Are persistent outperformance and long-term alpha closely linked or is it possible to deliver alpha without being persistent?
This “fat, juicy pitch down the middle” stock-picking opportunity could stretch many months into the future. Professional managers and investors should embrace this opportunity for as long as it lasts.
I discuss why the CAPE ratio, developed by Robert Shiller, is not nearly as reliable a predictor of market returns as most claim it to be.
There is accumulating evidence that market conditions are growing more attractive for showcasing stock-picking skills.
It’s only natural for someone invested in a poorly performing active equity mutual fund to wonder if it’s time to make a change. Should an investor sell a fund if it trails its benchmark for a year? Three years? Five years?
Developing patience and a long-term perspective are key to building wealth.
While there may be a heightened sense of fear in the headlines, there is no reason to sound the alarm.
Having and sticking to a plan results in three times the net worth when compared to those who don’t have a plan.
A powerful alternative to the ubiquitous style grid is to organize managers by the investment strategy that a fund pursues. Once constructed, these statistically valid peer groups provide a comprehensive framework for portfolio construction, manager evaluation, fund selection, benchmarking and, quite surprisingly, stock selection and managing market exposure.
Viewing investors and markets as emotional decision makers rather than as rational computational entities forces us to reconsider every aspect of how we operate in financial markets. The behavioral financial markets concepts I discuss below provide a framework for rethinking client financial planning, asset allocation, investment manager selection and the creation and execution of investment strategies.
A recent article summarized the predictions of 500 advisors for the 10-year returns for a number of asset classes. If advisors construct portfolios based on those forecasts, they will destroy significant portions of their clients’ wealth.
Active equity performance depends on the stock-picking skill and market conditions. Recent academic research confirms that returns to stock picking rises in tandem with increased stock return cross-sectional dispersion and skewness, along with greater market volatility.
In his recent article, Michael Edesess argued that multiple empirical “anomaly” studies and the wide use of regression are ruining finance research. While some of his points are valid, his conclusion that the entire set of academic studies should be discarded goes too far.
In a recent article, Larry Swedroe argued that long-term investors should avoid all levered ETFs. He based this conclusion on a 10-year ETF return sample. It turns out that this is an unrepresentative sample for making such a sweeping statement. Other studies, based on longer time periods, come to the opposite conclusion.
Forty years of behavioral science research provides a more realistic framework for viewing investors and markets than does MPT.
My firm, AthenaInvest, has conducted extensive research on the use of behavioral factors to estimate expected returns and, in turn, to make market-rotation and beta-exposure investment decisions. The following article outlines our behavioral approach and compares the results to a passive benchmark.