According to Richard Bookstaber, a financial risk manager is like a fire marshal. The problem, in a nightclub fire, is that people can’t get out fast enough because the exits aren’t big enough; they don’t have the time to get out because the fire is spreading too quickly; and there are too many of them.
Is the market efficient? Of course not – not exactly, or not even close, depending on your point of view. However, the efficient market hypothesis has remained surprisingly resistant. The reason is that, as MIT professor Andrew W. Lo says repeatedly in his new book, Adaptive Markets, “it takes a theory to beat a theory.” And, up to this point, there has been no alternative theory.
Who is better at value investing: robots or people? How have robots – the quantitatively-driven passive funds that hold, for example, low price-to-book stocks – fared against actively managed value mutual funds?
Have we all gone lazy? Are Americans no longer the restless go-getters they once were? Has our culture changed in ways that impede economic progress instead of naturally promoting it? In his new book, The Complacent Class, Tyler Cowen, one of the most eclectic and inventive authors on economic issues, says yes to all of these questions.
A common lament during the presidential campaign was over middle-class income stagnation and the wealth of the top 1%. But are most people getting poorer while the rich get richer? In a sparkling – and delightfully short – new contribution to the econo-optimist genre, Johan Norberg, author of Progress: Ten Reasons to Look Forward to the Future, emphatically answers “no.”
Who would guess that the modern sciences of behavioral economics and the psychology of decision-making owe their origin to a love affair (no, not sexual) between two men born early in the last century and so different that one could barely imagine them speaking to each other? Yet that is the story chronicled by the extraordinary nonfiction writer Michael Lewis in The Undoing Project: A Friendship that Changed our Minds, which, despite some quirks, is a compelling and worthwhile read.
What effect will the index fund revolution and the Department of Labor’s (DOL) fiduciary rule have on active managers? The data shows that active management is still a healthy business model. But industry consolidation is coming and advisors will need to change the way they construct portfolios.
Should history regard Greenspan as a “maestro” who managed the economy to new heights of prosperity or as a blunderer who let the housing crisis, and other simultaneous crises, unfold?