Behavioral Funds Disappoint
Behavioral finance combines the study of human behavior and cognitive psychology with traditional economic and financial theory to explain why people make irrational decisions that can lead to investment mistakes, including the mispricing of assets (which are called anomalies). The...
‘Cycle Factor’ Can Predict Returns
Anna Cieslak and Pavol Povala—authors of the paper “Expected Returns in Treasury Bonds,” which was published in the September 2015 issue of The Review of Financial Studies—examined the time variation in the risk premium that investors require for holding Treasury...
Klarman’s Indexing Jabs Miss
For many market observers and participants, billionaire Seth Klarman resides in the same “ZIP code” that Warren Buffett once called the home of superstar investors: “Graham and Doddsville.” Klarman is the well-regarded founder and CEO of the Baupost Group, a...
Market Efficiency Isn’t A Myth
In a series of previous articles on Seth Klarman’s book, “Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor,” I showed how his statement that indexing assures mediocre returns was very clearly incorrect. I demonstrated as well that...
More Factors Don’t Always Help
Professors Eugene Fama and Kenneth French have a new paper, “Incremental Variables and the Investment Opportunity Set,” that provides some important insights for investors considering funds designed to supply exposure to multiple factors, or styles, of investing. In their study,...
Goldman’s O’Neill Comes Up Short
In a podcast interview posted last week, Tim O’Neill, global co-head of Goldman Sachs’ investment management division, warned investors that if passive investing gets too big, the market won’t work. He then added: “So in terms of the size, a...
Gurus More Right Than Wrong In 3Q
Every January, I put together a list of predictions that financial “gurus” have made for the upcoming year, especially the ones that gain consensus as “sure things.” I then keep track of whether these “sure thing” forecasts actually came to...
Avoid Water Cooler Advice
My book, “Investment Mistakes Even Smart Investors Make and How to Avoid Them,” covered 77 common errors I believe investors commit all too often. I know today there’s at least one more I should have included: discussing individual stock buys...
No Shockers From Midyear SPIVA
The midyear S&P Indices Versus Active (SPIVA) domestic scorecard provides another example of why (at least when it comes to the overall results of active management relative to appropriate benchmarks) the past is, in fact, prologue. Let’s review some of...
Don’t Sell During Volatility
As I observe in my book, “Think, Act, and Invest Like Warren Buffett,” one of the great anomalies in investing is that while investors idolize Warren Buffett, they tend to ignore his advice, especially when it comes to efforts to...
