Monthly Archives: April 2013

Explaining the Value Premium

Value has persistently outperformed over the long-term.  Why is that?  In the most general terms, growth stocks are those with growing positive attributes – like price, sales, earnings, profits, and return on equity.  Value stocks, on the other hand, are stocks that are underpriced when compared to some measure of their relative value – like price […]

Size Matters: The Source of the Small-Cap Premium

Since at least 1981, when Rolf Banz published The Relationship Between Return and Market Value of Common Stocks, the idea of a small cap premium has been pretty well established.  Thus, over time (though it may take a very long time), we can expect higher average returns for common stocks of smaller companies relative to larger […]

Is the Yale Model Past It?

It is axiomatic in the investment world that as an asset class becomes more popular, it suffers from both falling expected returns and rising correlations.  In other words, good trades get crowded and their advantages tend to disappear.  This crowding happens because success begets copycats as investors chase returns.  Mean reversion only tends to make […]

Hot Action Item

Five years ago my family and I were awakened early in the morning and forced to evacuate our home due to raging wildfires burning out of control near our home in Southern California and fanned by winds gusting to over 100 miles per hour (as shown right).  Unlike many of our neighbors, we had time to gather […]

Reckoning with Risk

My series on risk is available at these links:  Reckoning with Risk (1) begins to look at how to deal with risk. Reckoning with Risk (2) explains and categorizes different elements and types of risk. Reckoning with Risk (3) shows our failings at dealing with low-probability, high-impact events. Reckoning with Risk (4) looks at what the Yale Endowment experience […]

Gaming the System

When I was a kid I had a paper route.  One of my customers was a barber who made book on the side.  Shocking, I know.  The giveaway was the group of guys always hanging around but not getting their hair cut and the three telephones on the wall that rang a lot.  Even as […]

The Long Cycle

Barry Ritholz (of The Big Picture and a Sunday Business columnist at The Washington Post) recently contributed Investors’ 10 most common mistakes to The Washington Post Business Section quarterly investing section. It’s a commentary that he has been working on for a while — the ten topics are listed with links to longer discussions of […]

The Value Project

There is a famous story, almost surely apocryphal, that makes the rounds with some regularity in our industry.  As the story goes, a new, struggling advisor buys a mailing list of 10,000 potential prospects. He then writes two separate newsletters about the same, high beta stock. One newsletter advises a leveraged short of the stock and […]

Just Put the Ball in Play

On account of the success of Moneyball (both the book and the movie, nicely satirized here), baseball management is often compared to investment management, and with good reason. Moneyball focused on the 2002 season of the Oakland Athletics, a team with one of the smallest budgets in baseball.  At the time, the A’s had lost […]