Hulbert: Is the Traditional Method for Measuring Value Stocks Wrong?

In an article for The Wall Street Journal, columnist Mark Hulbert addresses what he describes as the “urgent” question of whether value investing or dead or merely suffering from an incorrect valuation method. Noting that value stocks—when defined by the traditional criterion of low price-to-book-value ratio—have fallen behind growth stocks for at least ten years, Hulbert cites growing concern as to whether they will come back as they have in the past. “That’s because,” he… Read More

Quant Investor Cliff Asness Defends Factor-Based Strategies

Prompted by a lackluster performance year, AQR Capital Management founder Cliff Asness wrote a 23-page essay defending his factor-based investing strategies according to a recent Bloomberg article that features an interview with the billionaire. Here are some highlights: Asness believes that there is a “minor crisis in confidence” for some quants, but that it’s misplaced. “We’ve seen periods like this quite a few times before.” He contends that his firm expects to “win long term,… Read More

How to Find Value in a Complicated Market Environment

An article in Morningstar outlines a discussion with global equity manager Peter Wilmshurst regarding how his team chooses strong value stocks within an increasingly expensive global environment. Wilmshurst says, “I think when most people make observations about what the share market has done, how expensive it is, they go to the U.S. The U.S. is the biggest market. It’s the biggest country in pretty much all our portfolios at this point in time. But there’s… Read More

Greenblatt Mixes Active and Passive in One Fund

An article in Barron’s profiles the evolution of the Gotham index Plus fund, which was created by Gotham Asset Management founder Joel Greenblatt in an effort to “marry the steadiness of index investing with the market-beating advantage of active management—which, in  this case, means both stock-picking and shorting.” The fund is now three years old, and the article reports it has returned 15.7% annually since its inception, “ahead of the S&P 500’s 13% and 99%… Read More

The Benefits of the Other Side

By Jack Forehand (@practicalquant) —   Polarization has become the new thing. Everyone seems to have such strong opinions one way or the other on every issue that they just can’t see how the opposite opinion to their own is even possible. They can’t see how a rational human being could think differently than them. Obviously, the biggest place we currently see this is in politics. More and more political opinions are cast in stone and are… Read More

How Long is Long Term in Investing?

By Justin J. Carbonneau (@jjcarbonneau) —  As investors, we are taught to try and think long term. The story goes something like this — invest in stocks, stay disciplined and patient and let your money compound over many years or even decades and you can growth your wealth. I strongly believe in that story, but the reality is for many investors the definition of “long-term” becomes too narrow and time focused. When thinking about long… Read More

Are Value Stocks Poised for Growth?

Value investing has fallen on tough times, and is “getting tiresome even for those famous for their patience,” according to a recent Barron’s article. On the face of it, value investing should work, the article argues. “At its most basic, it’s buying stocks that are cheap and holding them until the rest of the market realizes these great companies are selling at a bargain price, and pile in, driving prices up.” But since 2006, it… 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

Aiming for Private Equity-Like Returns Using a Small Cap Value Quant Strategy

By Justin J. Carbonneau (@jjcarbonneau) —  “I do not like debt and do not like to invest in companies that have too much debt, particularly long-term debt. With long-term debt, increases in interest rates can drastically affect company profits and make future cash flows less predictable.” — Warren Buffett Of the twelve quantitative models we run publicly on Validea, nine of them look at a company’s level of debt in their assessment of a firm’s… Read More

The Case for Value Stocks

By Jack Forehand, CFA (@practicalquant) —  Value stocks have lost their mojo. After an extended period from 2000 to 2007 where they outperformed growth stocks by a wide margin, they are now in one of their longest periods of underperformance ever. The below chart shows the iShares Core US Growth ETF against the iShares Core US Value ETF from 2007 to the present. As you can see, growth has outperformed value by almost 3 to… Read More