My 2017 report card

Preface: Explaining our market timing models We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade. The...

Peak smart beta?

A recent comment by Michael Mauboussin of Credit Suisse that nailed the dilemma of active managers, namely that using traditional approaches to alpha generation is akin to mining lower and lower grade ore: Exhibit 1 shows that the standard deviation of excess returns has trended lower for U.S. large capitalization mutual funds over the past five...

From alpha to actual returns: Why your mileage will vary

One of the characteristics of a good financial modeler is to know his model's limitations. He know how and why they work, and under what circumstances they will fail. I have been asked a number of times in the past to disclose the returns of my trading account, or the signal dates of my trading...

A passive index fund built to outperform?

A long time reader sent me this Seeking Alpha article entitled "Monish Pabrai Has Created An Index Fund Built To Outperform", which described a "passive index fund" built using the following three investment themes deployed in three portfolio buckets: Share buybacks: Companies that are buying back their own shares Selected value manager holdings: The holdings...

How much business risk is hiding in your portfolio?

This is the second in an occasional series of posts on how to build a robust investment process. Part 1 was addressed to the individual investor and trader (see The ways your trading system could lead you astray). This posts explores the issues that face the professional and institutional investor. I had illustrated in the...

Thanks, but I’m not that good!

It's always nice to get positive feedback from subscribers. One subscriber praised me for my trading model and wanted real-time updates of signal changes (which I already provide but wound up in his spam folder).   Another subscriber complimented me on my series of tweets indicating an oversold market on Thursday, which suggested that the...

The dirty little secret behind “smart beta” investing

Some minor buzz has arisen among finance academics and professionals as a result of a paper by Ronald Kahn and Michael Lemmon, both of whom are employed by Blackrock, entitled The Asset Manager’s Dilemma: How Smart Beta Is Disrupting the Investment Management Industry. Here is the abstract: Smart beta products are a disruptive financial innovation...

Teaching my readers how to fish

In the past week, I had discussions with several different people about the operating philosophy of Humble Student of the Markets, The objective of the website can be summarized by a variation of an old adage: Give a man a fish, he'll eat for a day. Teach a man how to fish...he'll want to get...

The price of success

Last year, my Valentine's Day post was about how Facebook analyzed the behavior of who fall in love (see Falling in love, the Facebook version). This year, I thought that I would highlight the price of success for hedge fund managers. I highlight a research paper entitled Limited Attention, Marital Events, and Hedge Funds. Here...