A little more than a year ago, I attempted to answer the question, ‘which stock sector is best?‘ The answer, of course, is that it depends. It depends on what time horizon you are evaluating, whether you care about overall performance, risk-adjusted performance and so forth. My conclusion to that article is that no sector is ‘best’ and the best strategy is to have diversified exposure to a basket of… Read More
Yesterday, in my article about activist investors, I referred to a Yale academic who said that one hedge fund index showed that activists had sluggish performance, but then said that this index series is widely known to be troublesome without any explanation for what makes them problematic. Hedge fund ‘indexes’ are well known to overstate performance and understate risk, making them appear more appealing to investors than they really are. The… Read More
While I was in New York over the weekend, my sister walked me past a six-story townhouse right off of Fifth Avenue that now belongs to one of my (very few) high school girlfriends. It’s a pretty nice house with views of Central Park and apparently cost them a cool $26 million (not including any renovation and decoration costs). This woman married her college boyfriend who is now the… 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
They say that the only free lunch in finance is diversification. With stocks trading at lofty valuations and bonds yields historically low, it’s sensible to look at other alternative strategies that could potentially lower risk or increase return (or better yet: do both). Over the last five years, investors have flocked to ‘alternative’ investments, although the definition of alternative is pretty broad and can include things as generic as REITs… Read More
For the most part, the returns associated with foreign stocks and bonds have two components: the return of the stock or bond and, secondly, the return of the foreign currency. Over the past eight months, the impact of the exchange rate has been unusually high. For example, a German investor that owns an index fund in the DAX is up 24.04 percent so far this year through yesterday. For… Read More
One way to judge the performance of a mutual fund or ETF is to compare the results to a relevant benchmark, which is usually an index that has relatively similar characteristics. Another method is to compare your fund to a group of funds that are basically pursuing the same strategy. Admittedly, we don’t use this approach very often, even though I think it would make our job a lot easier… Read More
When I was a senior in college, and just starting to take some finance classes, my professor expressed deep concerns about the stock market’s valuation at the time. Of course, at the time I had no idea what he was even talking about, let alone an opinion about whether he was right or not. Using my trusty Bloomberg terminal, I can see that the price-earnings (PE) ratio for the S&P… Read More
Just before the 2008 financial crisis, a Wall Street insider tipped off the Securities and Exchange Commission (SEC) to insider trading at a large, successful, but largely little known hedge fund, the Galleon Group. The founder, Raj Rajaratnam, had a vast network of contacts that he would pay in exchange for confidential information about a company that would affect its stock price when the information became public. Ultimately, he was… Read More
The performance of the S&P 500 over the past two days has reminded me of charts that I have seen over the years that show the impact of missing the best days in the market. These charts offer a good message about remaining fully invested, which I wholly agree with, but the charts are also a little misleading in my view. I decided to create one of my own to… Read More
