Nicholas P. Sargen is an international economist turned global money manager. His latest book, Investing in the Trump Era: How Economic Policies Impact Financial Markets, was published in August. Here is an excerpt covering the key points of Sargen’s investment recommendations.
In this article we put our optimization machine framework to the test. Specifically, we make predictions about which portfolio methods are theoretically optimal based on what we’ve learned about observed historical relationships between risk and return. Then we test these predictions by running simulations on several datasets.
Value investors earn a premium for holding undesirable stocks. Market skewness may identify periods where the premium is more attractive. The returns from the Value factor since 1926 were zero when market skewness was negative.
It was the best of times, it was the worst of times. Why did the stock market fall? No reason, and every reason. There doesn’t need to be a catalyst. Sometimes the market is simply going to do whatever the market is going to do, but the list of worries was already there.
Asset price inflation (check). Financed by debt growth (check). We’ve spent the last three weeks reviewing Ray Dalio’s A Template for Understanding Big Debt Crises. I hope you found the insights as helpful as I did.
As I read the responses to last week's article, I realized that it didn’t have all the nuance I intended. Further, I needed to refine some of my own thinking. In the interest of brevity, I will ignore the positive comments and focus on a few (out of many) that pushed back. I picked a few examples because a proper tour of tariffs would take a complete book.
This yield metric has risen to its highest level in nearly 30 years
Yesterday was a bad day in the market. The Dow was down more than 800 points (800 points!), and the S&P was down almost 100 points (100 points!). Surely, this is the beginning of the end.
Factor investing, an investment approach which targets specific stock characteristics such as value or momentum, is becoming a stronghold of investor portfolios.
This year we have favored financial stocks on the basis of earnings momentum, deregulation, a steepening yield curve and the value factor.
Growth and value stocks are often seen as opposing one another—but we believe they can be complementary within an equity portfolio.
Perhaps the simplest strategy is to hold just three funds. For equities, you can own the Vanguard Total Market Index Fund and the Vanguard Total International Stock Index Fund. On the bond side, you can own the Vanguard Total Bond Market Index Fund. But such an approach ignores the academic evidence demonstrating there are certain factors that have provided above-market returns to investors willing and able to accept their additional risks.
In a few days, I’m going to be hosting a roundtable discussion with executives of independent custodians and independent broker-dealers. We have a lot to talk about, and I’d like your help to shape the discussion.
Quick – what was the second-worst U.S. stock market drop since the 1930s? What caused it? It wasn’t the pricking of the tech bubble in the early 2000s. It was the bursting of the oil bubble in 1973. Fossil fuels have been the life blood of economic growth for the entire time that economies have been growing – almost 200 years – and they have been responsible for many of their ups and downs.
Both the U.S. state of Illinois and the nation of Brazil suffer from fiscal deficits that have been years in the making. How can these trends be reversed, and will the upcoming elections for each government contribute to a solution?
Your risk discussions with clients are based on a premise that’s fatally flawed.
The music is fading out, and a trap-door has opened up in the floor, but they're still dancing. In recent days, the combination of extreme valuations and unfavorable market internals has been joined by acute dispersion in daily trading data that often occurs within a few days of pre-collapse peaks in the market.
As contrarian investors and students of group-think crowd psychology, we look for investment opportunities in the way news is framed. There is an old Mark Twain saying, “Lies, damned lies and statistics.” We believe investors are getting mislead by statistics surrounding the U.S. economy and we will seek to dispel erroneous assumptions in search of long-term gains in the stock market.
We will describe why the conventional, instinctive approach to making investment manager choices generally leads to poor outcomes and how investors can be fooled by manager returns.
I’ve been getting lots of questions lately about the merits of owning TIPS versus nominal bonds. With that in mind, today I’ll discuss how to determine the more appropriate strategy.
Research provides evidence supporting the pervasiveness of the size, value and momentum premiums. That should give investors further confidence that the premiums found in these factors in developed markets were not a result of data mining exercises, which, in turn, should offer confidence that an ex-ante premium for these factors exists around the globe.
The IMF is the body best suited to serve as a trusted adviser and an effective conductor of the global policy orchestra. If it is to fulfill that role, however, it must strengthen its credibility as a responsive and effective leader. That means listening to its members, then guiding them toward more harmonious policies.
As expected, the Fed raised interest rates today following its September policy meeting. Could the escalating trade war between the U.S. and China impact plans for future increases?
Our partners think it is important to communicate with everyone about what’s happening. I’m all for open communication, but this has turned into meeting after meeting to talk about what we’re doing, why we’re doing it and then the results of what we’re doing.
When the inevitable bear market strikes, you prepare your clients by revisiting their investment policy statement, taking a hard look at their asset allocation and educating them about market volatility. You’ll get through to some, but many will ignore your sound advice. Why is that?
We see growth slowing, but not an imminent recession. We invest accordingly.
Harnessing the potential of Big Data will be a major factor in the future of healthcare. And some of the greatest innovations in the sector’s future may not come from companies in healthcare, but from technology companies.
Economic progress continues in the United States, making the current expansion likely to be the longest since World War II. While investors might be expecting signs that the economy’s momentum is losing its mojo because of its duration, the data coming in is some of the strongest we have seen in this cycle.
Part II begins with a discussion on migration with a focus on emigrant flows. We include an analysis of the problems caused by migration followed by an examination of the possible end to this crisis and the broader geopolitical issues. As always, we conclude with potential market ramifications.
In order to gauge the trajectory of this economy, it’s important to examine the data behind our recent growth and the price we're paying for it. It’s also important to look at whether growth will last into the third quarter of 2018 and examine the one significant factor that underlies real growth: wage revitalization.
There is currently little doubt that the U.S. and China are in a trade war, where retaliation begets retaliation. Conflicts with Mexico, Canada, and the European Union are effectively in a temporary ceasefire, but remain unresolved.
Asia’s entrepreneurs have capital, customers and conviction. Learn about the opportunity for global investors.
A number of market headwinds—including trade tensions, rising interest rates and a general fear the long-running US economic expansion may be facing fatigue—have cast a shadow over the markets in the first half of the year.
An alternative risk premia strategy that relies on robust factors within a liquid, transparent, and disciplined framework has the potential to improve the long-term return prospects of traditional portfolios and to reduce their downside risk.
Last Saturday, September 15, 2018, marked the 10th anniversary of the Lehman Brothers bankruptcy, which set off the worst US financial crisis since the Great Depression. It was the largest bankruptcy filing in US history, with Lehman holding over $600 billion in assets.
If active management persistence is not significantly greater than should be expected at random, investors cannot separate skill-based performance (which might be able to persist) from luck-based performance (which eventually runs out).
From the US-China trade war to the ongoing Brexit negotiations, global investors are grappling with a wide array of unpredictable events. Yet with the right approach, equity portfolios can confidently cope with the next bout of market uncertainty.
There has been much discussion recently about how the great financial crisis kicked off 10 years ago this week. We have retrospective interviews with participants, updates on how people fared during and after the crisis, and all of the typical media storytelling.
Investors in emerging-market (EM) stocks have taken a big hit as Turkey’s crisis has escalated. But a closer look inside the EM benchmark suggests that the entire developing world isn’t broken.
Market risks come in three flavors: recession risk, economic shock risk, and risks within the market itself. So, what do these risks look like for September? Let’s take a closer look at the numbers.
When past returns are high, the risks of owning high-beta stocks significantly increase. Mutual fund investors should be sure they understand their fund’s level of exposure to market beta after periods of strong performance.
My team shuts their doors all day long. I’m a very social person and as leader of the firm I want to engage and have discussions about what’s working and what’s not.
If the efficient markets hypothesis is questionable at the stock level, it’s more so at the index level. As the number of indices skyrockets, the number of companies declines, and passive flows grow, active price discovery becomes more and more valuable.
We asked hundreds of equity and fixed income managers how they are integrating ESG factors within their investment process. Which countries are lagging their peers? Does AUM correlate with ESG integration? Today, we share our findings.
Our advisors (seven of them) are perfectly content to work with existing clients and not worry about what’s coming next. I’m one of the younger partners in the firm and am motivated to put a true sales system in place. I need advisors who will sell within that system. How do I get them motivated and on board?
There is a huge economic calendar in a holiday-shortened week. The mid-term elections impend, so politicians will be on the stump. With Labor Day setting the stage and the week loaded with key employment reports, expect plenty of attention to employment issues. Much of this will be confusing and unproductive spinning.
For years, Adam Sharp has helped accredited and retail investors get in on the ground floor of some of the most promising early stage investment opportunities. These include not just venture capital but also equity crowdfunding and cryptocurrencies, which he added last year to his two research offerings, First Stage Investor and Crypto Asset Strategies.
60% allocated to equities and 40% to bonds has been an extraordinarily successful investment strategy for most of the past 40 years, but I believe the show is now largely over. In this month's Absolute Return Letter, I focus on the 40%, and I argue that, although I don't expect 10-year government bonds to deliver more than 0-2% annual inflation-adjusted returns in the years to come, there are indeed things you can do to earn higher returns.
The size premium’s relatively poor performance in U.S. stocks over the seven-year period from 2011 through 2017 caused many investors to question its persistence. I will address whether that skepticism is justified.
I believe US dollar strength is likely to persist, largely driven by global growth, monetary policy and trade developments. However, there are a number of additional factors at play. Here is a checklist of dollar drivers and how I expect each factor to influence the currency.
