Today marks the final installment in my series addressing the lessons that the markets taught us last year about prudent investment strategies. As we noted previously, 2014 provided us with a total of 12. You may have observed by now that many of these same lessons show up year after year. And many times, the…
Institutional plan sponsors are charged with investing trillions of dollars on behalf of pension plans, endowments and foundations. As a result, the quality of the investment decisions made by these plan sponsors is of great interest and importance to a great many people. Over the years, I’ve met with many institutional plan sponsors to discuss…
One of the more common and costly investing mistakes that individuals tend to make involves the behavior known as “recency,” which can be described as the bias toward overweighting recent events or trends, and ignoring long-term evidence. Recency leads investors to buy after periods of strong performance (high) and sell after periods of poor performance…
At the start of each year, I compile a list of predictions that financial gurus and industry experts tell us are a “sure thing.” And each year, I track how many of these predictions actually come true. This marks our fourth and final quarterly review of some consensus financial predictions that pundits in the financial…
Every year, the markets provide us with some valuable lessons about prudent investment strategies. Many times, the markets offer investors a remedial course that covers lessons it had imparted previously. That’s why I like to say there’s really nothing new in investing, only investment history you don’t yet know. Last year provided us with 12…
Last week, we discussed the first three of a total 12 lessons that the markets taught us in 2014 about prudent investment strategies. Today we’ll cover lessons Nos. 4 through 6. Many of these lessons appear year after year. But a lot of investors simply fail to learn from them, and instead repeat the same…
In an article on Jan. 9, Wall Street Journal columnist Jason Zweig recommended that investors purchase more Treasury Inflation-Protected Securities (TIPS). That article, and Zweig’s recommendation, has resulted in a lot of questions from both clients and advisors. So I thought I would provide some analysis to help investors make that decision. We’ll begin by…
I like to keep track of the financial forecasts people make for an upcoming year, especially the ones that gain consensus as “sure things.” Sometimes it seems like too few are willing to hold the financial media—or the “gurus” who appear in it—accountable for their predictions, which is a shame. The critical point to remember,…
Recently, I heard Nobel Prize-winner and finance professor Eugene Fama define “active management” as any fund that engages in security selection and/or market timing. And actively managed funds are fairly easy to identify. As we know, the term “passively managed” is used to describe the opposite of actively managed. But what, exactly, is meant by…
The important economic role played by short-sellers has received increasing academic attention in recent years. The research has demonstrated that short-sellers, as a group, are key market intermediaries that improve the informational efficiency of prices, increase market liquidity and, by doing so, help lower overall country-level costs of capital. In addition, temporary short-selling bans have…
An article I wrote in September discussed the findings of the study, “Benchmarks as Limits to Arbitrage: Understanding the Low-Volatility Anomaly,” in which the authors proposed a new explanation for why anomalies (such as the low-beta/low-volatility anomaly) persist. They hypothesized that the typical institutional investor’s mandate to maximize the ratio of excess returns relative to…
There are a number of well-documented anomalies that cause problems for the efficient markets hypothesis (EMH). These problems arise because the EMH assumes any mispricing in the market will be arbitraged away by rational traders who buy relatively undervalued assets and sell relatively overvalued ones. Among the biggest problems are the existence of momentum and…
Individual stock ownership provides both the hope of great returns (for example, if you were to early on discover the next Google) as well as the potential for disastrous results (you could end up with a significant holding in the next Lehman Brothers). But because investors are not rewarded by the markets with higher expected…
Until quite recently, 2014 had been a very quiet and calm year for the stock market. With the exception of a few days in early February, the VIX had never spent any time above 20. As August ended, it stood at just under 12. However, volatility has a nasty tendency to spike. And as AQR’s…
As we have discussed many times, the evidence demonstrates that hedge funds have consistently failed to deliver on their promise of alpha. There is an overwhelming body of research indicating that hedge funds must be ego-driven investments, because there can be no other explanation for why investors continue to pour money down the proverbial drain….