- This is the 2018(03) Mean Reversion, Leverage and Tactical Asset Allocation
Mean Reversion & Leverage in Tactical Asset Allocation
The first article provides a view of the difference between an investment strategy that manages to value and managing to mean reversion. Managing to mean reversion means that a portfolio manager will shift asset allocations not only when the return of an asset is worse than a lower-risk asset return but also whenever the extra return available is worse than usual. The article also examines whether to leverage or to concentrate one’s portfolio into risky assets in order to achieve a higher targeted return for the same risk level.
Visualizing hedge fund data: Which Canadian strategies are most correlated and volatile?
This brief analysis introduces a technique called biplots to visualize the correlation and volatility of hedge fund strategies in Canada. The analysis indicate that Event-Driven strategies are not correlated to the typical equity strategies and negatively correlated to Market Neutral strategies.
Simple accounting ratios: do they help in investment decisions?
The article cautions analysts/portfolio managers that focus entirely on common accounting ratios to make investment decisions. The general belief by investors that companies that have high levels of earnings per dollar of investment (i.e. a low Price-To-Earnings (“P/E”) ratio) is usually considered better value than shares of companies offering a lower level of earnings per dollar invested (i.e., high P/E stocks) is questioned. The article attempts to explain that a company’s cash flow and, ultimately, its market value stems from its long-term growth in revenues and profits from its return on invested capital relative to its cost of capital.
- This is the 2018(02) The tale of 3 market fallacies
“When I was a boy of 14, my father was so ignorant I could hardly stand to have the old man around. But when I got to be 21, I was astonished at how much the old man had learned in seven years.” Mark Twain
The quote above gives me a sense of my own career journey. So many concepts that I first learned I thought I understood and it was only when others share their perspective and insights (the value of diverse thinking) that my own becomes clearer. This is one of the many reasons I love writing for you. It gives me the opportunity to collate and carefully think through concepts and to present it to you. In this issue I have tackled some fallacies that have become embedded in our minds but that is not true. It is somewhat like reading the newspaper and a journalist detailing the reasons for a market correction or rebound.
- This is the 2018(01) Review and it includes: 1/ A welcome from Gareth Witten 2/ Will AI takeover active management? This article is based on a presentation that Gareth gave at a conference a week ago. He will be giving this presentation to a number of other groups in the future. 3/ Book and Article Review. 4/ The Academic Case for Indexing and Smart Beta. 5/ Reprint of a talk given by Ben Graham on 15 November 1963 - Securities in an Insecure World – by Ben Graham. 6/ InvestorLit webpage access which covers all years of the publication 7/ Example titles from InvestorLit Reviews. As always, Bruce and I are very much appreciative of all of our Subscribers over the past years and would like you to continue this journey with us.