Hot List Newsletter

Most Recent Hot List Issues

3 most recent issues require subscription. Historical issues can be viewed free of charge.

3/6/2020

Validea Hot List

The Importance of the Sector Story

Investors often overlook the importance of the sector in the outcome. For value investors, being underweight technology and overweight financials during a period when growth-oriented tech stocks were booming and financials were lagging explains a large amount of their struggles. In this issue, we look at the importance of looking at the sector story when analyzing the market.

2/7/2020

Validea Hot List

The Elusive Definition of Risk

The typical investor faces two major sources of risk: Either their expected returns fail to materialize or they change their strategy during a time of stress. Often these two risks coincide. In this week's issue we look at the challenge of defining risk and some ways to do it.

1/10/2020

Validea Hot List

The Perils of Market Forecasting

If it's the new year, that means it's time for analysts to publish their outlooks. That means there's a whole lot of predicting going on, but that is fraught with danger for investors. Analysts have to make a name for themselves somehow, and predicting stock movements and setting price targets for the indexes and individual stocks is one way they do that. In our latest issue, we look at why following these forecasts is usually a bad idea.

12/13/2019

Validea Hot List

The Danger of Over-scrutinizing Investment Measures

The classic value measure price-to-book has long fallen out of favor with investors largely because companies are very different now than they were in the past. Companies have intangible assets, for example, which are not reflected in the ratio. This has been much-discussed in investing circles. But Validea's Jack Forehand warns that we may be spending too much time focused on P/B and not enough time looking at other popular measures and their possible weaknesses.

11/15/2019

Validea Hot List

The Facts About Buybacks

Companies have been buying back their own shares in record volumes in the last couple of years, and that has attracted a fair amount of (negative) scrutiny about the practice. But are buybacks really as bad as everyone says? Check out our latest issue to find out.

10/18/2019

Validea Hot List

The Rising Bar for Active Management

It's not that active management is dead, it's just getting a lot harder to beat the market. Read our latest issue to see why the proliferation of low-cost exchange traded funds focused on these same factors has raised the competitive bar for active managers.

9/20/2019

Validea Hot List

Why Return Skewness Offers Some Hope for Value

Everyone knows value investing as a strategy has struggled during the last few years of this decade-old bull market. Growth-oriented technology stocks have played center-stage. But there are reasons for hope.

8/23/2019

Validea Hot List

The Danger of Judging Decisions by Their Outcomes

Judging the quality of your decisions can be one of the most challenging aspects of investing. The process can seem simple on the surface because every investing decision you make produces a measurable result in the performance that it generates, but performance is not the obvious yardstick that many investors think it is.

7/26/2019

Validea Hot List

A Deep Dive Into Momentum Investing

In this week's issue, we take a look at momentum as a style and some of the strategies on Validea that utilize momentum like investment criteria. The number of models that incorporate momentum may be a surprise to you.

6/28/2019

Validea Hot List

Don't Rely on Luck to Reach Your Investment Goals

Investing gurus like Warren Buffett and Peter Lynch make beating the market look easy, but they each use well-thought-out processes for selecting their portfolios, and they were able to stick with their processes over the long term. That is the key to achieving investing goals.

5/31/2019

Validea Hot List

Explaining the Struggles of Value Investing

As value investors are acutely aware, the strategy has struggled, and there's an ongoing debate about whether it will ever get fixed. It's not that value hasn't fallen out of favor before, but over the long-long-term, it has proven to be a winning bet. So, is something different about now? We take a look in our latest newsletter.

5/3/2019

Validea Hot List

The Mechanics of Value Investing

Value investing was popularized by Benjamin Graham and, later, Warren Buffett, but it isn't always clear the best way to go about it. Different views on what value investing means have sprouted up over the years, and following any one path can lead to different outcomes than another one.

4/5/2019

Validea Hot List

How ETFs Work

Exchange traded funds are a hit with investors, who have put billions of dollars into them over the years creating a fast-growing corner of the investment product market. But investors may not understand exactly how ETFs work, and that makes the ETF industry ripe for conspiracy theories. In this week's issue, we dispel some of the myths.

3/22/2019

Validea Hot List

Balancing the Simple and the Complex

It's a particular talent to be able to take a complex thing and simplify it so anyone can understand it. But it's very human to associate complexity with intelligence. If something takes a lot of steps and requires complicated analysis and strategic planning, it must somehow be better. Sometimes that is true, but a lot of other times we run the risk of overthinking it. Simple can be the best approach, even when it comes to investing.

3/8/2019

Validea Hot List

Lessons From Buffett

From 1965 through the end of 2018, Berkshire's A shares have a compounded return of 20.6% versus 9.7% for the S&P 500. It also has the highest Sharpe ratio (a measure of risk adjusted performance) out of any stock that has traded for 40 years. In our latest newsletter, we look at the key drivers of that performance.

2/22/2019

Validea Hot List

The Search for Alpha

It isn't easy to beat the market. Over the long term only a few investors have been able to outpace it, consistently producing market-beating gains. But that hasn't deterred stock pickers from trying to generate alpha. They arm themselves with sophisticated models, hunting for overlooked opportunities and hoping the crowd doesn't catch on. But this becomes a self-fulfilling cycle. As the skill of managers rise and the tools improve, it becomes harder and harder to distinguish the talented from the rest of the crowd.

2/8/2019

Validea Hot List

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. But it is important to understand the other side. In this issue, we take a look at the argument against value investing.

1/25/2019

Validea Hot List

The Challenges of Multi Factor Investing

An investment strategy based on well-tested factors like value, momentum and quality has worked for some of Wall Street's most famous investors, but history also shows taken one at a time each can seriously underperform the market for an extended time. There is a way to smooth out the returns of any individual factor by combining them into a multi-factor portfolio, which reduces risk and can produce comparable returns. But it can be a complicated process. In this issue, we look at the challenges of building multi-factor portfolios.

1/11/2019

Validea Hot List

The Hazards of Timing Factors

One of the first things investors learn is to buy low and sell high. It applies to simple stock investing and it's tempting to think it can be applied to factor investing, too. Cheap value stocks should, in theory, eventually rebound. So it makes sense to buy them up and wait it out. It equally makes sense to pare back exposure to factors that have had a long period of significant outperformance, like growth and momentum stocks. But this simple idea is easier said than done.

12/28/2018

Validea Hot List

A Look at Behavior in Investing

Humans approach investing with their own biases and behaviors than can hinder their success. The study of behavioral finance has blossomed in recent years as experts try to find ways to help investors overcome this natural tendency. What the discipline has discovered is that human behavior hurts investor returns more than other outside factors.

12/14/2018

Validea Hot List

Learning from the Hierarchy of Investor Needs

With investing, certain skills have to be mastered first. They become the foundation for other skills that, taken as a whole, become the guidepost for investors to understand what is important and where they should be spending their time and energy. This hierarchy of investor interests puts investor behavior at the bottom of a pyramid.

11/30/2018

Validea Hot List

When Hypothetical Becomes Real

Do you have what it takes to become a long-term factor-based investor? There are a few things you may not have considered. It's a lot tougher than it looks on paper, for starters. Deciding to dive in is not a quick process, of course. It takes research and an examination of long-term historical results.

11/16/2018

Validea Hot List

The Underappreciated Role of Luck in Investing

Investing success is largely a function of skill and discipline. But luck also plays a role in investing. This role is often misunderstood and underappreciated. Luck is something even Warren Buffett has talked about, though most of his life has been spent carefully evaluating company fundamentals and sticking to a disciplined, unemotional approach to investing.

11/2/2018

Validea Hot List

Stay Skeptical About Sure-Thing Indicators

Investors like simple indicators. They like things that tell them exactly when to sell, and when to buy. They want a magic bullet that can keep them out of market declines. The problem, of course, is it doesn't exist.

10/19/2018

Validea Hot List

The Challenges of Timing the Market Like the Pros

The recent market upheaval has many people turning to market legends for advice, and it's easy to see why. These famous investors have made their names successfully navigating the markets over the long-term, and have survived many declines over that time. But that approach can be dangerous.
Performance Disclaimer: Returns presented on Validea.com are model returns and do not represent actual trading. As a result, they do not incorporate any commissions or other trading costs or fees. Model portfolios with inception dates on or after 12/30/2005 include a combination of back tested and live model returns. The back-tested performance results shown are hypothetical and are not the result of real-time management of actual accounts. The back-testing of performance differs from actual account performance because the investment strategy may be adjusted at any time, for any reason and can continue to be changed until desired or better performance results are achieved. Back-tested returns are presented to provide general information regarding how the underlying strategy behind the portfolio performed in our historical testing. A back-tested strategy has the benefit of hindsight and the results do not reflect the impact that material economic or market factors may have had on advisor's decision-making if actual client assets were being managed using this approach.

Optimal portfolios presented on Validea.com represent the rebalancing period that has led to the best historical performance for each of our equity models. Each optimal portfolio was determined after the fact with performance information that was not available at portfolio inception. As a result, an investor could not have invested in the optimal portfolio since its inception. Optimal portfolios are presented to allow investors to quickly determine the portfolio size and rebalancing period that has performed best for each of our models in our historical testing.

Both the model portfolio and benchmark returns presented for all equity portfolios on Validea.com are not inclusive of dividends. Returns for our ETF portfolios and trend following system, and the benchmarks they are compared to, are inclusive of dividends. The S&P 500 is presented as a benchmark because it is the most widely followed benchmark of the overall US market and is most often used by investors for return comparison purposes. As with any investment strategy, there is potential for profit as well as the possibility of loss and investors may incur a loss despite a past history of gains. Past performance does not guarantee future results. Results will vary with economic and market conditions.