The Fourth Factor

Fama and French wrote “The Cross-Section of Expected Stock Returns” in 1992, unveiling their three-factor model. They expanded on CAPM, which boils down stock returns to just one factor, beta. Fama and French took this a step further, finding that the vast majority of a stocks returns can be explained not just by beta, but…

Here’s Why Trading Stocks Is So Hard

The last few days and weeks are a great reminder of how difficult it is to successfully trade stocks. There’s a reason why there aren’t many traders that are household names. Even people in the business would likely find it difficult to rattle off ten legendary traders. One of those legends, Paul Tudor Jones had…

Dry Powder

At sub two percent on the ten-year treasury, many investors are questioning why bother owning bonds at all. As ninety percent of the returns are derived from the starting interest rate, it’s fair to assume that bonds will indeed offer measly returns going forward. While it’s not realistic to expect the returns of the last…

The Best of the Best

When the average person tries their hand at stock picking, they’ll go on the internet and check the price-to-earnings ratio. Maybe they’ll dig a little deeper and look at the some other statistics. They’ll check the institutional ownership, look at the competition, look at its historical valuation, growth rates, debt levels, etc. If you’ve played…

The Power of Defense

Good defense is more important than good offense not just on the football field, but on the investing field as well. Stocks experienced double-digit drawdowns in each of the last eleven decades, with the pain averaging -38%. Let’s take a look at some of the gains and losses to get a better feel of how…

The Growth of Alternative Indexes

Investors have become enamored with alternative ways to slice and dice the indices. According to Morningstar, “Strategic Beta” now accounts for 21% of total industry (ETP) assets, up from under 5% in 2000.  As assets have exploded, so too has the number of strategic-beta ETPs, which have grown from 673 to 844 in the past year,…

Annual Stock Market Returns

After a strong year for stocks, does it make sense for investors to dampen their expectations? That’s what many investors, professional or otherwise, were saying heading into 2014, following a year when stocks made new all-time highs and gained ~30 percent. Looking at the data shows that stocks have actually performed better than average following…

A Junky Rally

Stocks are continuing to rally from deeply oversold conditions. While the rebound is welcome, it’s worth taking look under the hood to see whats driving the recent performance. Here are the YTD returns for the six strongest stocks in the S&P 500 today: FCX: -45% JOY: -63% CNX: -66% WYNN: -52% SNI: -28% GNW: -36%…

Inside the Market of Stocks

Over the last five and ten years, less than twenty percent of large-cap managers beat their benchmark. Should we be surprised to see that eighty percent of these funds fail to deliver returns above the S&P 500? Let’s turn to the data. On average, 50.6% of stocks beat the market in any given year. This…

How to Win in Wall Street: by a Successful Operator

One of my favorite investing books ever is The Money Game, by Adam Smith. This book absolutely nails Wall Street and what’s so fascinating is that it was published in 1967.  “Adam Smith” probably wouldn’t be surprised to know his book is still just as relevant fifty years later because in The Money Game, he references…