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Perspective
Cognitive Dissonance
April 1, 2024
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.
Journal Article
Fact, Fiction, and Factor Investing: Practical Applications
September 1, 2023
This piece distills the central concepts and practical takeaways of our Fact, Fiction, and Factor Investing article, which examined many claims about factor investing, referencing an extensive academic literature and performing simple, yet powerful, analysis to address those claims.
Perspective
Value Spreads Are Back to Tech Bubble Highs: Is Everyone Out There Cray-Cray?
August 5, 2022
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.
Perspective
We Are Not Just Value! Except, You Know, When We Are...
July 12, 2022
Our systematic stock selection process is far from just “value.” And yet from 2018-2020 for the bad and 2021-2022 for the good, our world has indeed been all about value. What gives? This post reviews our correlation to value, delving into a few periods when it became the dominant part of our process. We find that when value dominates, it has usually been in bubble periods of irrational losses for value (and in their more pleasant aftermaths).
Perspective
A Gut Punch
December 22, 2020
Sure, the last nearly three years have hurt, but at least the explanation was straightforward. A core part of our process, value, suffered. So when value rebounds, we will too, right? Well, not necessarily. To be clear, if value makes a prolonged major recovery, we certainly believe we will as well, but over short periods that doesn’t have to happen. Unfortunately, this is what we have experienced since the end of October. Regardless, it does not change my view one drop that going forward multi-factor investing is a darn good bet in a world that needs some darn good bets.
Perspective
The Valuesburg Address
February 27, 2020
One score and eight years ago Fama and French brought forth on this world, a new factor, conceived in either risk or behavioral effects, and dedicated to the proposition that all portfolios are not created equal. Now we are engaged in a great drawdown, testing whether investors in that factor, or any factor so conceived and so dedicated, can long endure…
Perspective
Never Has a Venial Sin Been Punished This Quickly and Violently!
February 19, 2020
Three months ago in “It’s Time for a Venial Value-Timing Sin,” Cliff demonstrated the value factor’s historic cheapness, suggesting it’s time to “sin a little” and modestly overweight value. While portfolio tilts are seldom promptly rewarded, it’s also rare they are instantly punished. In this piece, Cliff shows how 2020 has been the exception to the rule, as value has begun this year with its worst loss in its decade-long drawdown.
Perspective
The Illiquidity Discount?
December 19, 2019
Conventional wisdom is you get an expected return premium for bearing illiquidity. But what if this is backwards? What if investors will actually pay a higher price and accept a lower expected return for very illiquid assets?
Perspective
It’s Time for a Venial Value-Timing Sin
November 7, 2019
Cliff discusses how to measure whether a factor, in this case the value factor, is itself rich or cheap versus history. The answer, regardless of the approach taken in measuring cheapness, is that value is currently quite cheap compared to history.
Perspective
Bonds Are Frickin' Expensive
August 13, 2019
When something as important as the U.S. bond yield hits historical extremes, it’s worth at least a discussion. Cliff examines the long-term relationships between real bond yields, real T-bill yields, the slope of the yield curve, and economic conditions.