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

The Double Edged Sword of Avoiding Value Traps

By Jack Forehand (@practicalquant) —   Value investing is full of pitfalls. It is easy to think that as a value investor all you need to do is buy cheap stocks and eventually the market will come around to your way of thinking, but that just isn’t the way things work in the real world. Many value stocks are cheap because they deserve to be. Some of them no longer have sustainable businesses, and as a result… Read More

If You Take Risk, Get Compensated for It

By Jack Forehand (@practicalquant) —   Investing can seem incredibly complex at times. With the rise of complicated computer-based strategies, more and more factors being discovered every day, and even more advanced techniques like machine learning rising to prominence, it can feel like investing is something that shouldn’t be attempted without a PhD. But underneath all that complexity are some very simple facts that have always held true historically and will continue to regardless of how complex… Read More

I Think, I Know, I Have No Idea

By Jack Forehand (@practicalquant) —   There are some areas of life where you can never have all the answers – no matter how much you know, how smart you are, or how good the school was you got from your degree from. Investing is one of those areas. As humans, we want to believe we can know everything. We want to believe if we work harder or read more, we can finally get to a place… Read More

The Losing Battle to Consistently Beat the Market

By Jack Forehand (@practicalquant) —   It is commonly accepted the beating the stock market over the long-term is really difficult. Over the past 15 years, about 70% of large-cap managers have trailed the S&P 500 and about 80% of small-cap managers have trailed the Russell 2000. Investors in these funds have done significantly worse than that. The so-called behavior gap, which measures the difference between a fund’s performance and the performance of investors within the fund,… Read More

Some Thoughts on Howard Marks’ Most Recent Memo

By Jack Forehand (@practicalquant) —   Howard Marks’ memos provide some of the deepest and most thought provoking insights in the investing world today. They are on par with Warren Buffett’s annual letters as one of the few must reads in investing today. Marks just recently posted a new memo, and the topics he covered were very close to home for me as someone who believes in quantitative and factor-based investment strategies.  The memo was titled Investing… Read More

Common Mistakes in Factor Investing

By Jack Forehand (@practicalquant) —   With the release of Michael Batnick’s new book “Big Mistakes: The Best Investors and Their Worst Investments” last week, the topic of mistakes in investing has been front and center on Twitter and on investing blogs. Many investors view mistakes as a topic they want to avoid. Most of us don’t want to admit when we’re wrong and we certainly don’t want to revisit it in the future and bring back… Read More

The Devil is Often in the Details in Investing

By Jack Forehand (@practicalquant) —  When you look up a word in the dictionary, you expect to get a pretty clear definition of what it means. There obviously is gray area with some terms and some have multiple definitions, but in general a word’s definition will give you a pretty clear understanding of it. When it comes to investing, it is common to take that mentality and assume it also holds. The reality, however, is that… Read More

Why What Sells Isn’t What Works in Investing

By Jack Forehand (@practicalquant) —  There are many disconnects in the asset management industry between what sells and what succeeds. Often, what is the most effective for obtaining clients is the exact opposite of what actually produces the best investment returns.  Every investor is subject to a series of behavioral biases that they probably don’t even recognize. Good financial planners use those biases for good by trying to make clients aware of them and helping to… Read More

“I Don’t Know” – The Most Important Phrase in Investing

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