Evidence Based Investing

Expert Analysis

Expert Analysis

Evidence Based Investing   |  

“The growth of the Internet will slow drastically, as the flaw in ‘Metcalfe’s law’ — which states that the number of potential connections in a network is proportional to the square of the number of participants — becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s” – Paul Krugman 1998 If we were in any doubt as to the value of predictions, the above quote should put it to rest. One wonders how one can be so spectacularly wrong and still retain credibility, but it does not appear to have damaged his reputation – he is a Nobel Prize winner no less!

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Bond Features

Bond Features

Evidence Based Investing   |  

“I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody”. -James Carville US Political Commentator. Bonds, like the companies that issue them, come in a bewildering array of forms, from the plain (Government bonds etc.) to the downright esoteric (High Yield, Municipal and even PIK varieties), but investors in all of them have to ask themselves, how confident am I that I will get my money back and (more importantly for the investor’s return on capital), when?

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King Dollar re-ascends the Throne?

King Dollar re-ascends the Throne?

Evidence Based Investing   |  

Up-Date to a previous blog; at the end of October, we discussed the recent travails of the Hedge Fund community (here). We will very shortly find out how bad it could get; this article picks up on the theme and points out that Investors who wish to redeem their HF holdings have to give 45 days notice of their intention to do so. So, November 15th is the deadline to get out (penalty-free), for year-end. After another really poor year and the likely shock of seeing October’s (lack of) returns, many could decide to head for the exits, which could (theoretically) scupper any chance of a year-end rally (as Hedge Funds could be forced sellers).

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A Brief History of Time (and Puts)

A Brief History of Time (and Puts)

Evidence Based Investing, Market Commentary   |  

As of Friday last week, World Equities had lost $15 trillion in value (-7%), with almost two thirds of Global stocks now in “Bear market” territory (i.e. down 20% or more). In Wall Street, talk is already turning to the possibility of the “Powell Put” being in play – the idea that, should markets fall below a certain point, the Fed will ride to the rescue with rate cuts/money printing/buying assets directly etc. or whatever else is deemed necessary to ensure that asset prices don’t fall. As we pointed out a couple of weeks ago, asset prices appear to be the only relevant metric in policy decision-making – and don’t the markets know it!

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Dark Days

Dark Days

Evidence Based Investing   |  

A teacher asks a class a question: There are ten sheep in a pen. One jumps out, how many are left? Everyone but one boy said nine are left. That one boy said none are left. The teacher said you don’t understand arithmetic and he said: “You don’t understand sheep.”- Charlie Munger…

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Digging into Factor returns

Digging into Factor returns

Evidence Based Investing, Factor Based Investing   |  

The last year of the US stock market has seen some wild swings, but one thing has remained constant – Growth has continued to outperform Value, especially in the US, but Globally too. We are still no closer to seeing Value recover its poise and in USD terms, it has now lagged by c. 3.7% per year over the last decade. So, the “Value premium” has become the value discount, or so it seems. More recently, things have taken a turn for the bizarre; I came across this Bloomberg screenshot (from the Macro Tourist website), which shows the Factor returns over the last year from US markets, whereby the overall return is a function of the average return of the top Quintile performance minus the bottom Quintile (or top fifth of the sample versus the bottom fifth). The conclusions are rather depressing;

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American Exceptionalism

American Exceptionalism

Evidence Based Investing   |  

The doctrine of “Amercian Exceptionalism”, which has been around for a while, has mainly applied to politics and international relations, but recently it appears to have moved into the realm of asset markets – in the last year, US equity returns have diverged significantly from those of the rest of the World, with the last 4-5 months seeing the US markets going their own way, with little regard to global trends. The chart below shows that in the last 4 months or so, they have diverged massively from World ex-US equities, as an apparent “rolling bear market” has engulfed Emerging Markets, Europe, the UK and Asia. As of 19th September, the MSCI World Index (including the US) is +4.8% year-to-date; ex the US, it is down 0.9% .

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