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 […]

Lessons From Over a Decade of Managing Money Using Quant Strategies

By Jack Forehand — When we started managing money, I used to focus on what I knew. Today, after over 12 years doing it, I have learned it is best to focus on what I don’t know because no matter how much you learn in this business, what you don’t know will always far exceed what you do. Looking back on everything I’ve learned, I’m pleased to say that the principles I initially believed have proven to be mostly correct. These include; following factor-based strategies with strong historical track records, focusing on the long-term and eliminating emotion from the investing […]

Smart Beta Investing May Not Be So Smart

A new study has raised questions as to whether smart beta mutual funds, which are on course to reach $1 trillion in assets by the end of 2017, are as “smart as they claim to be,” according to a recent article in the Financial Times. The article quotes University of Finland finance professor Antti Suhonen, who led the research, from his report (published in May): “Investing in smart beta does require good investor education, due diligence, monitoring of the investment and, most importantly, a strategic and realistic setting of investment objectives for the strategies.” Suhonen’s study examined 215 strategies developed […]

Study Reveals New Predictive Factors for Stock Performance

A recent study by finance professors at the University of Missouri and Renmin University of China set out to analyze the predictive power of more than 18,000 factors with respect to stock performance over past decades, according to a recent article in Barron’s. “That’s good news for stock-pickers,” the article reports, adding that some of the more familiar clues (such as price-book ratio, for example) rank “surprisingly high in predictive power.” Topping the list, it adds, was “ballooning leverage” (increasing total liabilities relative to assets). The study revealed certain factors as solid predictors of outperformance were counterintuitive, such as high […]

Book Value – A Buffett Favorite, But Far From Perfect

Article Summary Warren Buffett reports Berkshire’s book value in Berkshire’s Annual Letter, but Buffett admits it is not perfect in determining the value of a firm. The price-to-book ratio is a popular factor, taking book value into consideration, but the effectiveness of this value factor has been fading recently. A prominent quantitative firm shows how share buybacks may be clouding price-to-book’s usefulness. The takeaway for investors is no factor is perfect. ———————- How does an investor know what a company is really worth? For some, a standard accounting measurement known as book value will provide the big clue. It is […]