Posts in Value Investing Research

How to Combine Value and Momentum Investing Strategies

March 26, 2015

The evidence suggests that we keep highly active exposures to value and momentum in their purest forms (assuming we are doing high-conviction non-watered down versions of the anomalies). Blending the strategy dilutes the benefit of value and momentum portfolios. The summary of the benefits of a pure value and a pure momentum approach can be summarized as follows: Easier ex-post assessment, stronger portfolio diversification benefits, and stronger expected performance.

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Where are the Cheap Firms?

January 30, 2015

Energy (mostly oil-related) and consumer discretionary (brick & mortar retailers). Cheap–or at least relatively cheap–based on enterprise multiples. Note: This

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How to Create a Tax-Efficient Hedge Fund

December 15, 2014

The number of complex, optimized, and so-called "proprietary" value long/short strategies are too numerous to list. We've seen just about everything in our role as academics as well as consultants to an enormous family office. And of course, with fancy Manhattan offices, comes high fees, no transparency, and low liquidity (lockups). You'll also get great stories that are often backed by little to no empirical evidence. As we have shown before, trying to short expensive stocks is not a great idea! We think a simple solution to an investor's long/short equity woes is to focus on buying the cheapest, highest quality value stocks, and dynamically hedging the market risk with an S&P 500 futures (both the constant and dynamic hedge). Savvy investors can implement the solution we've proposed: buy a basket of the cheapest, highest quality value stocks and negate market risk with tax-efficient low-cost equity futures. And if you are simply too overwhelmed by portfolio management, we can implement the QVAR solution at a costs that is more affordable than the average long/short hedge fund offerings--especially on an AFTER-TAX BASIS!

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Mission Impossible: Beating the Market Forever

November 18, 2014

A quick glance at the most recent Berkshire Hathaway annual report (PDF) highlights an amazing data point: Warren Buffett has compounded at 19.7% a year from 1965 through 2013; the S&P 500 Total Return Index has compounded at 9.8% a year from 1965 through 2013. The immediate reaction to these figures is predictable: “Warren Buffett is an investing god, so we should buy Berkshire Hathaway and throw away the keys.” The gut reaction is that Buffett can continue to beat the market forever. Unfortunately, as this post highlights, this is an impossible feat.

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