R.I.P Value Investing?
Top 5 of the Week of September 11
In our Top 5 this week, Newfound Research’s Corey Hoffstein examines alternative investments for portfolios. Writing for Alpha Architect, Larry Swedroe explores short-term momentum and long-term reversals in global equity markets. And The Irrelevant Investor Michael Batnick asks if Warren Buffett has killed value investing?
From Of Dollars and Data, Nick Maggiulli uncovers the data timeline behind rapid decreases in stock prices and their slow recovery. And the writer of Behavioural Investment, Joe Wiggins, explains why mutual fund investors behave differently to other investors…
Go Weird and Wonderful
- The present market perspective on bonds, stocks, and portfolios is pretty bleak at the moment, rocking at “all-time historical low levels”
- Investors hoping to achieve long-term success may have to consider outside of the box thinking when it comes to portfolio construction
- Consider a portfolio made up of more “unique” asset classes including emerging market debts, levered loans, and U.S. small caps in a 60/40 ratio
Momentum and Reversals Research
- Much research has been undertaken to examine the correlation between price patterns in momentum returns and long-term reversals
- There is evidence to support the fact that in global markets, outside of Europe, three-year losers become winners and three-year winners tend to be losers
- There are also long-term reversal findings that suggest this is not the result of investor overreaction to valuation changes
R.I.P Value Investing?
- Warren Buffett has made a killing in the stock market, and his name is now interchangeable with investing
- Up until 1984, when Buffett shared his findings with the world on how to value invest, his partnership alone reaped the benefits of his skills
- But since he has enlightened so many other investors to the strategy, the same Fama French U.S. Large Value Index—which was crushing it from 1926 to 1984, has since failed to outperform the S&P 500
- Sadly, too much of a good thing cannot work for everyone
What do you think? Has Buffett killed value investing? Share your comments in the section below
How Stocks Fall Quickly, But Recover Slowly
- Experienced investors are all used to how stocks decline rapidly in price but will take their sweet time to recuperate
- Historical data—from times where the U.S. stock market was at an all time high before heading into a 20% drawdown—shows the average time it takes is 7 months for the market to decline, and a whopping 6 years to recover
- Fun fact, but it’s worth remembering of course that historical data is no measure of future performance—doh!
Mutual Fund Investors Do It Differently
- A notable find from behavioral finance studies is the disposition effect; which is when investors sell winners and keep losing stocks
- But mutual fund investors do the opposite; selling losers that underperform as they ‘find’ patterns between the fund investment process and underperformance
- This desire to identify a narrative link—driving fund investors to sell losers in a reverse of the disposition effect—is not wrong, but it’s worth being aware of this “distinct behavioural challenge”
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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