Academic Research Insight: Stick to the Fundamentals and Discover Your Industry Peers
Stick to the Fundamentals and Discover Your Peers Jean Overgaard Knudsen, Simon Kold and Thomas Plenborg A version of this paper can be found here Want [...]
A Fund Flows Theory for Value and Momentum Investing
Value and Momentum Investing -- our two favorite factors. We talk about these phenomena on our blog all the time, and have given both rational and behavioral explanations as to why these may occur. However, very few in the finance community are direct investors into Value and Momentum securities -- the individual stocks (or bonds) themselves. Many use ETFs or mutual funds to gain access to these factors. Institutions generally do the same, either investing in hedge funds or managed accounts. This is delegated asset management, whereby one delegates the decision of the security selection onto a third-party manager. A by-product of delegation is that from time to time, the third-party manager must be assessed. While many may claim the process is most important, the performance is always taken into consideration. So what happens to a Value manager who is overweight the wrong industry? While the manager may be following the same process discussed ex-ante, the ex-post assessment may be that the manager needs to be fired due to underperformance.
Replicating Anomalies
Academic research is amazing and incredibly useful for helping us better understand the complex world in which we live. In fact, academic research has literally [...]
Reconciling Individual Stock Returns and Factor Portfolio Returns
Those in the financial media have recently been writing multiple stories on a fascinating working paper, "Do Stocks Outperform Treasury Bills?" by Hendrik Bessembinder. We [...]
Ben Graham on Passive Investing
The passive investing revolution is truly upon us. Ever since 1975, when Jack Bogle introduced the first index mutual fund, passive indexing has marched on [...]
Portfolio Allocations using Enterprise Multiples (and others)
A common question asked in the factor investing field is the following -- "how much of the model's performance is driven by sector allocations, and how much is driven by security selection?" Our answer is to simply buy Value stocks or Momentum stocks, regardless of sector constraints. Why? Well a nice anecdote (but not data) is that investing in "cheap" technology stocks was not a great idea in the internet bubble crash.
The Global Value Momentum Trend Philosophy
Our Global Value Momentum Trend Index ("GVMT" or "GVMT Index") is a globally diversified equity strategy that leverages trend-following to manage tail-risks. The strategy can [...]
The Value Premium: Risk or Mispricing?
One of the great debates in finance is whether the source of the value premium is risk-based or a behavioral anomaly. In our book, “Your [...]
Chinese Market Anomalies – The Factor Killer?
The Oracle of Omaha just commented on the Chinese stock market in this year's Berkshire's annual meeting: ...Markets have a casino characteristic that has a [...]
“Alternative” Facts about Formulaic Value Investing
A paper, "Facts about Formulaic Value Investing," is making the rounds and professes to plunge a dagger directly into the heart of systematic value investors. Half [...]
Value and Momentum Investing in Frontier Stock Markets
Value and Momentum investing have been studied across many different markets and asset classes (Asness et al 2013) and have shown to be effective factors. [...]
Visual Active Share: A Tool to Help Investors Make Better Decisions
We've talked extensively about the concepts of active share and active fee, which aren't flawless metrics, but they have elevated the discussion around identifying and [...]
Looking to Improve your Factor Investing? Examine the Trend of Profits
A few years ago, the profitability "quality" factor was originally proposed by Robert Novy-Marx. Here is a snippet from the abstract of the paper: Profitability, [...]
Will ETFs Destroy Factor Investing? Nope.
One of the popular investing truisms is the following (inspired by Bill Sharpe): For somebody to beat the market (win) someone else has to lag [...]
Greatest Stock Picker of All Time: Buffett or Lynch?
Who is the greatest stock picker of all time? Many investors' knee-jerk reaction is Warren Buffett. Understandable response, but is that the answer? Maybe not... So who [...]
Factor Investing is More Art, and Less Science
Albert Einstein is reported to have said the following: The more I learn, the more I realize how much I don’t know. We can relate. [...]
The January Effect: An Evidence-Based Perspective
January is here again and market commentators are already telling stories about the so-called January Effect. Some articles (examples here and here) are saying the [...]
Great Minds Agree to Disagree on the Source of the Value Investing Premium
Active investing sounds so easy. But we all know it is extremely difficult. Ask any deep value investor how they have felt over the past [...]
Value Investing using Enterprise Multiples — Is the Premium Due to Risk and/or Mispricing?
At Alpha Architect, we are big fans of Value investing (and Momentum). In the past, Wes and I examined which valuation measure had the largest spread [...]
The Rebalance Bonus for Value and Momentum Porfolios
A sophisticated DFA-focused advisor asked us to conduct some research on the following question: Are there additional portfolio diversification benefits to combining concentrated portfolios of value and [...]