31 Oct 2016

Equity Risk Dominates Your Portfolio

When I describe ‘balance’ in a portfolio, here or in person, I am almost inevitably talking about an allocation that is somewhat evenly split between stocks and bonds.  I don’t have to specify that I am talking about how much money is in each allocation (forgetting for a moment all of the sub allocations). In recent years, however, some investment managers have pointed out that a portfolio that is evenly… Read More

By David Ott Tags: , , , , , , ,
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

By David Ott Tags: , , ,
1 Jul 2016

The Market Hates Uncertainty

One of the phrases that I hear over and over, but simply don’t like, is that ‘markets hate uncertainty.’  Forget the fact that markets are just made up of people and don’t have independent emotions, I’m talking about hating uncertainty. From a theoretical standpoint, let’s think about how uncertainty affects markets.  Let’s start with the idea that the value of an investment is the present value of its future cash… Read More

By David Ott Tags: , , ,
26 Jan 2016

Drawdowns Help Visualize Losses

Until I read the book ‘Hedge Hogging’ by Barton Biggs before the 2008 financial crisis, I had never heard the term ‘drawdown,’ which refers to the peak-to-trough decline of an investment or market. A drawdown measures the depth and length of a decline and illustrates how long it takes to earn back money lost from the last peak. It’s a commonly used term in the hedge fund community, partly because… Read More

By David Ott Tags: , ,
22 Jan 2016

Stock Losses Take a Breather

Yesterday at lunch, when stocks were down more than three percent, I was reading market analysis and one analyst said that investors were disappointed by the ‘lack of policy response.’ That really struck me because markets were off sharply and it hadn’t occurred to me that the Federal Reserve hadn’t said anything material this year that might shore up stocks. Although we are steeped in losses very early in the… Read More

By David Ott Tags: , ,
29 Dec 2015

Market Forecasts Part 2

Yesterday I posted some of the questions and answers from the Barron’s annual ‘Test Your Wall Street Skills’ quiz. Here’s a link to my article from yesterday and here is the link to the article in Barron’s (a subscription may be required). Most of the ‘big’ questions have already been answered, but there are still some fun ones: 1. Which ‘FANG’ stocks will fare worst in 2016 – Facebook, Amazon,… Read More

By David Ott Tags: ,
28 Dec 2015

Market Forecasts Part 1

Over the weekend, Barron’s put out their annual quiz for readers to predict market related events in the coming year (you can find the quiz here, but a subscription may be required). I thought it would be fun to share some of my answers – but keep in mind the quote from Warren Buffet, who said that ‘the only value of stock forecasters is to make fortune-tellers look good.’ I… Read More

By David Ott Tags: ,
17 Nov 2015

A Big Bet on Emerging Markets

For most of last week, I was in Boston at Schwab’s IMPACT conference – my fourteenth pilgrimage that includes prominent speakers, workshops and a football field size area of vendors pitching everything under the financial services sun. This year featured more academics than usual, which I found particularly engaging.  One of the sessions was actually a debate between academic Roger Ibbotson (who also manages some money) and Rob Arnott, a… Read More

By David Ott Tags: ,
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

By David Ott Tags: ,
3 Sep 2015

The Chart That Made Me Laugh Out Loud

I think you know by now that I love charts.  I am definitely not saying that I am a chartist – I don’t think I have ever made an investment decision for me or anyone else based on a chart.  I simply think that if a picture tells a million words then a chart must at least tell 1,000 (roughly matching my wordcount) When I saw a blog titled ‘econompic,’… Read More

By David Ott Tags: , ,