The Importance of Expectations in Investing

By Jack M. Forehand (@practicalquant)  —  To make money in the markets, one needs to be an independent thinker who bets against the consensus and is right. – Ray Dalio I am a big New York Jets fan. So I am used to disappointment. The Jets haven’t appeared in the Super Bowl since 1969, which is the longest drought of any NFL team. Despite this history of losing, no matter how bad the predictions for… Read More

The Most Hated (And Most Loved) Investing Factor

By Jack M. Forehand (@practicalquant)  —  Factor investing requires a lot of patience. Despite the fact that research shows that many factors can produce outperformance over long periods of time, all of them will struggle at times in the short-term. And those struggles are typically long and difficult enough that most investors will abandon underperforming strategies in favor of what is working now. When that happens, that typically signals a bottom for the factor is… Read More

The Biggest Failure of the Investment Management Industry

By Jack M. Forehand (@practicalquant) —  The investment management business has improved dramatically in the past twenty years. The days of brokers selling high priced products to unsuspecting consumers that serve no purpose other than to line their own pockets are mostly gone. Fees have also fallen drastically, and efforts to educate investors on them by people like John Bogle have led to substantially increased investment in index funds and other low-cost products, which is… Read More

Some Thoughts On Improving the Predictive Value of Morningstar’s Ratings

By Jack M. Forehand (@practicalquant) —  The Wall Street Journal article last week that called into question the predictive value of Morningstar star ratings has caused a lot of debate in the investment industry. Many investors rely on Morningstar ratings to select funds and believe that selecting five star funds gives them the best chance of future outperformance. The Journal article shows that relying on those ratings to predict future performance is probably a bad… 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

Shift to Passive Investing May Not Influence Stocks Like Some Think

By Jack M. Forehand —  The massive move investors have made to passive vehicles over the past few years has been truly astounding. With most active managers underperforming their benchmarks by a wide margin recently and over longer periods of time, and charging higher fees to do it, investors have been moving their money out of active and into passive in droves. A CNBC article in April sums up the magnitude of the move: “Flows… Read More

Lessons From Over a Decade of Managing Money Using Quant Strategies

By Jack Forehand — When we started managing money, I used to focus on what I knew. Today, after over 12 years doing it, I have learned it is best to focus on what I don’t know because no matter how much you learn in this business, what you don’t know will always far exceed what you do. Looking back on everything I’ve learned, I’m pleased to say that the principles I initially believed have… Read More

Three Slogans that Don’t Work for Money Managers, But Should

By Jack M. Forehand — One of the interesting things about investing is that the approaches that work the best in raising capital and obtaining clients are often the worst approaches in terms of producing the best long-term outcomes. Things like chasing strong recent performance, owning the stocks everyone wants to own, and the belief that successful investing needs to be complex all look great on paper, but none of them typically lead to optimal… Read More

Factor Strategy Focus – Benjamin Graham

By Jack Forehand — When we started following guru-based models, the term factor investing didn’t exist. We just wanted to find a way to outperform the market, and we realized that only a very small group of investors had successfully done that – and we certainly weren’t in that group. So we decided to follow investors who had long-term records of beating the market and whose strategies could be quantified. We read their books and… Read More

What A 238 Mile Sailboat Race Can Teach About Investing

By Jack M. Forehand —  I have raced sailboats since I was 12 years old. It has always been a passion of mine. The combination of being on the water while doing something competitive at the same time has always been a big draw for me. Over Labor Day weekend, I competed in the Stamford Vineyard Race on a friend’s boat Threebeans. The race includes many exhilarating moments, but also significant down time, and during… Read More