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

The Case for Value Stocks

By Jack Forehand, CFA (@practicalquant) —  Value stocks have lost their mojo. After an extended period from 2000 to 2007 where they outperformed growth stocks by a wide margin, they are now in one of their longest periods of underperformance ever. The below chart shows the iShares Core US Growth ETF against the iShares Core US Value ETF from 2007 to the present. As you can see, growth has outperformed value by almost 3 to… Read More

The Realities of Mean Reversion

By Jack Forehand, CFA (@practicalquant)  “Importantly, reversion to the mean in the investment business extends well beyond the results for mutual funds. It applies to classifications within the market (small capitalization versus large capitalization, or value versus growth), across asset classes (bonds versus stocks) and spans geographic boundaries (U.S. versus non-U.S.). There are few corners of the investment business where reversion to the mean does not hold sway.” – Michael Mauboussin Mean reversion is one of… Read More

You Can’t Time The Market – But Many People Should

By Jack Forehand, CFA (@practicalquant) — There are few topics that are more controversial in the stock market than market timing. Most long-term investors will tell you that market timing is impossible. Given that in order to time the market, you not only need to know when to get out, but also when to get back in, you can see why they think that. And on top of that, many market declines are just corrections… Read More

The Most Expensive Investing Factor

By Jack Forehand, CFA (@practicalquant) —  Factor investing is a long-term pursuit. Successfully following a factor-based approach is a function of studying what works over time, implementing it in a disciplined way, and then staying the course through what will inevitably be long periods of underperformance to achieve your long-term goals. Because factors can move in and out of favor for extended periods of time, implementing timing strategies to move in and out of factors… Read More

What BitCoin Can Teach You About Investing

By Jack Forehand, CFA (@practicalquant) — I am unfortunately not one of the people who has enjoyed the two thousand plus percent return of BitCoin this year. I have spent a lot of time studying it, and in hindsight I certainly wish I had bought it when I began that research process, but as a disciplined (at least most of the time) value investor who runs fundamental based investment strategies for a day job, I… Read More

The Dangers of Data

By Jack M. Forehand, CFA (@practicalquant)  —  “If you torture the data long enough, it will confess.” – Ronald Coase  “He uses statistics as a drunken man uses lamp posts—for support rather than for illumination.” – Andrew Lang The stock market is really overvalued. Take a look at this chart below. The current Shiller PE ratio of 32 is double the long-term average of 16 and we are now at the highest level ever seen… Read More

The Two Most Important Investing Decisions

By Jack M. Forehand (@practicalquant)  —  There are so many interesting things to debate in investing. The active vs. passive debate has been the subject of more articles than I can count. Although the conclusion that most people should invest passively is clear, there are many nuances to it that continue to be debated every day. And for those people that do decide to be active, there are a variety of decisions that come along… Read More