The Few Rule the Many — Power Laws in Market Returns (2015 Case Study)

As index investing has grown in popularity, investors focus more and more on the market’s overall return and less on the return of its component parts (individual stocks). But underneath the hood of each market index we find many inequalities. The top 20% of stocks represent 85% of the overall market’s size in 2015. Similarly,…

Three Value Investors Meet in a Bar

Bill, Ernie and Sam—three lifelong value investors—met in a bar on November 30th, 2015. Bill was despondent. He’d underperformed the market by -47% over the past 10-years and was questioning his very belief in value. Ernie was happier. He’d done poorly in 2015, but over the last ten years he’d outperformed the market by +19%….

ZIRP, And The Factors That Launched 1,000 ETFs

The rise of smart beta–or more broadly, factor investing–has coincided with a 6 year period of zero interest rates. During this period, factors have been particularly ineffective relative to longer term results. Using publicly-available data (Ken French) we can explore the recent results for the most popular stock selection factors and compare them to longer-term periods of…

Philosophy Books

Here’s a list of my favorites, hope you find something interesting! ************** Freedom From the Known by J. Krishnamurti (http://amzn.to/1IYPQta) The Essays of Arthur Schopenhauer; (http://amzn.to/1OcjKpU) Michel de Montaigne – The Complete Essays (Penguin Classics) (http://amzn.to/1OcCtS0) The Upanishads (Classic of Indian Spirituality)  by Eknath Easwaran (http://amzn.to/1NXMXZS) The Wisdom of Life by Arthur Schopenhauer (http://amzn.to/1OcjRBF) Essays…

Momentum Deterioration, Crashes, and Prospects

In this piece, I’ll explore the momentum factor in some detail, mainly because of the excellent article by @jesse_livermore on the dangers of back-testing and the recent deterioration in the momentum factor. As Jesse did, I’ll use Fama French data because its publicly available, even though I think that their definition of momentum (total return…

The 15 Best Books of 2015

This year I read 103 books and collected 855,000 words worth of highlights and notes. Here are the fifteen best books I read, with one sentence describing why, and one passage to gauge (and pique) your interest. Consistent with my growing believe that it is more productive to read around one’s field than in one’s…

The Investor’s Podcast

The problem with the financial television shows is that it is very hard to have a good investing discussion in 5 minutes. These shows still have the reach, of course, but the short nature of the segments means you have to focus more on sound bites than truly helpful advice/information. I think of going on TV as a…

The Persistence of Growth

It is unlikely that the fastest growing companies from the past five years—think Tesla, Apple, and Under Armor which have grown sales 32x, 4x, and 4x respectively since 2010—will continue to be the fastest growing companies over the next five years. Some high growth stocks will continue their torrent growth, but future growth rates have…

Fun with F.A.N.G.

Growth stocks have killed value stocks lately, led in large part by four stocks. Let’s make the following arbitrary assumptions in order to have fun with the group of stocks know as F.A.N.G. (Facebook, Amazon, Netflix, and Google). Let’s assume: That each company’s market cap grows by 7% per year for the next 10 years (roughly…

Metaphors and Mental Models: The Key to Understanding

When I first read the sequence of passages that I quote below, I felt like I had discovered a diamond while exploring a shop of horrors. The passages come from a book by Julian Jaynes, whose controversial (and carefully thought out) theory is that just a few thousand years ago, human beings weren’t conscious like us,…