Search Results for: return on equity

The Paradox of Active Management

In this piece, I’m going to introduce a simplified model of a fund market, and then use the model to illustrate certain important concepts related to the impact of the market’s ongoing transition from active to passive management.  Some of … Continue reading

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The Value of Active Management: A Journey Into Indexville

The growing popularity of passive investing provokes a series of tough questions: What necessary functions does active management perform in a financial system? What is the optimal amount of active management to have in such a system, to ensure that … Continue reading

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The Impact of Index Investing: A Follow-Up

The prior piece received a much stronger reaction than I expected.  The topic is complicated, with ideas that are difficult to adequately convey in words, so I’m going to use this piece as a follow-up.  I’m going to look at the … Continue reading

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Index Investing Makes Markets and Economies More Efficient

U.S. equity index funds have grown dramatically in recent decades, from a negligible $500MM in assets in the early 1980s to a staggering $4T today.  The consensus view in the investment community is that this growth is unsustainable. Indexing, after all, is … Continue reading

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In Search of the Perfect Recession Indicator

The downturn in the energy sector and persistent economic weakness abroad has caused the investment community to become increasingly focused on the possibility of a U.S. recession.  In this piece, I’m going to examine a historically powerful indicator that would … Continue reading

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Growth and Trend: A Simple, Powerful Technique for Timing the Stock Market

Suppose that you had the magical ability to foresee turns in the business cycle before they happened.  As an investor, what would you do with that ability?  Presumably, you would use it to time the stock market.  You would sell equities … Continue reading

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Market Timing Strategies: A Guide to the Charts and Tables

On this page, I’m going to explain the information content in the charts and tables, and also mathematically define the terms used. To begin, consider the following chart, which shows the historical performance of a 10 month moving average crossover … Continue reading

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Trend Following In Financial Markets: A Comprehensive Backtest

“My metric for everything I look at is the 200-day moving average of closing prices.  I’ve seen too many things go to zero, stocks and commodities.  The whole trick in investing is: ‘How do I keep from losing everything?’  If … Continue reading

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Financial Backtesting: A Cautionary Tale

Consider the following market timing strategy, which we’ll call “daily momentum”: (1) If the market’s total return for the day, measured from yesterday’s close to today’s close, is positive, then buy the market at today’s close and hold for one day. … Continue reading

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Operant Conditioning, Market Trends, and Small Bets: A 2012 vs. 2008 Case Study

In this piece, I’m going to examine the question: why do markets trend in the way that they do? Part of the answer, in my view, can be found in the process of operant conditioning, a process that we explored … Continue reading

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