Is the Art of Stock Picking Making a Comeback?

A recent article in the Financial Times  reports that, since the fourth quarter of 2018, “value has outperformed growth by more than 2 percentage points” which may be signaling a shift in the market after “years of gently rising markets have rewarded investors who chase fast-growing companies, rather than rooting around for businesses trading below their intrinsic value.” According to Brent Fredberg, director of the investments group at Brandes Investment Partners, “weaker earnings growth for… Read More

The Case Against Value Stocks

By Jack Forehand (@practicalquant) —   Confirmation bias is one of the biggest problems in investing. We all have a set of core beliefs, and we tend to surround ourselves with people who also believe them and focus on information that validates them. For me, one of those things is that value stocks will beat the market over time. There is no shortage of data to support value. The academic research shows that is has worked historically.… Read More

The Awakening of Value Stocks

The tide might be turning for value stocks, according to an article in Advisor Perspectives. “Cheaper stocks have shown signs of awakening recently, and several market forces could tip the scales in favor of value after a prolonged growth surge.” It offers the following data: While the article notes it’s too soon to know whether this is the beginning of a bigger shift toward value, it offers the following arguments supporting the end of value’s… Read More

When Hypothetical Becomes Real

By Jack Forehand (@practicalquant) —   The day you begin to follow a new investment strategy is typically a day of optimism. You have done your research, you have looked at the historical results, you believe in the investment process, and you expect to see similar returns in the future to what the strategy has done in the past. You have even potentially looked at the ups and downs of the strategy and are prepared for the… Read More

When Your Experience Fails You

By Jack Forehand (@practicalquant) —   Because it’s easier, we’re inclined to use our recent experience as the baseline for what will happen in the future. In many situations, this bias works just fine, but when it comes to investing and money it can cause problems. -Carl Richards The next market crash must be coming. We are already in our second correction of the year and having lived through the past two bear markets, it seems obvious that… Read More

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