Liquidity can be described as the ability to trade a large number of investments quickly, at low costs and when you want to. Because it is a priced risk, liquidity and its associated price effects are an important aspect of financial markets. In illiquid markets, such as the private equity market, discounts are large and…
“When I hear ‘smart beta,’ it makes me sick.” So said economist and Nobel Prize-winner William Sharpe after he was asked at a conference last year for his thoughts on strategies of this type. And while much, if not the vast majority, of what Wall Street terms “smart beta” makes me sick as well, one…
There’s a large body of sound, academic evidence (which is presented in my books, “The Only Guide to Alternative Investments You’ll Ever Need” and “The Quest for Alpha”) demonstrating that, in aggregate, private equity investments have represented the triumph of hype and hope over wisdom and experience. The following is a summary of findings from…
Last week, we recapped some of the more recent literature on the performance of private equity, and venture capital (VC) in particular. The cumulative body of evidence, we found, was damning with regard to venture capital’s ability to provide better returns than comparable—and less risky—publicly traded equities. We left off with a review of a…
Every January, I put together a list of predictions that financial “gurus” have made for the upcoming year, especially the ones that gain consensus as “sure things.” Through a series of periodic updates, I keep track of whether these “sure thing” forecasts actually came to pass. The turn of the calendar into July means it’s…
The midyear 2015 Standard & Poor’s Indices Versus Active (SPIVA) persistence scorecard for U.S. equity markets provides yet another example of why—at least when it comes to the overall results of active management relative to their appropriate benchmarks—the past can, in fact, be considered prologue. Here are some of the highlights from the report: Of…
A good number of Wall Street “gurus” have, for quite some time now, been loudly and repeatedly warning investors that bond yields will soar. That, they caution, will in turn lead to falling stock prices. Unfortunately, this bit of “conventional wisdom” regarding the relationship between stocks and bonds may have led many investors to panic…
In this installment of our continuing series on the ability of actively managed fund families to generate alpha, we’ll evaluate the recent performance of equity funds managed by Neuberger Berman to determine if the firm adds value for its investors. Regardless of whether it actually delivers on its promise, it seems Neuberger Berman’s “active, risk-disciplined…
The headline of a May article in Investment News, authored by senior columnist Jeff Benjamin, declares: “When investing in emerging-markets economies, stock picking beats indexed exposure.” As regular readers of my work will most likely not be shocked to discover, this assertion doesn’t reflect my own thoughts, nor is it supported by the historical evidence….
Conventional wisdom can be defined as ideas so ingrained in our belief system that they are accepted without challenge. Unfortunately, much of the conventional wisdom about investing is incorrect. For example, the conventional wisdom that investors seeking high returns should invest in countries forecasted to produce high rates of economic growth—such as India and China—is…
One of the more common investment mistakes that individual investors—and sometimes even professional advisors—make when they’re developing a comprehensive financial plan is failing to account for important nonfinancial assets. Financial assets are easily observable and typically liquid. Thus, they’re often the center of attention. On the other hand, assets such as labor capital (the mortality-weighted…
The effect of high-frequency trading on market quality has generated strong interest among academics, investors and regulators alike. To further explore the impact high-frequency trading can have on the markets, Jennifer Conrad, Sunil Wahal and Jin Xiang—authors of the study “High Frequency Quoting, Trading, and the Efficiency of Prices”—conducted two types of tests: (a) unconditional…
The February 9 edition of Barron’s contained its annual listing of “best fund families” for the past one, five and 10 calendar years. Of all the fund families on the list, Invesco was the only one that managed to make the top four in each of the periods. In fact, it was the only fund…
The first formal asset pricing model—the capital asset pricing model—was built on certain assumptions, including that investors are risk-averse; will maximize the expected utility of absolute wealth; and care only about the mean and variance of return. However, academic research has found that these assumptions don’t necessarily hold. In the real world, some investors have…
As the director of research for The BAM Alliance, and the author and co-author of 15 investment books, I’m often asked about other books I would recommend. For serious investors who want to gain a deeper understanding of how markets work and the strategies most likely to allow them to achieve their financial goals, my…