Money is an interesting actor that plays two roles in our lives. In the first, money equals money. It fits in a spreadsheet. It’s something to be calculated. In the other, money equals stories. It’s what we tell ourselves about our relationship with money. Let me share a story I’ve told myself. For six years,…
It seems that in the upcoming presidential election, American voters will be faced with choosing between two candidates with the highest unfavorable ratings in history. It’s either that (at least if the parties’ national conventions go as expected), or a choice not to vote. The unfavorable ratings of both candidates are creating a great amount…
For about three decades, the working asset pricing model was the capital asset pricing model (CAPM), with beta—specifically market beta—being its sole factor. Then, in 1993, the Fama-French three-factor model—which added size and value—replaced the CAPM as the workhorse model. By eliminating two major anomalies (the outperformance of small stocks and of value stocks), it…
Robo-advisors have had a significant — and generally positive — impact on the financial services industry. The term typically refers to services that use models and algorithms to invest client portfolios, often in exchange-traded funds (ETFs). A benefit much touted by some of these services is that there’s no interaction with a human advisor. The…
Perhaps you’ve heard the expression, “Only the paranoid survive.” Ring a bell? If so, it’s probably because that’s the title of a book by Andrew S.Grove, the former chairman and chief executive of Intel. When I read this book in late 1999, I bought into the need to always be looking for opportunities and to live my life…
If investors were asked, “Who do you think is the greatest investor of our generation?” I’d bet an overwhelming majority would answer, “Warren Buffett.” If they were then asked, “Do you think you should follow his advice?” you might think that they would say, “Yes!” The sad truth is that while Buffett is widely admired,…
Retirement creates many challenges. Unfortunately, while about 10,000 Americans retire daily, the sad truth is that most people seem to spend less time planning for retirement than they do for a vacation. Anxiety regarding our futures is a common ailment, especially among the millions of Americans rapidly approaching the end of their working years. And…
It’s been well-documented that, in general, investors are risk-averse. This aversion to losses leads many investors to seek “tail protection” strategies. And the most direct way to obtain downside protection is to buy put options. However, purchasing volatility insurance is expensive, because, historically, realized volatility has been well below the level of volatility implied in…
According to a recent poll conducted by The Associated Press-NORC Center for Public Affairs Research, two-thirds of Americans earning between $50,000 and $100,000 would find it difficult to come up with $1,000 to cover an emergency. For those earning less than $50,000 a year, that figure increases to 75 percent. A shocking 38 percent of…
Among the arguments made for investing in hedge funds is that they reduce the tail risks of traditional portfolios. In other words, they are expected to at least avoid the impact of market crises. Unfortunately, the 1998 implosion of Long-Term Capital Management and the global financial meltdown in 2008 demonstrated that this hypothesis is incorrect….
Many investors and advisors who implement multifactor portfolios tend to focus on capturing the value premium over the size premium, often for the simple reason that, historically, the value premium has been larger. Others have even challenged the size premium’s very existence, citing a weak and varying historical record. In both situations, it may be…
Perhaps you’ve heard the expression, “Only the paranoid survive.” Ring a bell? If so, it’s probably because that’s the title of a book by Andrew S. Grove, the former chairman and chief executive of Intel. When I read this book in late 1999, I bought into the need to always be looking for opportunities and…
Robo-advisors have had a significant — and generally positive — impact on the financial services industry. The term typically refers to services that use models and algorithms to invest client portfolios, often in exchange-traded funds (ETFs). A benefit much touted by some of these services is that there’s no interaction with a human advisor. The…
Simon Lack’s first book, “The Hedge Fund Mirage: The Illusion of Big Money and Why It’s Too Good to Be True,” chronicles the history of the hedge fund, highlighting many subtle and not-so-subtle ways that risks and returns are biased in favor of the fund manager. He shows that, while it is certainly true that…
Financial research has uncovered many anomalies (mispricings) that persist even well after they’ve been discovered, the findings are published and their existence becomes widely known. The most well-known anomalies that represent violations of the Fama-French three-factor model (market beta, size and value) are: Net Stock Issues: Net stock issuance and stock returns are negatively correlated….