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 [...]
Don’t Make a Bar Bet with Warren Buffett
This past weekend Warren Buffet made some headlines that has the financial world spinning: Berkshire Hathaway released its annual report...which is always a great read. The [...]
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.
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 [...]
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 [...]
How to Reduce Taxes through Negotiation
Since this is my first post, I'll make a quick introduction before getting to the content: I love science and learning. In college, I majored in [...]
Go Skew Yourself with Managed Futures
Skewness is a statistical measure of how returns behave in the tails of a probability distribution. Wikipedia has a more robust definition of skewness with [...]
Interest Rates and Value Investing
There is still no value in bonds today. The typical knee-jerk reaction to bold bond statements (such as the one above) is as follows: This guy is [...]
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 [...]
What is the best “Risk-Off” Asset for Trend-Followers?
So you're a trend-follower. Great. But here is a question: What do you invest in when your rules suggest "risk off?" Many investors suggest low [...]
Was the Financial Crisis Really a Valuation Crisis?
Most people look back at the dot-com bubble and acknowledge valuations were elevated far above historical norms. Investors ignored historically useful fundamentals, such as earnings [...]
Risk Tolerance Assessment for Investment Success
My Introduction to Decision-Making...40 years ago When I attended the Harvard Business School my favorite class was Managerial Economics. It focused on decision making under [...]
The Folly of Stock Market Forecasting
The idea that one can predict stock market movements is somewhat insane. The major problem with stock market forecasting is the lack of evidence that it [...]
Questioning Everything You Knew about Asset Allocation
Is a 100% stock allocation crazy? As long as one addresses their needs for liquidity (as to avoid extracting capital from the markets at bad times) [...]
Invert, always invert: Will Stocks Diversify Bond Investments in the Future?
My last post, "Will bonds deliver crisis alpha in the next crisis?," created quite a stir on the blogosphere. The underlying assumption of the analysis is [...]
Will Bonds Deliver Crisis Alpha in the Next Crisis?
Bonds are often viewed as being great diversifiers due to the perception that they perform well during tough times for stocks. Historically this has been a [...]
Beware of Target Date Funds – Their Aim May be Way Off
We like to use rules of thumb, or heuristics, when facing choices. We often default to rules of thumb because when finding the optimal choice [...]
Why I Don’t Invest in Momentum Stocks…Yet!
Confirmation bias is the tendency to cling to research/ideas that confirm with what you already believe. This behavioral bias leads to overconfidence and can impede our search for [...]
Buffett and Hedge Funds Share a Trait: No Alpha
Aaron Seager, a portfolio manager at Arbor Hill Advisors, offered up the following charts showing alpha over the past 15 years for Warren Buffett and an [...]