By Jack Forehand (@practicalquant) One of the most dangerous games we all can play in investing is the game of looking back and thinking about what we should have done. Hindsight bias leads us to believe that we should have known all sorts of things that there was no way to know at the time, and that leads to conclusions that would have been very difficult to draw with the information that was available then.… Read More
By Jack Forehand (@practicalquant) Last week, I had the privilege of attending Alpha Architect’s annual Democratize Quant conference for the second time. The conference brings together leaders in the fields of quantitative investing and asset management to talk about the state of the business, and to share ideas to help all of us learn and improve our investment approaches. Given how good last year’s conference was (my summary of that is here), they were going… Read More
Using the example of Henry Ellenbogen’s departure from T. Rowe Price at the end of this month, an article in Barron’s speaks to whether investors should “take your money and run” when a star manager leaves. Although Ellenbogen is working toward a smooth transition with his successor, Josh Spencer, the article notes that “manager changes do pose risks to investors. For one, a new stockpicker may not execute the fund’s strategy as effectively.” Of more… Read More
In an article for ETF.com, BAM Alliance director of research Larry Swedroe argues that there are no assurances as to when it’s safe to invest in the stock market. “For many investors today,” he writes, “the market looks too dangerous. So, they don’t want to buy, or they decide to sell.” The problem with that approach, he describes (using the metaphor of a life guard flag at the beach) is that “there is never a… Read More
In a recent podcast, author Tim Ferris interviews Howard Marks to discuss the Oaktree Capital co-founder’s views on investor psychology, his new book Mastering the Market Cycle: Getting the Odds on Your Side, and macro issues related to the economy. The lengthy discussion spans Marks career, life lessons, and how to navigate an uncertain and random world. Here are some highlights: Marks emphasizes the importance of knowing your limitations as an investor. The phrase, “I don’t… Read More
By Jack Forehand (@practicalquant) — Active investment managers have a pretty dismal long-term record. Depending on which study you look at somewhere between 80% and 90% of managers underperform their benchmarks over the long-term net of fees. But what if I told you there was a way to turn those results upside down? What if there was a world where managers beat their benchmark 90% of the time? What if there was a world where managers… Read More
By John Reese (@guruinvestor) — It’s been over a decade since the financial crisis that led to the deepest economic downturn since the Great Depression, one that pulled the financial rug—and jobs– out from under nine million people and led to foreclosures on approximately eight million homes. Berkshire CEO Warren Buffett—who was born in 1930—appreciates the lessons learned by both events, so much so that in the hallways of his company’s Omaha, Nebraska headquarters he… Read More
By Jack Forehand (@practicalquant) — With the release of Michael Batnick’s new book “Big Mistakes: The Best Investors and Their Worst Investments” last week, the topic of mistakes in investing has been front and center on Twitter and on investing blogs. Many investors view mistakes as a topic they want to avoid. Most of us don’t want to admit when we’re wrong and we certainly don’t want to revisit it in the future and bring back… Read More
In a recent Bloomberg article, columnist Barry Ritholtz references a provocative tweetstorm by famed investor James O’Shaughnessy regarding “investor ignorance.” “The post, as regular readers know,” writes Ritholtz, “was about one of my favorite subjects. To be more precise, it was about our own lack of understand of our own lack of understanding.” O’Shaughnessy’s message centers on how important it is for investors to understand what they don’t know, starting with how the market will… Read More
By Jack Forehand (@practicalquant) — There are many disconnects in the asset management industry between what sells and what succeeds. Often, what is the most effective for obtaining clients is the exact opposite of what actually produces the best investment returns. Every investor is subject to a series of behavioral biases that they probably don’t even recognize. Good financial planners use those biases for good by trying to make clients aware of them and helping to… Read More