Last week, the Wall Street Journal published its annual “Best on the Street” survey.Wall Street Journal | This page has links to the various stories and rankings from the Journal. As a member of “The Experts,” a group of industry professionals convened by the Journal to comment on investing questions, I was asked what makes a good analyst.
Since a fair number of essays on this site deal with that question in one way or another, I had plenty of material from which to choose. My answer,Wall Street Journal | This is a compilation of some of the responses to the question, including mine. in a nutshell: Don’t go looking for the best analysts in rankings of those with the best statistical performance over some limited period of time.
Despite the fact that performance derbies in every corner of investment endeavor inevitably lead to performance chasing and bad decisions by individual, institutional, and professional investors alike, decision makers persist ... continues
Last week I participated in a webcastWall Street Journal | It is a bit over a half an hour in length. that was part of “The Experts,” a Wall Street Journal initiative. The video, “How to Tame Your Emotions When Investing,” featured professors Meir Statman and Terrance Odean and was moderated by Jason Zweig.
There was a fair bit of discussion about the traps that individuals can fall into and the dangers they run competing against professional investors. I interjected that those professional investors are prone to the same behavioral errors as individuals — and that a good investment process should be designed to minimize them.
A day after that exchange I left on a trip, bringing along Fund Management: An Emotional Finance Perspective, a monograph published by the Research Foundation of CFA Institute in 2012.CFA Institute | The PDF is provided free by the Research Foundation. It speaks directly to the issues that I raised and is an eye-opener for ... continues
Recently, a couple of finance professors were talking about how most of their students seem quite uninterested in using models to ask the kinds of questions that might lead them to a deep understanding of the issues at hand. It’s not that the students have an aversion to the models. Quite the opposite. They want to learn the key inputs and how to get them, so that they can use the models to generate answers, to plug in the numbers and play the game.
As we say in my house, “There’s a lot of that going around.”
Models can’t capture reality, but they can provide a framework for examining it and for making investment decisions — yet a framework is not a formula, and you don’t need to kneel at the altar of a model to find something of value in its use.
What models don’t do is give easy answers, yet that’s what’s apparently expected of them most of the time. A couple of examples I’ve witnessed of late:
A ... continues
The preceding posting concerned “the illusion of certainty”the research puzzle | The phrase was borrowed from John Hempton. that facilitates the sale of many investment products and services. It manifests itself in a number of ways, some subtle, some not so subtle, as those making the pitch offer “a stylized version of the investment world” and what the future is likely to be.
Given the appetite for the illusion among the investing masses, a portfolio manager who is seen to wear the cloak of greatness has an easy time conjuring up a winning story. Bill Gross would be one that could fall into that category (and he is good at talking his portfolio at timesthe research puzzle | This is a look at “the card player” from 2009.), but his latest commentary casts the cloak aside and reveals the illusion.PIMCO | It is entitled, “A Man in the Mirror,” and it’s a must read.
In short, Gross raises doubt about his numbers and those of other ... continues
The trouble with starting a series on a broad topic like equity research is that it could go on forever. I intended to add more chapters to the series that had been in progress,the research puzzle | This is the PDF index of the series, with introductions and links. but I am ending it early because of ten words that I read in a blog posting.
Ironically, the words I read had been written by John Hempton, who was the subject of one of the essays in that series.the research puzzle | It was called “talk about focus.” They are: “In money management what sells is the illusion of certainty.”
I was jolted out of my previous writing plan by that phrase and the one that followed, which said that “a fund manager who tells the truth (the truth being that he may be wrong at any time) is a more-difficult sale but a better investment.”Bronte Capital | Hempton’s posting ultimately concerns Roddy Boyd’s analysis of Brookfield Asset Management. I ... continues