Excess Returns

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The Dangers of Trying to Outsmart the Market Oct 25, 2020

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All of us can fall into the trap of thinking that a certain outcome in investing is obvious. Whether it be the future direction of the market, which asset classes will perform best going forward, or the types of stocks that will lead the way, it is easy to think that certain outcomes are a virtual certainty. This can be particularly true during a period like the one we are in where opinions are polarized. But it is important to understand that the market's collective wisdom is usually smarter than all of us and what we think is obvious often is not.

In this episode, we discuss some of the things that may seem obvious in the current market, and why they might be wrong.

We discuss:

- The challenges of deviating from the market consensus

- The impact of the Coronavirus on the market

- Why bonds may still belong in investor portfolios despite their low yields

- the importance of avoiding binary decisions

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Interview: Curating Investing Content and Sharing Knowledge w/ Tadas Viskanta of Abnormal Returns and Ritholtz Wealth Management Oct 22, 2020

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The volume of financial content that is produced these days can be completely overwhelming. Filtering through it to find the best articles is a task that most investors just don't have the time to complete.

Thankfully, they don't have to.

Tadas Viskanta helped solve this problem when he launched Abnormal Returns over 15 years ago. Every day, Tadas identifies the best financial content and distills it down to a condensed series of links. And he does it for free. Tadas is also the Director of Investor Education at Ritholtz Wealth Management.

In this episode, we discuss:

- the process Tadas uses to filter the vast amount of financial content that is out there

- his views on audio and video and the future of content

- the role of content in communicating with current and prospective clients

- the importance of authenticity

We hope you enjoy the discussion.

ABNORMAL RETURNS

https://abnormalreturns.com/

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https://twitter.com/abnormalreturns

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Why Growth Investing is Harder Than You Think Oct 18, 2020

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Growth investing has seemed easy in the past decade. Growth stocks have easily outpaced both value stocks and the market, which has led to great performance for many growth strategies. But it likely won't always be this easy. Over the long-term, growth stocks as a whole have trailed the market, and successful growth investors have had to identify a small group of stocks that perform well in a universe that typically does not.

In this episode, we look at some of the realities of growth investing.

We discuss:

- Why growth investing is about finding diamonds in the rough

- How difficult it can be to hold the great growth stocks through the severe ups and downs they typically experience

- Why investors desire to find the next great growth stock can lead to overvaluation within the space

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Interview: A Multi-Disciplinary Approach to Investing and Learning with Nir Kaissar Oct 15, 2020

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Investing in today's world requires an ability to understand multiple disciplines. In addition to understanding markets and having the ability to put current events in a long-term context, it also requires an understanding of economics. And with governments playing an increasing role in markets, it requires an ability to understand public policy and interpret its impact. Nir Kaissar is unique in his ability to offer insights into each of these areas. He is the founder of Unison Advisors and a regular columnist for Bloomberg.

In this interview, we discuss each of these areas, and the unprecedented times all of us are currently living through.

We discuss:

- The COVID-19 crisis and the government response to it and what they mean for investors

- Why the struggles of value investing in the past decade aren't enough to tell you it is dead

- Whether bonds still make sense for investors with yields near all time lows

- The role of market valuation in analyzing future returns

- Whether passive investing is distorting the market

We hope you enjoy the discussion

NIR'S BLOOMBERG ARTICLES

https://www.bloomberg.com/authors/ASlX9_7a5l8/nir-kaissar

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https://twitter.com/nirkaissar

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Interview: Liquidity Cascades with Corey Hoffstein Oct 11, 2020

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It has been said that the most dangerous words in investing are "this time is different". But sometimes a confluence of factors come together to significantly change the character of the market. In the best research paper we have read this year, Corey Hoffstein argues this is one of those times. In this interview, we go through all the details of Corey's argument and how they fit together to form a very compelling argument that this time might in fact be different.

We discuss:

- Why the "moneyness" of markets has greatly increased the interdependence between the stock market and the economy

- Why the rise of divergent investment strategies has increased market volatility

- The role of the Federal Reserve policy in driving investors up the risk curve

- How passive investing has impacted the market overall and the relative pricing of stocks within it

- The role of options dealers and how options buying and selling can exacerbate volatility

COREY'S BLOG

https://blog.thinknewfound.com/

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https://twitter.com/choffstein

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Why the S&P 500 is an Active Portfolio, and Other Observations on the Stages of Active Management Oct 04, 2020

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Active management deserves all the criticism it gets. After all, over 80% of equity managers underperform their benchmarks over the long-term and active managers charge vastly higher fees compared to passive indices.

But active management also gets a bad rap. There are many active strategies that perform very well over time, and justify the fees they charge.

How can both of these conflicting statements simultaneously be true? The answer lies of the definition of the term “active management” and the fact that many strategies that investors consider passive also have significant active components.

In this episode we talk about the various types of active management and the pros and cons of each.

We discuss:

- Why the S&P 500 is an active portfolio

- The various approaches to fundamental indexing

- The one type of active management that should be avoided at all costs

- The pros and cons of factor investing

- Whether the days of the star fund manager are over

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Interview: The Past, Present and Future of Investing with Morningstar's John Rekenthaler Sep 27, 2020

Show notes

John Rekenthaler is Vice President of Research for Morningstar, the author of the Rekenthaler Report column, and a leading expert on the mutual fund industry. John has been with Morningstar almost since the beginning and has witnessed the evolution of the mutual fund and investing industries first hand. In this interview, we draw on John's extensive experience to cover a variety of topics related to the fund industry and investing in general.

We discuss:

- the key attributes to look at when analyzing funds

- the pros and cons of passive investing

- whether star fund managers are a thing of the past

- judging fund managers by the company they keep

- the dangers of using macro data to time the market

- his biggest lessons from Morningstar founder Joe Mansueto

We hope you enjoy the discussion.

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Bonus Episode: Six Narratives Shaping The Market In 2020 Sep 24, 2020

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In this bonus episode, we we discuss a presentation Justin recently gave to Fidelity customers about some of the major narratives shaping the current market. The word "unprecedented" tends to be overused in investing, but 2020 has certainly seen many occurrences that many investors have never seen before, and may not again.

We talk about some of these things and what they mean for investors going forward.

We discuss:

- Why 2020 has turned the factors that have worked over the long-term in investing upside down

- How the current dominance of large-cap stocks fits in a historical context

- The historic pace of both the decline and recovery we saw this year

- Whether you can read anything into the large amount of cash Warren Buffett is holding

- The implications of the massive government stimulus

- The future outlook for the newly minted retail traders who came into the market in the wake of the Coronavirus crisis.

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Why the Stock Market is Near All Time Highs Despite the Major Issues in the Economy Sep 20, 2020

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We are currently in one of the most difficult economic environments many of us will see if our lifetimes. Even though the unemployment rate has fallen from its high of 15% to a level below 10%, it still exceeds the peak from the 2008 crisis, which itself was one of the deepest recessions ever. Small businesses and entire industries, like air travel, cruise lines and hotels are struggling mightily as the various degrees of lockdowns we have experienced in recent months have taken a huge toll. But despite all of that, the stock market currently sits at all time highs.

In this episode, we look at the reasons for this disconnect.

We discuss:

- Why it is not uncommon for the stock market to become disconnected from the economy

- Why the businesses we see struggling in our everyday lives aren't the most important ones to the market

- The implications of unprecedented levels of government stimulus

- Why psychology can often explain short-term market moves better than fundamentals

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