The President’s Trophy Curse

Continuing my occasional foray into sports analytics, in this post I look at the President's Trophy curse. This ubiquitous observation can be summed up as “the winner of the President’s Trophy, awarded for the best record in the regular season, usually doesn’t go on to win the Stanley Cup. Thus, winning the trophy is cursed.” The President’s Trophy winner usually doesn’t win The Cup. It’s true, and yet it’s still really dumb.

Perspective

Cognitive Dissonance

My latest covers a few things I would’ve thought were hard for investors to believe at the same time. Experience has proven me quite wrong.

Equities

Why Not 100% Equities

Recently, a new paper has been making a big splash in our small pond of academic/quant investing. By “new,” I just mean “recently written,” as much of it ain’t new. In this piece, I offer a concise (relative to my norm) rebuttal, as this is well-trod ground.

Perspective

Opining for the 10th Time

I just published my 10th op-ed in The Wall Street Journal. This one is on the movie “Dumb Money” and, more importantly, the broader implications of the meme stock craze for today’s society as a whole. I thought it would be fun to put all ten op-eds out together. Be forewarned – if you aren’t a U. Chicago free marketer, you may not like them all.

Factor/Style Investing

Holding Our Breadth

Regular readers probably noticed I’ve been talking a lot about value lately. While I’m all for shining the spotlight onto the value dislocation, my colleagues also continue to produce a great breadth of research worth adding to your non-value-reading-list. I preview some of my recent favorites. 

Factor/Style Investing

Uncorrelated Assets: An Important Dimension of an Optimal Portfolio

Recently, Dimensional Fund Advisors wrote critically on “liquid alts.” They make some good points, but they also draw some odd conclusions that if applied more generally would not be to their or our liking. Besides discussing their piece, below I also review the general rationale behind holding uncorrelated assets – in particular, equity “factors” held in a long-short manner.

Alternative Investing

Volatility Laundering

While not alone, I have become one of the chief gadflies of the private equity industry. But I’m a selective gadfly. The illiquidity and non-marking that comes with private investments used to be acknowledged as a bug. These days, however, this same bug is sold as a feature – and sometimes, as in a recent Institutional Investor op-ed, brazenly so. My response in II covers what I think are the increasingly harmful ramifications of taking as reality the unrealistically smoothed returns that private strategies are all-too-happy to report.

Factor/Style Investing

The Bubble Has Not Popped

This post updates our value spread with data through the end of 2022. The fourth quarter of 2022 saw value recover from the bout of temporary insanity that gripped some portion of the market over the summer, but the spread ends 2022 very much still in rarified territory – at the 94th percentile, to be precise. More excitingly for 2023, value’s returns in 2022 were extremely strong, and the spread only moved from roughly the 100th percentile to the 94th, which makes us very optimistic about the prospects of continued normalization in 2023 and beyond.

Value

Is Value Just an Interest Rate Bet?

It seems obvious to so many that interest rates drive the value trade. After all, growth stocks have much longer-dated cash flows than value stocks and thus should be a “longer duration” asset and move more with longer-term interest rates, right? This is taken as an axiomatic given in countless pundit and press observations. However, it’s not nearly that simple, and mostly it’s just not true.

Factor/Style Investing

Value Spreads Are Back to Tech Bubble Highs: Is Everyone Out There Cray-Cray?

This adds another three months of data to the May entry in our series of value spread updates. Over the past two months, some portion of the market went temporarily (I hope) insane, punishing value, as we measure it, to the point where the value spread has retraced most of its modest gains since the beginning of the year. The world doesn’t steadily move a little bit towards what we think is rational each day – painfully for us, it’s not a linear process. But this changes nothing about our belief in the outlook for value.