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Pragmatic Capitalism

Practical Views on Money, Finance & Life

‘Investment Strategy’

Problems with the Short-Term

Earlier this year I spoke about the problem of “the long-term”.  This is the tendency for modern finance to emphasize a long-term view due to the fact that assets tend to perform well over the long-term. This is empirically true. If we look at the performance of stocks, bonds and the broader economy the performance… Read More

Out of Sample or Out of This World?

Cliff Asness has some strong words for anyone who wants to say that Factor Investing doesn’t work. Basically, shut up, you’re wrong.  In a post earlier this week he went into a wonky analysis showing that there appears to be a strong relationship between Fama’s various factors and market outperformance. I’ve been a bit vocal… Read More

Let’s Try this Again: Ending the Passive vs Active Distinction

My recent post on the Efficient Market Hypothesis brought about the usual pushback from “passive” index fund advocates. As an advocate of low fee indexing I find this debate incredibly frustrating and it appears as though years of industry misinformation has muddied the waters here. Passive indexing advocates tend to argue that I am just moving… Read More

Why The Efficient Market Hypothesis is Useless

I noticed Noah Smith and John Authers on Twitter discussing how great the Efficient Market Hypothesis is because it explains why indexing works. I responded saying that the EMH really has nothing to do with why indexing works. They didn’t seem to see my point of view so let’s try this again and see if we… Read More

What if There Are no Reliable Factors?

I’ve always been bothered by the notion of “factor investing”. In case you don’t know, factor investing is derived from Eugene Fama’s various factor models (which have expanded over time to account for increasing inconsistencies in the Efficient Market Hypothesis). Fama started with 1 factor to explain the market’s movements, expanded it to 3, then… Read More

Indexing Really is the Future of Investing

John Bogle presented at this year’s Grant’s Spring Conference and made the argument for indexing as the way forward for investors. You can find his presentation slides here.  Jim Grant offered some push back from the “active” side which raised the question – is indexing superior to specific security selection and which is the way forward… Read More

What Are Your Actual Returns?

I always say historical returns are always a better gauge of possible risks than they are of future returns investors can expect. It’s very easy to look back at past market performance and assume it would have been easy to earn those return numbers. Investors are much better off figuring out ways to earn as much of the performance from the market or fund returns going forward by reducing commissions, fees, taxes and unnecessary portfolio turnover.