Foreword to: Popularity: A Bridge Between Classical and Behavioral Finance

Laurence Articles

Why does value investing work? Why do other factor strategies work? For that matter, why does any active strategy — meaning, any strategy other than cap-weighted indexing — “work” in the sense of having a reasonable chance of beating the cap-weighted index other than by random variation? The Classical Answer The answer could arise in classical finance, or behavioral finance, …

Byron Wien on Trump, Trade, Deficits and Thucydides

Laurence Articles

On June 27, 2018, I spoke with Byron Wien of the Blackstone Group, a longtime friend of Advisor Perspectives and the author of the widely-followed Ten Surprises series of predictions, which Byron has produced for 33 years. For many years, Byron was chief U.S. investment strategist at Morgan Stanley. If you are in the camp of those who think Donald …

The People versus Themselves: Two Views on Populism

Laurence Articles

These are tough times for lovers of freedom and democracy. After a quarter-century of spectacular progress following the fall of the Berlin Wall, liberal democracy has yielded to autocracy in a variety of countries. And, even in thriving democracies such as the United States, voters are embracing populism in reaction to perceived economic stagnation, widening income disparity, and disruption of …

Conference Roundup: Bubbles for Fama

Laurence Articles

At the Q Group in Palm Beach, Florida, on May 7, 2018, Robin Greenwood, a Harvard finance professor, presented a paper, “Bubbles for Fama,” that he co-authored with Andrei Shleifer and Yang You. The Q Group is a discussion group where directors of research and other senior investment professionals interact with finance academics. Founded in 1966, and conducting two seminars …

Is Life Improving? Documenting the Remarkable Progress of Humankind

Laurence Articles

The rise of populism has been fueled by rhetoric bemoaning the downward plight of the middle class, and that chorus has been joined by many from the left. But are we really worse off than we were a generation or a century ago? Not according to Steven Pinker, whose new book documents the dramatic improvement in lives across the globe. …

Byron Wien on Trump, Trade, Deficits and Thucydides

Laurence Articles

On June 27, 2018, I spoke with Byron Wien of the Blackstone Group, a longtime friend of Advisor Perspectives and the author of the widely-followed Ten Surprises series of predictions, which Byron has produced for 33 years. For many years, Byron was chief U.S. investment strategist at Morgan Stanley. If you are in the camp of those who think Donald …

Conference Roundup: The Annotated Russell Napier

Laurence Articles

On April 5, 2018, I attended the Foundation Financial Officers Group (FFOG) joint conference with a European foundation group, EFFIO, in Milan, Italy. The most engaging and erudite speaker was Russell Napier, a former asset manager with Baillie Gifford, Foreign & Colonial, and CLSA, and now independent. Napier founded Electronic Research Interchange (ERIC), a platform for independent investment research; and …

Why Nassim Taleb Thinks Leaders Make Poor Decisions

Laurence Articles

Why do experts, CEOs, politicians, and other apparently highly capable people make such terrible decisions so often? Is it because they’re ill-intentioned? Or because, despite appearances, they’re actually stupid? Nassim Nicholas Taleb, philosopher, businessman, perpetual troublemaker, and author of, among other works, the groundbreaking Fooled by Randomness, says it’s neither. It’s because these authorities face the wrong incentives. They are …

She Caught the CATY, and Left Me a Mule to Ride: Improving on Dividend Yield as an Indicator of Stock Valuations and Expected Returns

Laurence Articles

The title of this essay refers to two things: (1) a great Blues Brothers song; and (2) a new measure of market valuation set forth by Philip Straehl and Roger Ibbotson, the CATY or cyclically adjusted total yield. Straehl and Ibbotson [2017] developed the CATY as a substitute for Robert Shiller’s CAPE or cyclically adjusted price-earnings ratio, a measure that …

What Investment Risk Really Is, Illustrated

Laurence Articles

Investment advisors, managers, and their clients talk about balancing risk and return when advising clients about their strategic asset allocation (SAA) policy for the overall portfolio. This is true whether the client is an individual, a pension plan, a foundation or endowment, or a sovereign wealth fund. SAA investment policy or strategy is typically set by choosing from among a …

“Uneasy lies the head that wears a crown”: A Conversation with Jack Bogle

Laurence Articles

On January 8, 2018, I interviewed John C. (Jack) Bogle, the founder of Vanguard, the largest manager of U.S. index funds and the second largest investment management organization in the world. Bogle, born in 1929, founded Vanguard in 1974 and launched the first index mutual fund, designed to track the S&P 500, in 1975. He served as chairman and CEO …

The Age of Experts: A Review of Marc Levinson’s An Extraordinary Time

Laurence Articles

How good were the good old days? Was the post-World War II economic boom in the United States and other developed countries a truly special period, one that we cannot expect to repeat, even over centuries-long time frames? Where did those exceptional growth rates come from, and what—if anything—can we do to bring them back? In An Extraordinary Time: The …

The Unicycling Genius Who Invented Information Theory: A Review of a Mind at Play, by Jimmy Soni and Rob Goodman

Laurence Articles

Where do technological innovations come from? We have two mental images. One is of a lone genius working in a laboratory or garage, misunderstood until, at long last, the world appreciates her contribution. The other is of a team of busy bees, experts working at a corporation or government agency, the Manhattan Project being the best-known example. The life of …

The Rules of Growth: Organisms, Cities and Companies

Laurence Articles

What do living organisms, cities and businesses have in common? They all have organic characteristics: they’re born, grow, sometimes shrink and usually die; they all require energy to maintain and grow; and they all must deal with the sometimes undesirable byproducts of their existence. Do these wide-ranging behaviors follow simple laws that have explanatory and predictive value? Geoffrey West, a …

“They Can Make Everything for Less”: Woody Brock on Why Productivity is Mismeasured and Understated

Laurence Articles

Has productivity growth slowed in the U.S. and around the world, as conventional measurements suggest? Or is that just an illusion, caused by the difficulty of measuring the quality improvements (instead of quantity improvements) that now constitute the bulk of productivity growth? In a provocative interview, Horace (“Woody”) Brock, an economist, strategist and consultant to many of the world’s leading …

The Equity Risk Premium: A Contextual Literature Review

Laurence Articles

The equity risk premium (ERP), or equity premium, is the difference in expected or realized return between an equity index and a reference asset, where the latter is usually a bond or bill portfolio considered to be “riskless.” In the modern literature and in investment management practice, ERP usually means “expected ERP” and we will stick to that convention, reserving …

The Unicycling Genius Who Invented Information Theory

Laurence Articles

Where do technological innovations come from? We have two mental images. One is of a lone genius working in a laboratory or garage, misunderstood until, at long last, the world appreciates her contribution. The other is of a team of busy bees, experts working at a corporation or government agency, the Manhattan Project being the best-known example. The life of …

Woody Brock: Global Growth is Mismeasured and Understated

Laurence Articles

Has productivity growth slowed in the U.S. and around the world, as is the conventional wisdom? Or is that just an illusion, caused by the difficulty of measuring the quality improvements (instead of quantity improvements) that constitute the bulk of productivity growth? In a provocative interview, Horace (“Woody”) Brock, an economist, strategist and consultant to many of the world’s leading …