Factor Investing: The Fama French 5-Factor Model on Chinese A-Shares
Each year I teach my "seminar in investments" course at Drexel, which consists of the Masters in Finance students and a handful of geeky MBA [...]
Rebalance Your Portfolio? You are a Market Timer and Here’s What to Consider
In this piece I examine various way in which an investor can think about their active market timing decisions, often labeled with the innocuous term [...]
Warning: The US Stock Market is an Anomaly
U.S. stocks have delivered incredible stock market returns for a long time: the average compounded total return on the U.S. stock market has been nearly [...]
The Dirtiest Word In Finance: Market Timing
In 2015, Cliff Asness made the case that to earn attractive returns with proper risk-based diversification and low correlation to traditional markets, investors need to [...]
Book Review — The Undoing Project: A Friendship That Changed Our Minds
Psychology permeates nearly every area of human endeavor. In the world of investing, for instance, psychology can help us understand the systematically poor decision-making that [...]
Dual Momentum with Stock Selection
Jack did a nice recap on a momentum paper last week that looks at using fundamentals (revenue volatility, low cost of goods, and B/M) to help identify the best price momentum stocks. This paper sounds similar to the paper Jack reviewed, but there is a key difference: the researchers are looking at the momentum of the fundamentals, not the absolute value of the fundamentals. The authors compile a fundamental momentum variable by calculating the moving averages of 7 elements: return on equity return on assets earnings per share accrual-based operating profitability cash-based operating profitability gross profitability net payout ratio
Firm-Specific Information and Momentum Investing
When it comes to momentum investing, everyone is always looking for a better way to implement a momentum-based stock selection strategy (the same goes for a [...]
Evidence-Based Investing? Take that Alpha and Shove It.
Johnny Paycheck has a great country song centered around the following lyric: Take this job and shove it...I ain't working here no more... Campbell Harvey, [...]
Active Managers Should Love Passive Investing–It Makes Them Better!
Blaming the disappointing performance of active management on the exponential growth of passive indexing (defined here) is not a new idea. However, a recently published paper in the Journal of Financial Economics,(3) provides a new and notable take on the continuing debate. In a surprising turnabout to Mr. Odey’s comment, the authors of the article find that actively managed funds are more “active”, charge lower fees, and produce higher alpha, when faced with more competitive pressure from low-cost passive index funds.
Active Versus Passive Investing: Can we End the Confusion?
I've noticed something profound the past few years: depending on your audience, the definition of active investing and passive investing is different. To a financial [...]
Swedroe Spotlight: Explaining the Low Risk Effect
Before proceeding, it’s important to note that beta and volatility are related, though not the same. Beta depends on volatility and correlation to the market, whereas volatility is related to idiosyncratic risk (see here for an explanation of how to calculate the different measures). The superior performance of low-volatility and low-beta stocks was first documented in the literature in the 1970s — by Fischer Black (in 1972) among others — even before the size and value premiums were “discovered.” And the low-volatility anomaly has been shown to exist in equity markets around the world. Interestingly, this finding is true not only for stocks, but for bonds as well. In other words, it has been pervasive.
President’s Day Factor Investing Geekout
Our epic piece on factors from a few weeks ago is still ringing in our own ears: Are factors even real? Or just data-mining? The [...]
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 [...]
Tactical Asset Allocation Insights via the Geeks from Thinknewfound
How do we identify who is a flash in the pan blogger versus the next Michael Kitces, Josh Brown, or Ben Carlson? We've tried to do our part and help to promote and share research from up and coming "undiscovered" bloggers/writers out there. In our early days, we were helped by long-time bloggers such as Meb Faber and Tadas Viskanta, so we try and return the favor. Recent examples of up and coming guest writers we've highlighted include Dan Sotiroff (now heading to Morningstar!), Aaron Brask, Andrew Miller, Elisabetta Basilico, and Dan Grioli -- all of whom have written interesting and insightful pieces!
How to Explain Momentum with Rational Investors — It’s complicated.
A recent theory paper from researchers at NYU and Rutgers attempts to explain the empirical evidence on stock serial correlation (e.g., short-term reversal, long-term stock reversal, and classic [...]
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 [...]
Active Versus Passive for the US and the Canadian Markets
We all hear about the massive move away from active to passive in the US market. We also hear arguments that passive may eat the [...]
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. [...]
Berkin and Swedroe’s Factor Investing Book
Well, I was midway through a formal book review on Larry and Andrew's new book, "Your Complete Guide to Factor-Based Investing," when I noticed that [...]
Shooting Yourself in the Foot with Socially Responsible Investing
Socially responsible investing (SRI). Environmental, Social, and Governance investing (ESG). Impact investing...and so on... These socially responsible investing concepts can be roughly described as portfolio [...]