By Jack Forehand, CFA (@practicalquant)
When we started our podcast, Excess Returns, late last year, I was hoping we could create something that would be educational and informative for people who follow our content. I was hoping we could take some of the lessons we have learned in running quant models over the past decade and share them with other investors who are looking to learn and improve.
One of the biggest surprises for me in the first year of the podcast, though, is that the person who has learned the most about investing from the podcast likely isn’t one of the regular listeners who follow us. The person who has learned the most is likely me.
Our initial plan when we started the podcast was not to do outside interviews and to have the episodes be conversations between Justin and I about investing. But we realized the benefit of getting outside perspectives and we ended up doing 13 interviews in our first year. We were very lucky to get some of the smartest investors we know to talk to us about some of the most challenging topics in investing, and those interviews have both taught me new lessons and led me to rethink some of my long-held beliefs.
Since I have learned so much from these interviews, I wanted to use my article this week to look at some of the most important things I have learned.
Here are some of my favorite lessons, along with video clips from the specific portion of the interview where we discussed each topic.
[5] Corey Hoffstein – Questioning Your Beliefs is an Essential Part of Investing
We spoke to Corey, who is the founder of Newfound Research, about his excellent research paper, Liquidity Cascades. I have always been a big believer in Ben Graham’s idea that the market is a weighing machine over the long-term, even if it can be a voting machine in the short-term. But things like passive index flows and option dealer positioning may have fundamentally changed the way the market operates, which makes the path to the weighing machine a much rockier one. Corey explains the concept in the clip below.
[4] Tobias Carlisle – Value Investors Need to Get Used to Investing in Crises
When the COVID-19 crisis hit, my first reaction was questioning how we could rely on past fundamentals to help predict future stock performance when we have experienced such a major breaking point. But interviewing Toby helped me realize that value investors are always investing in stocks that are going through a crisis. Toby discusses this idea below.
[3] Wes Gray – There is No One Right Way to Build a Factor-Based Strategy
I have always been a believer in value composites. I like the idea of not betting on any individual value factor and spreading my bets. You won’t do as well as the best performing factor that way, but you also won’t perform as poorly as the worst one. But Wes explained in our interview with him why the benefits of a value composite may have more to do with quality than using multiple factors.
[2] Kai Wu – The New Economy Requires Changes in the Way We Value Companies
It is easy to try to write off the outperformance of growth stocks in the past decade as just another example of a bubble that will eventually pop. It is also easy to just attribute it to Technology outperforming every other sector. But using standard fundamentals to value disruptive companies with significant intangible assets can lead you to miss the major differences in how these companies work relative to traditional firms. And disruption is occurring in many more places than just technology so just focusing on the outperformance of technology misses a broader issue. In this excerpt from our interview, Kai explains why.
[1] Jim O’Shaughnessy – Parenting is About Raising Good Adults
Our most viewed podcast of the year was with Jim O’Shaughnessy of O’Shaughnessy Asset Management. Jim offered many great investing lessons in the interview, but my favorite part had nothing to do with investing. Jim has successfully raised three children who have gone on to pursue very diverse paths in life, and he shared his most important lessons from that with us. Here is Jim talking about his idea of focusing on raising good adults.
Thank you to everyone who took at time to listen to our podcast this year. I hope you learned as much from it as I did. I look forward to more lessons in 2021.
Jack Forehand is Co-Founder and President at Validea Capital. He is also a partner at Validea.com and co-authored “The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies”. Jack holds the Chartered Financial Analyst designation from the CFA Institute. Follow him on Twitter at @practicalquant.
