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  1. Wednesday, October 15th, 2014
    amplifiers

    The context for investment decision making is constantly evolving, but the evidence of history is hard to escape.  It exerts a pull on us even when we acknowledge that it might not be representative of the future.

    As I have written before, modern finance is a young discipline and the investment ecosystem of today doesn’t look anything like that of 1983, when I entered the business.  That’s not very long ago and, oh, by the way, interest rates have been dropping the whole time.  Not exactly representative of the range of possibilities.

    In any case, I spend a lot of time thinking about how organizations and individual decision makers develop the assumptions on which they invest.  The historical record creates a powerful conceptual frame.  For asset owners and their advisors, there are broad assumptions that form the grid on which actions are mapped — returns, volatilities, and correlations especially.

    But what if the patterns of the past don’t really fit ... continues

  2. Tuesday, October 7th, 2014
    training by osmosis

    As a group, investment professionals are famously independent and resistant to most organizational initiatives almost as a matter of principle.  Not coincidentally, investment firms often flounder because of cultural issues that other kinds of organizations try hard to address (sometimes too hard, of course, and not always successfully either).

    The frontier spirit at many investment shops is understandable to a certain degree — getting the work done without talking about it incessantly has an appeal to most who find their way into the industry.  But an organization isn’t self-organizing; sooner or later some structure is required and some energy needs to be expended to make it work.

    Given the bias against any heavy-handedness among the troops, the leader of an investment firm needs to pick his or her spots as to where and how to add that structure.  In my experience, training is one area that could use attention in many organizations.

    I don’t mean ... continues

  3. Tuesday, September 23rd, 2014
    decaying beliefs

    In 2012, Samuel Arbesman wrote The Half-life of Facts: Why Everything We Know Has an Expiration Date.  I must confess that I have not read the book.  My awareness of it comes from a review by Shane Parrish on his excellent blog, Farnam Street.Farnam Street | Jason Zweig called it “a compelling blog about decision making.”  Agreed.

    We know of the half-life of radioactive materials.  But there’s also a disintegration of accepted knowledge across disciplines; it’s just not very predictable.  In certain fields (math is mentioned by Arbesman), the body of knowledge changes pretty slowly.  In others, much more quickly.

    He wrote that “the social sciences have a much faster rate of decay than the physical sciences.”  And, despite the attempts to turn finance into physics, you can’t get more social than the markets.

    What is the half-life of an investment theme?  Of an investment theory?  Of an investment belief?  Their lengths are dependent ... continues

  4. Monday, September 8th, 2014
    never delegate understanding

    Charles and Ray Eames were a legendary husband-and-wife design team, best known for their furniture, but creative and relentless in their pursuit of excellence no matter the endeavor.Eames Office | This site details the breadth of their work.  Charles famously summarized their hands-on approach with a three-word mantra:  “Never delegate understanding.”

    In the world of investments, that’s a hard standard to meet.

    Everywhere you look, understanding is being delegated.  Individuals hope and expect that the advisors that they use have the investment chops to make good decisions and the ethical fiber to deal honestly with any potential conflicts of interest.  But the clients don’t normally understand the details of their investments — and can’t really assess the competency of the advisor either.

    And consider those advisors.  They have many different aspects of their jobs and, according to surveys, they spend very little time on investment ... continues

  5. Tuesday, August 12th, 2014
    the ironic triumph

    Charles Ellis has witnessed, chronicled, and helped to shape the modern asset management industry.  He has been a leader of the investment profession for decades and has authored a number of classic works on the business.Gumroad | He was one of five authors cited in Letters to a Young Analyst whose output has been “consistently good in terms of the quality of the material, the quality of the writing, and the importance of the issues addressed.”

    In recent years, Ellis has written a number of notable essays for the Financial Analyst Journal, the latest of which, “The Rise and Fall of Performance Investing,”CFA Institute | The article is free for members of CFA Institute and CFA candidates. is required reading for asset owners, asset managers, consultants, and advisors.

    It is, first of all, a tidy summary of the rise of performance investing over the last half century.  A combination of innovation, demographics, government action, technology development, and ... continues