed the genesis… Read More
By Jack Forehand (@practicalquant) — Artificial Intelligence is going to change the world. It already has in many ways. But its best days are still ahead of it. So many industries, ranging from technology to healthcare to manufacturing, will experience huge benefits from its vast potential. Investing is one of the areas AI might have the most impact. There are a myriad of uses for AI in investing, and almost all of them will be big… Read More
Bulls should be “as confident as ever,” writes columnist Nir Kaissar in a recent Bloomberg article. Emphasizing that “panicking is never a good plan when it comes to investing,” Kaissar writes, “but it’s particularly silly now, because nothing truly eventful has happened yet.” The economy continues to grow, he writes, and the market’s full valuations are supported by corporate earnings expectations as well as low interest rates. The recent sell-off, he adds, will “undoubtedly make the… Read More
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
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
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
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