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

What Gambling and the Oakland A’s Can Teach You about the Importance of Process

By Jack Forehand (@practicalquant) —  I have a friend who is an infrequent gambler and won money almost every time he went to the casino. He did it by exclusively playing the slot machines. His approach involved sizing up the room and using his gut feeling to determine which machine to play. He used a similar approach to determine how much to bet. When that gut feeling approach said one machine was no longer likely to… Read More

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