Revisiting Anomalies’ Persistence
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...
The Shorting Premium Puzzle
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...
Why Buy Individual Stocks?
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...
How To Think About Bear Markets
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...
Hedge Funds Rip Off Investors
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...
Tax Mgmt Year Round Job
I was asked recently about a situation in which an investor had to sell stocks from his taxable account in order to meet a cash flow need; in this case, a down payment on a home. He pointed out the...
Explaining The Value Premium
The existence of a value premium—the difference in returns between high book-to-market stocks and low book-to-market stocks—has been well-documented. However, there’s a major controversy as to its source. Some believe it can be explained by risk—that value stocks are the...
Ignore Forecasters At All Costs
The historical evidence shows us that, in the long run, a thoughtfully designed, diversified portfolio of passively managed funds typically beats the performance of all but a few active managers. And while it’s simple to structure such a portfolio, it’s...
Endowment Returns Are Worsening
Despite the publicity surrounding the long-term investment performance of certain endowment funds, such as those belonging to Yale and Harvard, little has been known about the overall performance of university endowments until recently. We are learning more these days, thanks...
Skeptical On The Low-Vol ‘Factor’
The superior performance of low-volatility stocks was initially documented in the literature back during the 1970s, by Fischer Black, among others. That’s even before the size and value premiums were officially “discovered.” And since its existence became known, two main...
