20 Jul 2016

A Silly but True Market Anomaly

I heard a funny exchange between Gene Fama and Dick Thaler, two University of Chicago professors that sit on opposite sides of the debate about whether markets are efficient.  If you’ve got 45 minutes, I recommend watching the whole discussion by clicking here. As an example of market inefficiency, Thaler told a funny story about a closed-end mutual fund with the ticker symbol: CUBA.  The Herzfeld Caribbean Basin fund doesn’t invest… Read More

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11 Mar 2016

Active Funds Still Struggle

Every six months, Standard & Poor’s does an analysis of how active funds compare to S&P indexes and it’s been a while since I’ve reported on the results.  Unfortunately for the actively managed funds community, things haven’t gotten any better since my last update. The report offers many details and if you want to look at the entire report, click here.  I think that if you aren’t going to look at… Read More

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19 Jan 2016

Does the Stock Market Selloff Make Sense?

Years ago, I read a book by highly regarded hedge fund manager Joel Greenblatt, where he explains why he thinks that markets aren’t efficient. As I recall it, he asks his students to pick out a handful of their favorite stocks and then tells them to look up the 52-week high and low for the stocks and record those prices.  Then, in class, they report those numbers to each other. For… Read More

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27 Oct 2015

Efficient Markets: Fact and Fiction

For almost 50 years, one of the most controversial ideas in finance is that markets are efficient as presented by Gene Fama’s Efficient Market Hypothesis (EMH) in 1966. Let’s start with a simple definition of EMH: Current market prices incorporate all available information and expectations and are the best approximation of intrinsic value. In some ways, it’s such a simple statement that it’s a little surprising that it’s so controversial…. Read More

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18 Aug 2015

The Outlook for Stock Returns

Last week, I wrote that I was wincing at the valuation for the US stock market (click here for the article) and said that I thought that returns in the coming years would be lower than the historic averages. Importantly, I said that returns could be low without a crash in the form of lower average returns.  I wish I had also said that even though the average return might be lower,… Read More

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4 Aug 2015

Greek Stocks Fall 16% in One Day; Markets Still Efficient

Thankfully, Greece has been out of the headlines for a few weeks as the Mediterranean country continues to negotiate their third bailout in five years. In the meantime, some of the capital controls are beginning to lift: banks reopened on July 20 (although withdrawals are still severely limited) and yesterday, the Greek stock market opened again, albeit -16 percent lower. Obviously, that’s an enormous decline – the S&P 500 has… Read More

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24 Apr 2015

New Thoughts on the Active Passive Debate

Wednesday night, I was reading a new paper by some of the principles at AQR titled, ‘Fact, Fiction and Value Investing.’  You can find a copy here and this follows on a paper that they wrote last year called, ‘Fact, Fiction and Momentum Investing (which you can find here).’ Now that you’ve read our primers on value and momentum investing, no further explanation is required, although if you want a refresher, you… Read More

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2 Apr 2015

Equal Weight: Something New Under the Sun?

As you might hope and expect, we are constantly looking for ways to improve returns, reduce risk, or in a perfect world, both.  That means that we are always looking at strategies, evaluating their pros and cons and trying to figure out whether they are better than we are currently doing. One interesting strategy that we’ve looked at over the years that is simple to understand is to buy the… Read More

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17 Feb 2015

Fun With Discount Rates

Far and away, one of the best reads of the year is the Credit Suisse Global Investment Returns Yearbook – and the 2015 edition is no exception. Click here to download. The yearbook is hot off the presses, 68 pages and chock full of thought provoking content, so I am not even close to being finished at this point. One of the articles titled ‘Do Equity Discount Rates Mean Revert?’… Read More

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29 Jan 2015

Expected Returns for Stocks

A friend recently forwarded me the address of a fascinating investment website that I have spent hours studying. The site, found here, beautifully displays market forecasts for stocks, bonds, commodities and currencies from around the world. This site is run by Research Affiliates, an investment research firm that develops indexes and strategies that other investment managers license. They say that as of the end of the third quarter last year,… Read More

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