Five Questions: Factor Investing with Jim O’Shaughnessy

By Jack Forehand (@practicalquant) Factor investing has grown dramatically in recent years. But it is far from new. As those of us who invest using factors seek to learn more about them and the best way to utilize them in our portfolios, there is no better place to turn than those who have been there since the beginning. For this week’s interview, I have the privilege of talking to Jim O’Shaughnessy. Jim was a factor… Read More

The Bull Market Has Bred Skepticism

The bull run that followed the 2008 financial crisis is widely considered the greatest of the past century, but according to an article in The New York Times, “despite the superlatives, this rally’s primary characteristic is how much skepticism it generated.” The article points out that the rally of the past decade has not reached the “intensity of gains that defined the stock market bubbles of the 1920s and 1990s.” Instead, it explains, many investors… Read More

Five Questions: A Wealth Manager’s View of Factors with Michael Batnick

By Jack Forehand (@practicalquant) — Factor Investing poses some interesting challenges for wealth managers. On one hand, the evidence is very strong that investing using factors produces superior to returns to market cap weighted indexes over the long-term. On the other, factor strategies introduce another set of behavioral problems for clients because the extended periods of underperformance that are common in factor investing can lead to bad decision making and underperformance relative to index funds… Read More

Jim O’Shaughnessy on the Psychology of Investing

In a September interview on the Off the Chain podcast, legendary investor James O’Shaughnessy shared insights on human nature, psychology, and how they manifest in investing decisions. Here are some highlights: On cryptocurrency, O’Shaughnessy explained that he doesn’t know enough to be a “bull or bear.” O’Shaughnessy believes that crytocurrency, which is based on a deflationary monetary model, has some appealing aspects and might represent a store of value if it saw less volatility. But… Read More

Our Beliefs Don’t Predict Economy

An article in The New York Times by Nobel Laureate Robert Shiller argues, “The more we learn about how people really think, the more we must rethink economic theory.” Shiller highlights the findings of two new studies that show how people “systematically change their beliefs in thinking about the financial future.” The authors of the 2018 paper, he reports, “attribute some of the economic pain that occurred after the 2008 financial crisis to a change… Read More

Market Resilience from Investing “House Money”

The market’s resilience over the past year might be due to an investor perception that they are “playing with house money,” according to a Barron’s article. The article explains that this human tendency is rooted in behavioral finance research findings showing how the human brain suffers more from loss than it feels pleasure from the same amount of gain. Nicholas Colas, co-founder of firm DataTrek, says this runs counter to much of classical economic thought. In… Read More

How an Investment Strategy Can Be at the Top and Bottom at the Same Time

By Justin J. Carbonneau (@jjcarbonneau) —  Imagine you’re presented with two investment models. Both hold a concentrated basket of 10 stocks, both are rebalanced monthly and both are built on factor-based investing methods. One of the strategies, let’s call is Model A, is up 58.1% for the year compared to a gain of 20% for the broader market. Ok, that 38% outperformance is pretty impressive. What about the other strategy, Model B, you ask? Well,… Read More

Are We Partying Like its 1999?

By Jack M. Forehand (@practicalquant) —  One of the most common comparisons I hear for the current state of the stock market is the bubble of the late 90s. With the market seemingly setting new highs every day, valuations stretched, and technology stocks leading the way, there appear to be many similarities on the surface. When you look deeper, however, there are also some clear differences. Given that the 90s rally ended on a bad… Read More

In a High Market, Investors Should Prepare for a Downturn

A recent article by Jeff Sommer of The New York Times poses the question: “Is this the top of the market? Is it time to sell?” “Simply put,” writes Sommer, “my answer is this: If you’re a stock investor, be prepared for a major decline, not because one is necessarily coming soon but because no one can predict where the markets are heading.” The article points out that the current economic expansion is the third… Read More

Morgan Housel: Discomfort the Key to Investing Success

 A key component of becoming a successful investor, writes Morgan Housel of the Collaborative Fund, is the “ability to be comfortable being uncomfortable.” Investors, he says, “have a fascination with no-brainers, obvious decisions, and easy money. The phrases should be chapter titles in a book on the ease of deluding yourself.” He argues that finding well-performing investments requires above-average intelligence but also the willingness to “endure more discomfort and uncertainty than others.” Housel cites a comment… Read More