The Most Hated (And Most Loved) Investing Factor

By Jack M. Forehand (@practicalquant)  —  Factor investing requires a lot of patience. Despite the fact that research shows that many factors can produce outperformance over long periods of time, all of them will struggle at times in the short-term. And those struggles are typically long and difficult enough that most investors will abandon underperforming strategies in favor of what is working now. When that happens, that typically signals a bottom for the factor is near. At Validea, we track several hundred factors in our guru-based models that run the gamut from value to growth to momentum. Our historical testing […]

Institutional Investors Model Good Habits for Individual Investors

The investment protocols followed by large, institutional investors, while seemingly cumbersome, can serve as a good example for individual investors of how to avoid making emotionally-based buy/sell decisions. This according to a recent article in The Wall Street Journal. “Encouraging clients to take a more measured and patient approach to managing their assets—rotating out of a concentrated position deliberately rather than selling out of it wholesale, for example—can help them avoid the kinds of mistakes that ultimately cost them money,” the article says. The article outlines the following earmarks of institutional investors that could prove advantageous to individual asset managers: […]

Ritholtz on Why We’re Bad at Forecasting

Forecasts are unproductive, writes Barry Ritholtz in a recent Bloomberg article, and we should not make investment decisions based on them. Ritholtz offers a list of reminders for readers of “what we know about forecasts and predictions, and why they are so rarely right.” Here are some highlights: We’re generally bad at it. “Examples are everywhere,” Ritholtz argues, citing how data provides clear evidence to support our failings at economic forecasts, expectations of future technologies, and earnings estimates, “not to mention election predictions.” Ritholtz adds that “whenever you see someone forecasting their own behavior, what you are getting is a […]

The Active Versus Passive Debate is Not Binary

By John Reese (@guruinvestor) —  There is an undercurrent running throughout the investment community suggesting that active stock-picking is the root of many investor ills, and one that has robbed them of returns. I would argue, however, that the debate is more gray than black and white. Passive investing, an approach in which investors buy a broad cross-section of the market and weight holdings based on market capitalization, is a rules-based, disciplined strategy that strives to obtain the same return as the broader market. Active investing, also referred to as “stock-picking” involves the individual selection of securities by an investor […]

Silicon Valley Continues to Influence Wall Street

The use of alternative data by the active investment community underscores the movement toward alternative data and computer analysis to improve returns and attract clients, according to a recent article in the Financial Times. The article cites the example of how a computer algorithm (developed by New York-based technology company Dataminr) predicted the recent Gilead Sciences-Kite Pharma takeover because it “had noticed unusual social media chatter and options activity and alerted its clients about a possible buyout of Kite by a large biotech company.” Computers, it asserts, can digest large quantities of data to render it useful for investment decisions. […]