When Fundamentals Don’t Matter

By Jack Forehand (@PracticalQuant) Valuing companies can be a challenging process. While it is commonly accepted that the value of a company is the present value of its future cash flows, predicting those cash flows and judging their value relative to the current price is an inexact science at best. Value investors like to find companies with higher current earnings relative to their price, which requires less projection of future growth, while growth investors like… Read More

“Aswath Damodaran Says “Go Back to Basics” Regarding Valuations

In a speech he delivered at this year’s CFA Institute Annual Virtual Conference, NYU finance professor Aswath Damodaran said, “It is precisely times like these that matter most. You need to go back to the first principles of valuation. Everything I have learned about valuation has been in the context of a crisis.” He advised investors to stick with traditional valuation tools “with adjustments for the pandemic,” sharing the results of his analysis of more… Read More

Robots Won’t Replace the Fundamental Investor

A new study by McKinsey says that traditional asset managers are using advanced analytics to build better decision-making capabilities rather than to replace human portfolio managers. This according to an article in Institutional Investor. “That means using data science to pinpoint and correct the mistakes investors are making and to focus portfolio managers on problems that only humans can solve,” the article explains, adding, “That’s in contrast to five years ago, when most traditional managers… Read More

“Quantimental” Fund Management Raises Eyebrows

It seems that name-melding has extended beyond the ranks of celebrities (think Brangelina and TomKat) to the world of fund management. An article in this month’s Pensions & Investments explains how, in the face of disappointing performance, hedge fund managers are integrating quantitative strategies into their fundamental approaches in an effort to improve results. Lin William Cong, finance professor at the University of Chicago’s Booth School of Business (and self-proclaimed inventor of the term “quantimental”)… Read More

Fundamentally Sound Stocks Win When Recessions Loom

Whether it’s interest rate hikes or China’s slump or US weakness, investors have found a myriad of economic reasons to worry in 2016 — and they’ve expressed their worries by pulling billions of dollars out of stocks. But in his latest for Canada’s Globe and Mail, Validea CEO John P. Reese highlights some new research showing that the best time to beat the market is when economic times are tough. “The research comes from O’Shaughnessy… Read More