Five Questions: An Academic Look at Factors with Lu Zhang

By Jack Forehand (@practicalquant) — One of the major challenges that the finance community has faced over the years is how to explain what drives stock returns over time. If the market is efficient, then the only way to generate excess returns is to take more risk. But risk only makes sense to take if you get compensated for it. Determining which risks receive that compensation has been the subject of significant research in the… Read More

Five Questions: A Wealth Manager’s View of Factors with Michael Batnick

By Jack Forehand (@practicalquant) — Factor Investing poses some interesting challenges for wealth managers. On one hand, the evidence is very strong that investing using factors produces superior to returns to market cap weighted indexes over the long-term. On the other, factor strategies introduce another set of behavioral problems for clients because the extended periods of underperformance that are common in factor investing can lead to bad decision making and underperformance relative to index funds… Read More

Five Questions: An Inside Look at ETFs with Chris Hempstead

By Jack Forehand (@practicalquant) — ETFs are both the present and the future of asset management. The combination of lower fees relative to mutual funds, tax efficiency, transparency, and intraday liquidity that they offer has led to rapid growth in the space. Although ETF assets still pale in comparison to mutual funds, it is hard to argue that they aren’t on their way to surpassing fund assets in the future. Despite the popularity of ETFs,… Read More

How ETFs Work – And Why All Investors are the Beneficiaries

By Jack Forehand (@practicalquant) — Wall Street has a reputation for enhancing itself at the expense of the individual investor. And that reputation is well deserved. It has been very common throughout history for firms on Wall Street to develop products whose primary goal is to make money rather than adding value for the investors who purchase them. So if you are looking for someone to defend the practices of Wall Street, I am not… Read More

Lessons from a Quantitative Investing Conference – Part Deux

By Jack Forehand (@practicalquant) Last week, I had the privilege of attending Alpha Architect’s annual Democratize Quant conference for the second time. The conference brings together leaders in the fields of quantitative investing and asset management to talk about the state of the business, and to share ideas to help all of us learn and improve our investment approaches. Given how good last year’s conference was (my summary of that is here), they were going… Read More

The Balance Between Simple and Complex in Investing

By Jack Forehand (@practicalquant) Successful investing can be complicated. And our natural inclination as human beings is to want to address complicated problems with complicated solutions. But that can be to our detriment at times. Jim O’Shaughnessy wrote an excellent tweetstorm on Twitter this week on the benefits of simplicity and it got me thinking about how difficult the balance between simple and complex can be in investing. From what I have seen in my… Read More

The Damaging Role of Biases in Investing

By Jack Forehand (@practicalquant) There are so many biases that can hurt your returns in investing that it is hard to keep track of them.  There is also no shortage of advice being given on how to recognize these biases and combat them. This advice would lead you to believe that if you just did certain things, you could escape their impact and prevent them from hurting you. There is one major problem with this… Read More

Five Questions: An Advisor’s View of Cryptocurrencies with Tyrone Ross

By Jack Forehand (@practicalquant) — There may not be a more polarizing topic in investing right now than cryptocurrencies. On one side, believers in the technology think it will change the world and will generate massive investment returns for those who invest in it. On the other, many believe that even after the recent significant declines, any money invested in the space is bound to be lost. Because of the strong opinions that exist on… Read More

Five Questions: Machine Learning in Investing with Kevin Zatloukal

By Jack Forehand (@practicalquant) — Artificial intelligence and machine learning are going to change investing in many ways. The ability of computers to think, analyze data, and react more and more like human beings has the potential to change everything from how advisors interact with their clients to how investment strategies are created to the fees that are charged for investment advisory services. While very few people dispute the potential for these technologies in investing,… Read More

Where Has All the Alpha Gone?

By Jack Forehand (@practicalquant) — Alpha has always been elusive in the stock market. Stock pickers have tried to produce it since the market has existed, but in aggregate they have been largely unsuccessful.  Almost any long-term study that has been done has shown that managers who consistently produce alpha are few and far between. In recent times, things have been getting even tougher. When the skill of managers rises and the tools available to them… Read More