It’s Not What They Say, But What They Do
Top 5 of the Week of September 25
In our Top 5 this week, writing for the CFA Institute, Nicolas Rabener examines the “value in the value factor.” On Alpha Architect, Dr. Jack Vogel discusses machine learning. And A Wealth of Common Sense’s Ben Carlson explains why we should be worried about the market today.
The Irrelevant Investor Michael Batnick expands on a quote by Mark Twain, “It is strange the way the ignorant and inexperienced so often and so undeservedly succeed when the informed and the experienced fail.” And partner at the Collaborative Fund, Morgan Housel remarks on what the future still has in store…
The Most Attractive Factors
- May saw the interest in factor investing hit an all-time high, motivating fund management companies and investment banks to launch many smart beta and risk premia products
- Since factors experience similar multi-year drawdowns as equity markets, it’s important to determine which factors work best in certain market conditions when selecting among these products
- When looking at stock prices, valuations can be outrageous, but, if you have a medium to long-term investment horizon, value factors are your friend
How do you determine the most attractive investing factors? Share your comments in the section below
The Future of Machine Learning
- Many investors are curious about machine learning—how computers can come up with algorithms to find the best trading signals from the available data
- When you look at all the data though, trading on all the signals in the fundamental-signal universe produces next to no anomalies
- Machine-learning combines well-known anomalies, but could also increase transaction costs and the odds of a data-mined result (even though the algorithms will attempt to avoid this)
It’s Not What They Say, But What They Do
- When legendary investors like Seth Klarman are concerned about the market, other investors sit up and take notice
- Except even those investors at the top of their game don’t know what’s going to happen anymore than the rest of us
- The key is to watch what these investors are doing, rather than what they say they are doing—what they tell the public can be very different to how they’re actually managing their assets
Damn Beginner’s Luck
- The stock market is a fickle beast; new, inexperienced investors can just wander in with no skill or knowledge and make a lot of money
- Which can be incredibly frustrating for professional investors who know, for example, that concentrating 100% of your assets in one stock is a terrible idea
- And as tempting as it is to chase high-performing stocks, be rational instead and exert the self-control that you know is important for long-term success
The Future: Are You an Optimist or a Pessimist?
- John Stuart Mill said that “I have observed that not the man who hopes when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage”
- It is easy to be pessimistic about what the future brings for the age of invention—and the stock market—as being pessimistic “sounds smarter”
- But while optimism sounds more implausible, there are a whole load of people who have wrongly predicted in the past that there is nothing new left to be invented
Top 5 of the Week is a summarized collection of financial investment articles that we like and think you might like too. Having written thousands of pages of equity strategy and company research between us, we understand the allure of the ever-changing world of finance. Investing is an art form—and like everything, something you can work on and improve at. There are some excellent writers out there on the finance web, some offer a running commentary on today’s market, some are doing research, some have tips on how to Become a Better Investor, and some just lift the cloud of fog behind a lot of financial jargon. Each week we will keep you up to date with the top 5 articles worthy of your attention.
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