Excess Returns

Our economy is changing. The largest, most successful companies in the world no longer require substantial tangible assets to operate their businesses. The businesses that are disrupting our world and wielding monopolistic power aren't powered by plants and factories. Instead their value lies in things like brands and technology and the value of their networks.  This new world has challenged...

There is little disagreement among market observers that passive investing is growing. There is also little dispute that the trend is likely to continue as a result of the rise of ETFs, investors’ focus on fees, the inconsistency of active manager outperformance, and numerous other factors. That is where the agreement ends, though. There are substantial disagreements as to if there has been an imp...

Many investors have come to accept the fact that the major factors like value and momentum will produce excess returns over the long-term. But what if the fact that these factors have become widely known and have strong evidence to support them has reduced or eliminated their effectiveness?  In this episode, we discuss this idea with Adam Butler of Resolve Asset Management. Adam is one of the...

We all have our political views. We all have a series of policies that we think would make the world a better place than it is today. And in the polarized world we are in today, most people are more entrenched in these views than they ever have been.  No matter what you think about politics, though, it is important to understand that it is likely best to separate those views from what you do...

All of us can fall into the trap of thinking that a certain outcome in investing is obvious. Whether it be the future direction of the market, which asset classes will perform best going forward, or the types of stocks that will lead the way, it is easy to think that certain outcomes are a virtual certainty. This can be particularly true during a period like the one we are in where opinions are po...

The volume of financial content that is produced these days can be completely overwhelming. Filtering through it to find the best articles is a task that most investors just don't have the time to complete.  Thankfully, they don't have to.  Tadas Viskanta helped solve this problem when he launched Abnormal Returns over 15 years ago. Every day, Tadas identifies the best financial content...

Growth investing has seemed easy in the past decade. Growth stocks have easily outpaced both value stocks and the market, which has led to great performance for many growth strategies. But it likely won't always be this easy. Over the long-term, growth stocks as a whole have trailed the market, and successful growth investors have had to identify a small group of stocks that perform well in a univ...

Investing in today's world requires an ability to understand multiple disciplines. In addition to understanding markets and having the ability to put current events in a long-term context, it also requires an understanding of economics. And with governments playing an increasing role in markets, it requires an ability to understand public policy and interpret its impact. Nir Kaissar is unique in h...

It has been said that the most dangerous words in investing are "this time is different". But sometimes a confluence of factors come together to significantly change the character of the market. In the best research paper we have read this year, Corey Hoffstein argues this is one of those times. In this interview, we go through all the details of Corey's argument and how they fit together to form...

Active management deserves all the criticism it gets. After all, over 80% of equity managers underperform their benchmarks over the long-term and active managers charge vastly higher fees compared to passive indices. But active management also gets a bad rap. There are many active strategies that perform very well over time, and justify the fees they charge. How can both of these conflicting state...

John Rekenthaler is Vice President of Research for Morningstar, the author of the Rekenthaler Report column, and a leading expert on the mutual fund industry. John has been with Morningstar almost since the beginning and has witnessed the evolution of the mutual fund and investing industries first hand. In this interview, we draw on John's extensive experience to cover a variety of topics related...

In this bonus episode, we we discuss a presentation Justin recently gave to Fidelity customers about some of the major narratives shaping the current market. The word "unprecedented"  tends to be overused in investing, but 2020 has certainly seen many occurrences that many investors have never seen before, and may not again.  We talk about some of these things and what they mean for inve...

We are currently in one of the most difficult economic environments many of us will see if our lifetimes. Even though the unemployment rate has fallen from its high of 15% to a level below 10%, it still exceeds the peak from the 2008 crisis, which itself was one of the deepest recessions ever. Small businesses and entire industries, like air travel, cruise lines and hotels are struggling mightily...

Technology has allowed all of us to personalize many aspects of our lives. Rather than accept products tailored to a wide range of people, we are now able to customize products we use based on our specific needs and preferences.  But in the world of investing, most investors continue to invest in prepackaged indexes like the S&P 500 that are the same for everyone. That may be about to cha...

Trading volumes at online brokers have skyrocketed since the Coronavirus crisis began. If there is one lesson these newly minted traders have learned so far, it is that the market does nothing but go up. But more seasoned investors know that the market, and these traders, will eventually fall upon tough times. In this episode, we discuss some investing lessons that these new traders could learn fr...

In this episode we are joined by Professor Partha Mohanram. Professor Mohanram is the John H. Watson Chair in Value Investing at the Rotman School at the University of Toronto. His paper "Separating Winners from Losers among Low Book-to-Market Stocks using Financial Statement Analysis" is also the basis for one of the quantitative models we run on Validea. In this interview, we cover a wide range...

Value investors have fallen on difficult times in the most recent decade. Value's extended underperformance has led many to question whether the strategy still works or if it is broken in some fundamental way. In this episode, we look at these arguments and discuss why we still believe in value.  We discuss: - Whether value is cheap on a relative and absolute basis - If the risk- and behavior...

In this episode, we are joined by Lawrence Cunningham. He is a professor at George Washington University and one of the world's leading experts on Warren Buffett. He is also the author of many excellent investing books including "Dear Shareholder", "The Essays of Warren Buffett", "Quality Investing", and the upcoming "Quality Shareholders: How the Best Managers Attract and Keep Them".   We di...

Valuing a company (or the market in general) typically involves looking at its price and judging that price relative to its current and projected future fundamentals. But some have argued that this process has become broken in the most recent decade and other factors have become more important than actual results. In this episode, we talk about some of these factors, how they have impacted the mar...

Buying expensive stocks has historically been a terrible investing strategy. On average, expensive stocks significantly underperform the market as a whole over time. But despite the poor performance of the group, the absolute best performing individual stocks typically come from within this universe. The difficult part is trying to identify them in advance. In this episode, we look at a quantitati...

The process of learning from your mistakes is an important part of improving yourself over time both as an investor and as a person. But it requires that you learn the right lessons and don’t draw the wrong conclusions from your failures. And sometimes that is easier said than done. In this episode, we talk about some ways that learning from your mistakes can be counterproductive.  We discuss...

In this episode we are joined by Vitaliy Katsenelson. Vitaliy is the author of the popular Contrarian Edge blog and the CEO of investment firm IMA.  As quantitative investors, we often find we learn the most from investors who use very different approaches than we do. As a discretionary value investor and long-term student of value investing, Vitaliy provides us with an alternate take on valu...

The Price/Book ratio has probably been the most important valuation ratio of the past century. If you look at the academic research that supports value investing, you won’t find any other ratio that is referenced more often. There is also no ratio that is used more by systematic value funds.  But the rise on intangible assets and other factors have led many to question whether the ratio has v...

In this episode, we are going to try something a little different. Our goal at Validea is to capture quantitative strategies that work over the long-term. To do that, we go through books and academic papers to find factor-based models with results to back them up. We are going to periodically do some episodes for the podcast where we do a deep dive into these strategies and look at the factors beh...

We all have a tendency to believe that the way we invest is the best way. As quantitative investors, we can sometimes feel that there is no reason anyone should ever use a discretionary strategy. But like most issues in investing,  there are two sides to this argument. In this episode, we talk about the benefits of both quantitative and discretionary investing.  We discuss:  - Why q...