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Are You Living The Life You Chose?

Date18 Apr 2016

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I love finding financial wisdom in unlikely places, like in art and music. These opportunities are more abundant than you might expect. For instance, the punk-Americana outfit, The Avett Brothers, dedicated an entire tune, aptly titled “Ill With Want,” to the scourge of greed and Mumford & Sons taught us that “where you invest your...

Learning How to Deal With the Haters

Date11 Apr 2016

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We all like to act as if we’re immune to the vitriol of haters. It’s almost cool to pretend that it doesn’t affect us, like we’re all bulletproof and have some kind of armor against it. And while that might be a helpful coping mechanism, it’s not really true for most of us. The truth...

Success or Failure: The Evidence From Style-Rotating Funds

Date11 Apr 2016

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Actively managed funds tout their ability to successfully rotate across styles (such as large-caps versus small-caps and value versus growth) or sectors (industries) and thus outperform passive strategies (such as index funds). It is certainly true that investment styles do move in and out of favor, presenting actively managed funds with an opportunity for asset...

Why Your Bond Portfolio May Be Riskier Than You Think

Date11 Apr 2016

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With the broader markets retracting much of their declines from early 2016, many investors find themselves letting out a sigh of relief and stepping back from the closer look they would have taken at their holdings had things continued heading south. The wise investor, however, will do the reverse. Today, when markets appear relatively stable,...

Don’t Be a ‘Low-Information’ Investor

Date11 Apr 2016

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There’s a lot of talk in the media about “low-information” voters. Ted Cruz may be responsible for coining the term. He referred to supporters of Donald Trump as those “who have relatively low information, who are not that engaged and who are angry.” He observed that other candidates are beating Trump “when voters get more...

‘Smart’ Money Blunts Mispricing

Date11 Apr 2016

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A large body of evidence demonstrates the persistence of numerous anomalies in stock prices, which suggests they can depart from fundamentals for periods of time. The anomalies include: Failure Probability: Stocks with a high probability of failure have lower future returns. O-score: Stocks with higher O-scores (a higher probability of bankruptcy) have lower future returns...

Style Drifting: Does It Add Value for Actively Managed Small-Cap Funds?

Date11 Apr 2016

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Investors choose mutual funds based on their investment objectives. In pursuit of said objectives, they can choose from among the broader asset classes (such as stocks and bonds) with additional, more specialized options available within each class. These decisions are important because they determine the amount of exposure an investor has to specific types of...

Spikes Can Explain Returns

Date11 Apr 2016

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Recently there has been a lot of research on the question of whether higher moments of return other than volatility (specifically, the skewness of returns) helps to explain equity returns. (I’ve included a brief definition of skewness and a demonstrative example of it below.) For instance, the role of idiosyncratic skewness has been put forward...

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