Excess Returns

Systematic value strategies have had one of the worst performing periods in their history in the past decade. This extended underperformance, coupled with changes in the market and economy that many argue are unfavorable for the strategy have led many to question whether it is permanently broken.  As believers in the strategy, we have a natural tendency to discount these arguments and to invi...

There is a popular narrative out there that value investing is back. And it makes sense given the huge run that many value funds have had off the market bottom. But when you look beneath the surface, it turns out what drove those returns may have little to do with value at all. In this episode, we look at what has actually driven the returns of many value strategies in the past year, and the oppor...

In this episode, we are joined by Kevin Zatloukal. Kevin teaches Computer Science at the University of Washington and has his Ph. D. in Computer Science from MIT. He previously was a programmer for both Microsoft and Google. He is also a member of O'Shaughnessy Asset Management's Research Partner Program, where he has written two papers applying machine learning concepts to investing.  In the...

In this episode, we discuss the major points Warren Buffett covered in his 2021 annual letter and talk about some lessons investors can learn from them.  We discuss:  - the importance of recognizing mistakes and learning from them - why operating earnings are a better measure of Berkshire's business than GAAP earnings - the evolution of Buffett's investment approach over time - why Berks...

In this episode, we are joined by John Montgomery, the founder and CIO of Bridgeway Capital Management. Bridgeway is unique in the world of Wall Street, where profits are usually the primary motive, in that it donates 50% of its profits to charity, makes everyone who works at the company a partner, and strives to maintain a low ratio of compensation of its highest paid team members relative to the...

In this episode, we are trying something new. There is so much academic research out there about markets, and what drives their returns over time, that it can be very difficult for investors to keep up with all of it. So we are going to start highlighting some of our favorite academic papers each month and breaking down their key lessons.  We start with paper Replicating Anomalies by Lu Zhang...

The rapid rise and fall of GameStop earlier this year was unlike anything many of us have seen in our investing careers. The stock's price went from the single digits to upwards of $400 per share in a very short time, and then lost most its value in the weeks that followed. In this episode, we take a look behind the scenes at the factors that led to GameStop's massive gains, and how those same fac...

Risk is one of the most difficult concepts in investing to define. Part of that is because we face many risks as investors that come from many different directions. But another part of it is that risk is ultimately different for every investor, which makes a universal definition impossible to find.  In this episode, we look at some of the most important risks we face as investors, and why the...

Joel Greenblatt produced exceptional returns as managing partner at Gotham Capital, a New York City-based hedge fund he founded. The firm averaged a remarkable 40 percent annualized return over more than two decades .In his 2005 bestseller The Little Book That Beats The Market, Greenblatt laid out a very simple two variable strategy that more than doubled the market return in his testing.  In...

There is perhaps no investment factor with more long-term data to support it than momentum. But despite that, its real world usage lags far behind other factors like value. Part of the reason for this is the fact that momentum can be much less intuitive for investors. It is easy for investors to understand why they should buy a stock that trades at a discounted valuation, but it is much more diffi...

Our economy is changing. Gone are the days where the biggest companies require substantial physical assets to operate and grow their businesses. Most of the companies that dominate our economy today rely on assets like technology, brand value, and patents to power their businesses. In this episode, we look at the impact of intangible assets on value investing and investment strategies that rely on...

There are many misconceptions about private equity. Most investors see it as a domain where high net worth investors and institutions earn returns that can't be achieved via public markets. Investors typically also view the success of private equity as the result of the ability of private equity firms to go in and make operational changes to businesses to unlock their true potential. But it turns...

After a decade of struggle, the past six months have finally given value investors reasons for optimism.  Although the recent outperformance pales in comparison to the underperformance over the course of the decade, the fact that performance has improved, coupled with the arguments that a move toward increased fiscal stimulus may lead to a higher inflationary environment that would benefit va...

Dividend based investing strategies are very popular among investors. The ability to receive regular cash payments from the equities they own and a belief that dividend paying stocks outperform the market are both major drivers of this popularity.  But this preference for dividend stocks often exceeds the reality of the benefits they provide. In this episode, we take a look at the facts behin...

Peter Lynch is one of the most successful mutual fund managers of all time. Lynch guided Fidelity Investment's Magellan Fund to a 29.2 percent average annual return from 1977 until his retirement in 1990, almost doubling the S&P 500's 15.8 percent yearly return over that time. And he did it with an approach that is very unique among history's most successful investors.  In its paper Super...

There is a common misconception that a good company is always a good investment. But that sometimes isn't the case. The reason for that comes down to the role that expectations play in investing. Companies with good fundamentals typically have high expectations built into their stock price, while companies with poor fundamentals typically have low expectations embedded in their price. But either w...

When we started our podcast late last year, we were hoping we could create something that would be educational and informative for people who follow our content. We were hoping we could take some of the lessons we have learned in running quant models over the past decade and share them with other investors who are looking to learn and improve. But one of the biggest surprises for us in the first y...

No investor can match the combination of Warren Buffett's annual returns and the period of time he has been able to sustain them. Buffett has generated those returns in a variety of ways, many of which your average investor could never copy. But Buffett's greatest contribution to the investing world likely isn't his returns or his approach to picking stocks. Buffett's greatest contribution has bee...

The way economic policy is implemented has undergone some major changes in the past decade. The Federal Reserve's response to the Great Financial Crisis, and the continued quantitative easing in its aftermath, marked a significant change in the way the central bank implements monetary policy. And the fiscal policy response to the current crisis also marked a significant departure from how things h...

The academic research supporting the momentum factor is very strong.  But most of that research focuses on the momentum in a stock's price.  An interesting research paper written by Dashan Huang looked at the potential to enhance the excess of return of price momentum by also looking at the momentum in a firm's fundamentals. In this episode we discuss this paper and the pros and cons of...

We have reached the one year anniversary of the podcast so we wanted to take a break from our regular investing episodes for a week and reflect back on our first year and what we have learned.  In this episode we talk about our biggest lessons from our first year of podcasting and some of the behind the scenes details that go into creating the podcast. As we begin our second year, we also wou...

There is a tendency for those of us who support quant models to talk about them as if they are these things that just run on autopilot over the long-term that are free from all the decision-making issues that plague us as human beings. That just isn’t the case, though. There are many decisions that go into the development, optimization, and evolution of quant models that require human intervention...

Value investing has struggled for over a decade now. Although no one will dispute that fact, there are significant disagreements about whether this is just another of the long periods of underperformance that have been common in the history of value or if something about the strategy has become broken.  In the first year of our podcast, we have talked to some of the smartest people we know in...

Warren Buffett is one of the greatest investors of all time. He has also been very generous in sharing the lessons he has learned over his career with all of us. There are many things all of us can and should learn from Buffett. But despite that, there are also many lessons that investors should not learn from what Buffett does. Like all investors, many of the things Buffett does are the result of...

Benjamin Graham is considered by many to be the father of value investing. Not only did Graham produce an exceptional track record during his lifetime, but he also counts some of the most successful value investors of all time among his disciples, including Warren Buffett.  But despite the long-term success of the deep value investing style popularized by Graham, many argue that things have c...