A Different Definition of Risk

By Jack Forehand (@practicalquant) —  Investment professionals like to use a myriad of fancy terms to measure risk. The problem with almost all of them is that they are in no way understandable for the average investor. Words like standard deviation, max drawdown, tracking error and Sharpe ratio are often thrown around to judge how risky a portfolio is. Those concepts are not only very difficult for investors to understand, but they also aren’t all that… Read More

The Market May Not Be As Expensive As You Think

By Jack Forehand (@practicalquant) —  The consensus opinion among followers of the market has been pretty consistent for some time now. The general belief is that the stock market is trading at one of the highest valuations it ever has, and that those lofty valuations bode very poorly for the future. I understand the narrative very well because I have been one of the people saying it. The data also backs it up. Market valuations tell… Read More

Lessons From a Quantitative Investing Conference

By Jack Forehand (@practicalquant) —  I had the privilege to attend the Democratize Quant conference last week put on by Wes Gray and the team at Alpha Architect. The conference allowed a small group of investors to come together to discuss the practice of quantitative and factor investing and the best way to use these types of strategies to build portfolios. Despite the fact that the conference focused on investment professionals, there were many lessons in… Read More

Why Artificial Intelligence Won’t Fundamentally Change Investing

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

Why Both Sides of the Active vs. Passive Debate Are Right

By Jack Forehand (@practicalquant) —  It has become a common belief in the investing community that passive investing is superior to active management. And there is a large volume of data that supports that argument. Over time, active managers have not produced sufficient returns to justify their fees. In aggregate, finance theory tells us that active managers as a whole will produce the same gross return as the market over the long-term, and their underperformance on… Read More

Some Ideas for Investing in a Low Return Environment

There is a very strong likelihood that returns for investors over the next decade will be significantly lower than what we have seen in the past ten years. With the trailing ten-year return of the S&P 500 at around 10% and the ten-year return of a 50-50 stock and bond portfolio at a little less than 7%, investors have become accustomed to above average returns. But long-term data indicates that these ultra-strong returns are very… Read More

The Misconceptions About Bubbles

By Jack Forehand (@practicalquant) —  Bubble has become one of the most overused words in finance. If you read the financial media, you would likely conclude that we are currently surrounded by bubbles. Not only are stocks currently in bubble territory, but bonds are also a classic bubble. And don’t even get them started about cryptocurrencies. Even with their decline, they are still commonly referred to as the greatest bubble of all time. Either all of… Read More

Three Things to Remember When Markets Decline

By Jack Forehand (@practicalquant) —  “People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.”  — Peter Lynch, One Up On Wall Street Market volatility is back. And with it comes a significantly elevated potential for rising emotions and the poor decision making that comes with them. For investors, now is as good a time as ever to take a step back… Read More

There is Never a Good Time For Active Management – But Now Might Be One

By Jack Forehand (@practicalquant) —  When active managers are struggling relative to their benchmarks, you will often hear the same description of the problem. They will talk about how the current period has been a rough one for active management, but things are about to change and we are moving toward a “stock pickers market” where the criteria they use to select stocks will begin working again. They will argue that active management will rise again… Read More

The Effect of Quantitative Easing on Investment Cycles

By Jack Forehand (@practicalquant) —  “Hindsight gives us the illusion that the world makes sense, even when it doesn’t make sense” — Daniel Kahneman This time is different. If there is one phrase in investing that I have seen consistently lead to bad outcomes, that is it. It is what you heard over and over again in 1999, when investors felt that we were in a new world and the rules of valuation that held up… Read More