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 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 […]

The Biggest Failure of the Investment Management Industry

By Jack M. Forehand (@practicalquant) —  The investment management business has improved dramatically in the past twenty years. The days of brokers selling high priced products to unsuspecting consumers that serve no purpose other than to line their own pockets are mostly gone. Fees have also fallen drastically, and efforts to educate investors on them by people like John Bogle have led to substantially increased investment in index funds and other low-cost products, which is certainly a good thing. In 1996, the average equity mutual fund in the U.S. charged over 1%. Today the average is about 0.63%, a decline […]

Some Thoughts On Improving the Predictive Value of Morningstar’s Ratings

By Jack M. Forehand (@practicalquant) —  The Wall Street Journal article last week that called into question the predictive value of Morningstar star ratings has caused a lot of debate in the investment industry. Many investors rely on Morningstar ratings to select funds and believe that selecting five star funds gives them the best chance of future outperformance. The Journal article shows that relying on those ratings to predict future performance is probably a bad idea. That really is not anything new to anyone who has studied fund performance because past performance has never really been predictive of future results, […]

Are We Partying Like its 1999?

By Jack M. Forehand (@practicalquant) —  One of the most common comparisons I hear for the current state of the stock market is the bubble of the late 90s. With the market seemingly setting new highs every day, valuations stretched, and technology stocks leading the way, there appear to be many similarities on the surface. When you look deeper, however, there are also some clear differences. Given that the 90s rally ended on a bad note and that many predict the same ending to the current bull market, I wanted to take a look at the similarities and differences between […]