Testing the Buy-and-Hold Gospel

A recent Wall Street Journal article by columnist Jason Zweig dispels myths regarding history’s market crashes and offers insights regarding how they relate to today’s market and to a “buy-and-hold” strategy. Zweig writes, “Everybody ‘knows’ the market collapsed in 1929 because euphoric speculators bingeing on borrowed money drove stocks to absurd heights. That isn’t true.” Although at the time some stocks were expensive, Zweig points out that most weren’t. “Many major companies traded at 14… Read More

Five Questions: Lessons From Finance History with Jamie Catherwood

By Jack Forehand, CFA (@practicalquant) Recency bias can be a major issue for many investors. When we analyze the probability of any event in the market occurring, we tend to rely more on the recent past than we should. That can mean that we give too much credence to the most recent year or most recent few years. But it can even go further back than that. For example, when we think about what a… Read More

How History Informs the Valuation Discussion

In a recent article for Fortune, Ben Carlson writes, ”Market valuations are an important input into the investing process. But the relationship between the markets and valuations is far from perfect and requires context when thinking about what sky-high valuations mean for today’s investor.” According to Carlson, according to data going back to 1945, a case could be made that the current market pricing should be even higher given the low level of interest rates:… Read More

A Look at How the Largest Market-Cap Companies Have Changed

A recent article in Visual Capitalist reflects on how the make-up of the world’s largest companies has changed over the past twenty years through a series of charts and explains, “as the broader market narrative changes, so goes the list of the world’s largest companies.” The charts, ordered by market capitalization of the 10 largest public companies in the world in the second quarter of each year (over five-year intervals) offers a “series of snapshots… Read More

The Next Bear Market Could See a 35% Dip in Dow

In a recent article for MarketWatch, columnist Mark Hulbert explains that the severity of the next bear market has become a pressing question of late, “since Wall Street has shifted from whether a U.S. recession will occur in the next 12-18 months to when.” To determine whether the severity of the next bear market could be predicted, Hulbert analyzed all 36 bear markets since 1900 (data from Ned Davis Research). His findings are charted below:… Read More

Hulbert: The Bull Market is Only Three Months Old

An article in MarketWatch  by columnist Mark Hulbert says the bull market that began in March of 2009 “came to an end long ago. If we’re even in a bull market right now—and that is not for sure—an argument can be made that it’s less than three months old.” Given what Hulbert describes as the “semi-official” definition of a bear market is a 20% decline in one or more of the major market averages,” he… Read More

The Benefits of Base Rates

By Jack Forehand (@practicalquant) —   Wall Street prediction season is upon us. It is the time of year when all the major investment banks and market pundits will issue their 2019 market outlooks. They will tell you what they think will happen in the next year and will even by nice enough to give you exact price targets they think the S&P 500 will reach by year end. Unfortunately for all of us, those predictions won’t… Read More

JPMorgan: Late Cycle Can Bring Big Gains

A recent Bloomberg article addresses the question of whether to “push the sell button on winning trades,” given that the global economy has entered the late stages of the current cycle. According to JPMorgan, the article reports, investors shouldn’t be in a rush. In a recent note, JPMorgan global market strategist Samantha Azzarello wrote, “Indeed, this ‘late stage’ could be long, sticky and drawn out, just like the broader cycle. Calling the end would be… Read More

Investor Lessons from the Summer of ’69

According to BlackRock Inc. strategists, similarities between the late sixties and today are raising concerns regarding the implications of rising inflation expectations and bond yields, says a recent Bloomberg article. “The late sixties was when late-cycle fiscal stimulus contributed to runaway inflation, leading the Federal Reserve to aggressively raise interest rates, which was followed by an inverted yield curve and a recession,” the strategists argue, which led to a drop in both stocks and bonds. According… Read More

Shades of the Swinging Sixties Raise Inflation Fears

A recent Bloomberg article underscores the similarity between today’s market conditions and those of the 1960s; specifically, how low unemployment set inflation on an upward run, “virtually doubling over the year to 3 percent.” Some economists, the article reports, see trouble looming again. The article quotes Paul Tudor Jones, founder of hedge fund Tudor Investment Corp., who told Goldman Sachs, “This reminds me of the late 1960s when we experimented with low rates and fiscal… Read More