Timely Reads

When Does Volatility Equal Risk?

Behavioral Value Investor

Conventional financial wisdom considers volatility to be one of the greatest risks in investing. A small minority of investors, mostly among value investors – a group to which I belong, take a completely opposite view and believe that it is the probability of permanent capital loss, not volatility that constitutes risk. Neither group is entirely correct, nor should the only two options be a view that considers volatility as the main investment risk or the one that views it as unimportant. Instead, the right question to ask is when does volatility equal risk?

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Micro Caps, Factor Spreads, Structural Biases, and the Institutional Imperative

Factor Investor

Though factor investing has rooted itself squarely in large cap equities, it significantly more effective in eclectic corners of the market—small and micro cap. Thus far, we touched on quality themes like financial strength, earnings quality, and earnings growth to screen stocks out. Let’s turn our focus to a broader suite of multi-factor themes by bringing value and momentum into the arena. While value and momentum are also effective in negative screening, they are most effective in identifying which stocks to select.

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Here’s How Factors Can Help Your Investment Portfolio


Factors may be a relatively easy way to help your investment performance. This article outlines how factors have gained attention over time, which factors tend to work, and the tests used to determine if a factor should be implemented in a portfolio.

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Timeless Reads

Trying Too Hard


We probably are trying too hard at what we do. More than that, no matter how hard we try, we may not be as important to the results as we’d like to think we are.

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How Active is Your Fund Manager? A New Measure That Predicts Performance


We introduce a new measure of active portfolio management, Active Share, which represents the share of portfolio holdings that differ from the benchmark index holdings. We compute Active Share for domestic equity mutual funds from 1980 to 2003. We relate Active Share to fund characteristics such as size, expenses, and turnover in the cross-section, and we also examine its evolution over time. Active Share predicts fund performance: funds with the highest Active Share significantly outperform their benchmarks, both before and after expenses, and they exhibit strong performance persistence. Non-index funds with the lowest Active Share underperform their benchmarks.

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The Superinvestors of Graham-and-Doddsville

Warren Buffett

Superinvestor” Warren E. Buffett, who got an A+ from Ben Graham at Columbia in 1951, never stopped making the grade. He made his fortune using the principles of Graham and Dodd’s Security Analysis. Eugene Shahan sat down with Warren Buffett’s article and did some figuring. He found out some interesting things about superinvesting, short-term performance, and how investment management firms should be structured.

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