Yesterday, the Wall Street Journal (WSJ) printed four articles in what appears to be a 17 article series on what they call ‘the quants.’ I was so excited to see these articles because I think you could fairly describe some of the strategies that we pursue as quantitative in nature. Unfortunately, I was turned off immediately. The second paragraph of the first article talked about how the quants use ‘high… Read More
Last week was particularly tough on retailers thanks to a report that showed online spending increased 1.4 percent while it declined -0.50 percent for brick and mortar stores. Department stores like Nordstrom’s and JC Penny both fell more than -10 percent on earnings and forward guidance news. Even though we don’t own either of these two retailers, we own others and the bad news made its way into the stocks… Read More
This past weekend was the ‘Woodstock for Capitalists,’ otherwise known as the Berkshire Hathaway annual meeting, where each year, tens of thousands of shareholders descend on Omaha, Nebraska to hear from the Oracle of Omaha, Warren Buffett. I’ve never attended myself, but I’ve read the book and watched the documentary (a trailer can be seen here). Before Airbnb, it was next to impossible to find a place to stay and… Read More
One of the most notable market reactions to the election is the rally in small cap stocks. For the month of November, the S&P 600 Small Cap index gained 12.55 percent, compared to a 3.70 percent gain for the S&P 500 index of large cap stocks. It was fourth best month for the S&P 600 Small Cap index since its inception in 1994. While the results were definitely a surprise,… Read More
You may have noticed that the small cap index in the table above, the Russell 2000, has been gaining ground recently on the S&P 500, the benchmark index for large cap stocks. The chart below shows the return for the Russell 2000 (in orange) as nearly caught up with the S&P 500 (in blue). The return difference, as we can see in the table is just one-third of one percent,… Read More
Acropolis diversifies in more ways than you may realize. In addition to the well known methods like single company exposure, sector, industry, geography, creditworthiness and asset classes, we also diversify by risk factors. I’ve written about the equity factors that we use (see a list of our primers on size, value, momentum and quality here), but I think it’s also important to note that there are some factors that we avoid…. Read More
Value stocks are undoubtedly having a tough time these days. As I first wrote last November (click here for the article), value stocks are undergoing their worst period of underperformance since the tech bubble during the late 1990s. For the 10 years ending January 31st, the Russell 1000 Value index is up 7.03 percent compared to 7.92 percent for the Russell 1000 index of large cap stocks and 8.68 percent… Read More
As I wrote earlier this week, the plunge in oil prices has dramatically cut profits for energy firms (see the article here). Some of those companies have been using their excess cash over the last few years to buy back shares of their own stock, which reduces the number of shares outstanding held by investors. Last year, I looked at buybacks versus dividends (read the article here) and today I… Read More
When academics evaluate a strategy like value or momentum, they test the data in a variety of ways to make sure that the effect that they are studying is real and not spurious (to use their term for bogus). When Rolf Banz first proposed the small cap effect in 1981 (the original study can be found here), he used US return data from 1936 to 1975. He used the data that was available to him… Read More
In recent weeks, I’ve written about two well known risk factors, the size premium and the value premium. Today, I’ve got a more difficult topic to cover: momentum. Virtually everyone agrees that you can find evidence of momentum in the data, but there’s a lot of disagreement about why it exists and how it should or shouldn’t be applied in the real world. In short, momentum is the tendency for stocks that… Read More
