The Importance of Expectations in Investing

By Jack M. Forehand (@practicalquant)  —  To make money in the markets, one needs to be an independent thinker who bets against the consensus and is right. – Ray Dalio I am a big New York Jets fan. So I am used to disappointment. The Jets haven’t appeared in the Super Bowl since 1969, which is the longest drought of any NFL team. Despite this history of losing, no matter how bad the predictions for them are, I go into every season optimistic (what that says about me is probably a topic for another article). This season may have been […]

The Truth About Stock Market Anomalies

A recent Wall Street Journal article outlines findings of a research paper published earlier this year that challenges widely held beliefs about market “anomalies.” According to the article, the researchers spent three years compiling and replicating 447 market anomalies that have been “identified in academic literature.” One of the main takeaways, it says, is that “most of the supposed market anomalies academics have identified don’t exist, or are too small to matter.” Others are as follows: The market is probably more efficient than you think: The researchers found that, of the anomalies analyzed, 54% could not be replicated. “For most […]

Nasty Capital Gains Season is Underway

A rising stock market carries with it some hefty tax bills for mutual fund shareholders, according to a recent Morningstar article. Many active funds have been dealing with asset outflows over the past few years, forcing fund managers to “sell appreciated positions to meet investor withdrawals, and that action triggers capital gains distributions.” The article explains some of the factors to consider in the current capital gains scenario, including the following: Investors will owe taxes on distributions occurring in a taxable account unless they sell positions to capture gains. However, the article points out, “most investors don’t have a lot […]

Insights from Fidelity’s Veteran “Low-Price” Fund Manager

In a recent Wall Street Journal interview with Joel Tillinghast, the 28-year veteran manager of Fidelity’s Low-Priced Stock Fund discussed his view that investing is “as much about avoiding mistakes as picking winners” and shared some insights concerning the current market. This month, Tillinghast says, Fidelity is shifting its definition of “low-priced” from stocks priced at $35 or less to stocks priced at either under $35 or those with a “higher-than-index-earnings yield (that is, a low P/E).” The new definition, he says, represents an effort to find low-priced stocks relative to intrinsic value which, he adds, “is how I have […]

Is Value Investing Dead?

Reporting on a Goldman Sachs study published a few months ago, a recent article from the Wharton School addresses the underperformance of value compared to growth strategies. The Sachs report, it says, claims that “value investors are seeing the longest dry spell since the Great Depression, and future returns will likely be lower than the historical average.” But the firm also acknowledges that assessing whether value strategies are in trouble depends on how one views value. Specifically, the report says value strategies that choose stocks based on the ratio of enterprise value to EBITDA have performed better than those (like […]