Value Investing Research: O-Score and Distress Risk
Book-to-Market Equity, Distress Risk, and Stock Returns, by Griffin and Lemmon (2002 Journal of Finance) investigate the relationship between value premiums and distress risk. There [...]
The First Academic Paper with a Shotgun Picture in it
Here is one of the figures in a Journal of Finance paper published in 2013 by N. Garleanu and L Pedersen. The figure depicts various [...]
Long/Short Hedge Fund Factors: Low-Cost Downside Protection?
The holy grail of financial markets is finding strategies that have misaligned risk and reward characteristics. In the traditional view, investors try to do the [...]
Charlie Munger on “Loading Up,” Tracking Error, and Value Investing
Back in 1994, Charlie Munger gave a talk to students at the USC Business School (a copy is here), covering topics ranging from mathematics and [...]
Chinese Stock Market — Full Meltdown Approaching?
Last night, China's principal benchmark, the Shanghai Composite index, collapsed 7.4%. Ouch! Now that's what we call a drawdown! Hundreds of stocks hit their daily [...]
How to Make Money in Markets: Understanding Expectation Errors
A new working paper from Gennaili, Ma, and the one-the-only Andrei Shleifer. Expectations and Investment Using micro data from Duke University quarterly survey of Chief [...]
One Secret to More Creative Thinking? The Effect of Walking
Researchers at Stanford recently conducted a study that found that the physical act of walking improved creative thinking in subjects. We believe creative thinking is an [...]
Surprise: Some Active Managers are Skilled.
Jonathan Berk, and his co-author Jules van Binsbergen, have a summary piece on a formal academic paper they published by the JFE in 2014. Here [...]
Daily Academic Alpha: Corporate Loan Momentum Alpha
The Cross-Section of Expected Returns in the Secondary Corporate Loan Market We examine the pricing of characteristics and betas in the cross-section of expected corporate [...]
High Dividend Stocks and Value Investing
Barron's recently ran an article (written by Research Affiliates), which is titled "Get Smart About Picking Dividend-Rich Stocks." The article highlights that high-quality high-dividend-paying stocks outperform [...]
The “hot hand” in basketball. New evidence!
For years, the "hot hand" in basketball has been declared a "fallacy." To be clear, the "hot hand" argument is that basketball players have streaks, where [...]
Sobering 10-Year Market Predictions from CFOs
The Graham-Harvey survey is complete and the expectations of CFOs are available for review. As the figure below highlights, expected returns on the S&P 500 [...]
Using Profitability as a Factor? Perhaps You Should Think Twice…
Many investors are getting excited about the so-called "profitability factor," originally posed by Novy-Marx (here is an alternative story) . Larry Swedroe has a high-level piece [...]
Behavioral Finance: Part Behavior, Part Market Frictions
The baseline theory for understanding asset prices is the Efficient Market Hypothesis (the “EMH”), pioneered by Eugene Fama. Of particular interest is semi-strong market efficiency, which [...]
Daily Academic Alpha: Facts and Fantasies in Commodities
Facts and Fantasies About Commodity Futures Ten Years Later Gorton and Rouwenhorst (2006) examined commodity futures returns over the period July 1959 to December 2004 [...]
Value Investing in a Honda Civic–and proud of it…
Last week I had the privilege of being on CNBC to talk about value investing. A big shout out to Josh Brown, who introduced me [...]
Basic Factor Analysis: Simple Tools to Understand What Drives Performance
Investors should know what they are buying and why they are buying it. Unfortunately, more often than not, investment products are jammed down the throats [...]
Daily Academic Alpha: High Lobby Efforts Equal Alpha?
Corporate Lobbying and Firm Performance Corporate lobbying activities are designed to influence legislators, regulators and courts, presumably to encourage favorable policies and/or outcomes. In dollar [...]
From the Frontlines to Finance: How the Marines Shaped Our Investment Philosophy
Serving in the Marine Corps was an unforgettable experience. Civilians often tell us “thank you for your service”; however, the real “thanks” is due to the Corps for giving us valuable life lessons. The not-so subtle teachings bestowed upon us by heavily muscled, insanely aggressive Marine Corps Drill Sergeants are still, literally, ringing in our ears: “Listen here, pond scum, you better run faster, shoot straighter, and decide quicker if you are going to win in battle!” Years later, we would test that theory in real-time, battling insurgents in Iraq. As we trade in our flak jackets for laptops and neckties, the lessons learned in combat and are not only relevant, but vital on the battlefield of high finance. Four core lessons apply to frontlines and finance: Humans Are Emotional: Systematic processes beat behavioral bias; Rambo isn't Realistic: Act based on evidence, not on stories; Complacency Kills: Focus on fundamentals and never stop learning; Integrity is Everything: Do things right and do the right thing.
Where are the Cheap High Quality Value Stocks?
Here is a snapshot of a model portfolio built on the Quantitative Value philosophy. Note: we exclude financials in our analysis, so by construction they have [...]