Excess Returns Podcast

Excess Returns is an investing podcast hosted by Jack Forehand (@practicalquant) and Justin Carbonneau (@jjcarbonneau), partners at Validea. Justin and Jack discuss a wide range of investing topics with the goal of helping those who watch and listen become better long term investors, all in twenty minutes or less per episode. The podcast is available on YouTube and on all the major podcast platforms. You can click the links next to each episode below to watch or listen to it on your preferred platform.

If you enjoy the podcast, please follow us on YouTube or subscribe or write a review on iTunes. If you have any questions or feedback, you can email us at podcast@validea.com.

Introducing Excess Returns

4/6/2020

Episode 18: Interview: Value Investing with Tobias Carlisle

In this week’s Excess Returns, we are trying something new. In addition to our regular episodes, we have decided to periodically talk to some of the people we respect most in the investment community to get their insights on the issues facing investors today. For our first conversation, we talk to our friend Tobias Carlisle about value investing. Toby is probably the smartest value investor we know. He is the author of four books on value, including the Acquirer’s Multiple. He is also the founder of Acquirer’s Funds. In the conversation, we talk about the things that led to his interest in value investing and try to put the current struggles of value into context. We hope you enjoy the conversation.

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3/30/2020

Episode 17: The Importance of Challenging Your Own Beliefs

Confirmation bias is one of the most damaging biases in investing. All of us want to be right. We all want to think that opinions that disagree with ours don’t have sensible arguments to support them. So we gravitate toward people who agree with ours. Whether it be in our personal relationships, or our virtual ones through things like social media, we all unconsciously want to seek out validation that proves that what we thought all along is correct. But during times like these that can be a major problem. In this episode, we discuss some of our current beliefs, and why they might be wrong.

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3/23/2020

Episode 16: Looking at Different Ways to Manage Risk

There are many ways to manage risk in a portfolio. Traditional methods like blending stocks with bonds will work for most investors, but more creative methods can also make sense in some cases. One thing all risk management techniques have in common though, is that they come with trade offs. In this episode we look at some popular risk management approaches, and some lesser known ones, and examine the pros and cons of each. In addition to a traditional blended stock and bond approach, we also discuss the Permanent Portfolio, and more advanced quantitative approaches like Trend Following, Protective Asset Allocation and Generalized Protective Momentum.

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3/19/2020

Q&A: Answering Investors' Questions in Uncertain and Volatile Times

With the market in the midst of a significant decline and uncertainty reaching levels we haven't seen in many years, we have received many questions about what is going on, and where we go from here. So we decided to do a Q&A episode to do our best to answer some of these questions. In this bonus episode, we talk about why the market has fallen so quickly, whether stocks are cheap after the recent decline, and whether can can rely on past fundamental data to pick stocks in a time like this. We hope you enjoy this bonus episode. If you have any questions you would like answered in future episodes, please email them to podcast@validea.com.

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3/15/2020

Episode 15: Some Thoughts on Market Panics

The argument that investors should stay the course during market declines is an easy one to make. It also in most cases is the correct one, since figuring out when to get out of the market, and when to get back in, is very difficult for most investors to do. Despite the strength of the stay the course argument, those of us who make it can sometimes fail to deliver it with the proper recognition of the pain that most investors feel during market declines. In this episode, we talk about some important lessons to keep in mind during market panics and some strategies investors can use to manage them.

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3/9/2020

Episode 14: Some Thoughts on the Struggles of Factor Investing in the Past Decade

The long-term evidence to support factor investing is compelling. Academic work has shown that factors like value and momentum have produced an excess return relative to the market over time. But what occurred in the most recent decade was in many ways the opposite of what has happened over the long-term. Almost anything an investor did to get away from buying large growth companies over that period was a detraction from returns. In this episode, we try to put the struggles of factor investing in context and talk about some lessons we can learn from this difficult decade.

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3/2/2020

Episode 13: The Dangers of Headline Investing

The recent market sell off related to the Coronavirus has many investors worried. And with good reason. When panics like this set in, we all tend to focus on worst case scenarios and want to take action in response. But the process of analyzing headlines and figuring out how they will impact the market is challenging for even the most sophisticated investors. In this week's episode, we look at the dangers of investing based on headlines and why most investors are probably better off avoiding it.

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2/24/2020

Episode 12: The Pros and Cons of Trend Following

To say that the track record of market timers in general is dismal would be an understatement. There are so many factors that impact market returns that getting them all right is next to impossible. And even if you do, figuring out what is and is not already priced in can be an equally fruitless exercise. Despite the fact that forecasters have consistently failed to predict market turns, there is an option that can help to limit losses in major downturns and can be beneficial for some investors. Trend following has a long-term track record of both limiting major losses and reducing volatility. But like anything in investing, it comes with some trade offs. In this episode, we discuss why market timing is so difficult and take a detailed look at the pros and cons of trend following.

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2/17/2020

Episode 11: The Pitfalls of Back Testing

Back testing is one of the most misused tools in investment management. Almost every back test outperforms the market, but those same strategies often struggle when run with actual money. In this episode, we discuss the reasons why back tested results often don't translate into the real world and talk about some things to look out for when evaluating back tests.

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2/10/2020

Episode 10: Lessons From Our Most Read Five Questions Interviews

In this week's episode, we talk about the biggest lessons from the first year of our Five Questions interview series. Our Five Questions series features in depth interviews with leaders in the investing industry. We discuss the five most important lessons we learned from our interviews with Jim O'Shaughnessy, Corey Hoffstein, Michael Mauboussin, Ben Hunt and Wes Gray.

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2/3/2020

Episode 9: The Benefits of a Value Composite

Picking the right value metric can be one of the biggest challenges of quantitative value investing. Although the Price/Book is the most widely used value metric, its struggles in recent years and valid concerns that have been raised about its viability in a world dominated by intangible assets have led many to question whether it still works. But the other widely used value metrics also have their own problems. In this week's episode, we discuss the benefits of using a value composite and how it can enhance the risk/return profile of a value strategy.

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1/27/2020

Episode 8: The Perils of Market Forecasting

We have just completed market prediction season. Its the time of year where there are countless forecasts about what the economy will do in the new year. Its when experts tell you what interest rates will do for the year. And most of all, its when you see a variety of predictions for where the S&P 500 is heading this year. The experts making these predictions even do you the favor of giving you exact price targets so you know exactly what will happen. But there will be one major problem with almost all of these predictions: they will be wrong. In this week's episode, we discuss why market forecasting is so difficult and highlight some of the tricks that market forecasters use to make their predictions seem better in retrospect than they actually were.

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1/20/2020

Episode 7: The Challenges of Developing a Sell Strategy

As difficult as it is to figure out the right stocks to buy, determining when to sell can be even more challenging. In this episode, we look at the important factors to consider when deciding when to sell and develop a systematic sell framework that can be used for both quantitative and traditional investors.

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1/13/2020

Episode 6: The Case Against Value Stocks

Confirmation bias is one of the biggest problems in investing. We all have a set of core beliefs, and we tend to surround ourselves with people who also believe them and focus on information that validates them. That can be dangerous, though, because it can blind you to valid arguments that contradict your own. In this episode, we challenge our belief in value investing and discuss some of the reasons why we could be wrong.

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1/6/2020

Episode 5: The Double Edged Sword of Avoiding Value Traps

Many value stocks are cheap because they deserve to be. Some of them no longer have sustainable businesses, and as a result their current discounted multiple will look really expensive relative to where their business is headed. These types of stocks are often referred to as 'value traps" and value investors do everything they can to avoid them. In this episode, we talk about value traps, why they are impossible to avoid completely, and some rules that can help minimize them.

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12/30/2019

Episode 4: Lessons From the March For the Fallen

In this episode, we discuss Justin's experience participating on the Alpha Architect team in last year's March for the Fallen and how some of the lessons he learned from it can be applied to investing. The March for the Fallen is an event hosted by the Pennsylvania Army National Guard Training Center at Fort Indiantown Gap to honor the memory of all that have fallen in the defense of our nation.

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12/23/2019

Episode 3: Six Common Misconceptions About Factor-Based Strategies

Factor strategies have grown exponentially in the past decade. Almost every major asset manager now offers their variation of things like value, momentum, quality, and low volatility. But to use them properly, it is important to understand what they can and can't do. In this week's episode, we discuss the common misconceptions about factor strategies and what they can deliver for investors.

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12/16/2019

Episode 2: The Rising Bar for Active Management

The market has always been tough to beat, but the ability to investors to gain inexpensive exposure to factors like value and momentum has made the job of active managers even harder. In this week's episode, we talk about why the pursuit of alpha has become more difficult over time.

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12/9/2019

Episode 1: The Mechanics of Value Investing

There is a tendency to believe that all value investing strategies are similar. But beneath the surface, many value approaches couldn't be any more different. These differences can lead to substantially different outcomes in both the long- and short-term. In this episode, we discuss the many decisions that go into building a value portfolio and how they impact the results it delivers.

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