The five sources of return
Asset owners are swamped by a multitude of assets and investment strategies. However, behind all the noise, there are only five underlying sources of return. Profitable investing necessitates both an understanding of such underlying sources of return, as well as, the skills to harvest them.
Downside risk of investment factors
There is no way escaping risk, but we can choose our poison. Low volatility investing, for example is the least risky style in absolute terms, but the most risky in relative terms!
Expected return of the balanced portfolio
Low interest rates when equities are trading at excessive valuations must imply that the ‘60/40’ model is broken.
Long/short equity. Into the core?
Investors must rethink the traditional ‘core’ portfolio, consisting of equities for growth and bonds for risk mitigation
Factor investing
Academics and practitioners are hunting high and low for common drivers of asset returns. Trouble is, there is little new under the sun and most factors are simply resulting from bad backtests.
True investment risk
In order to understand investment risk we must decompose asset returns into their underlying drivers.
Are you resulting?
Investing is decision making under uncertainty. This means that good decisions lead to both good and bad outcomes. In professional poker the word for mixing up decisions with outcomes is ‘resulting’.
Via negativa
Looking for ‘winners’ is the most common approach to active fund management. However, negative information is more robust than positive, and there is less compettion for it