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

The Pros and Cons of the Shiller P/E Ratio

By Jack M. Forehand — The Shiller P/E (CAPE) Ratio has become one of the most widely followed market valuation metrics.  It became popular during the Technology bubble in the late 90s because it provided a unique perspective on how overvalued stocks had become during that high flying period. The Shiller P/E has been popularized by Robert Shiller, a Yale University Professor of Economics and Noble Prize winner. Shiller is the author of a number… Read More

There’s One Investing Edge Left – And Anyone Can Capitalize On It

By Jack M. Forehand —  “In investing, what is comfortable is rarely profitable.” – Rob Arnott Wall Street has become an incredibly difficult place for anyone to get an edge. With technology taking over the market, any small mispricing is typically corrected very quickly. And talent within the industry is also as good as it ever has been. Over 17,000 people were awarded CFA charters following the most recent exam. That is more than double… Read More

A Practical Approach to Quant Investing

By Jack M. Forehand — This is the first post in a new series we will feature on the Guru Investor that will take an in depth look at quantitative and rules-based investing, and models and strategies that work in the market over the long-term. At Validea, we have been running rules based strategies since 2003 and over the years, we have learned many things about what works, what doesn’t, and how to interpret it… Read More