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  1. 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

  2. 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

  3. 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

  4. Thursday, August 7th, 2014
    translations

    We all develop a language of our own.  As individuals we have our favorite phrases, which we use again and again, creating a pattern of communication that a linguist could recognize as having unique word-prints which identify us.

    When working with investment organizations, I find myself returning to certain phrases and concepts repeatedly.  Many find their way into my writing (and some originate there), including “analysis plus communication,”the research puzzle | The posting with that title was part of a series on equity research. my simple formula for thinking about the two main components of any investment job.  It is the communication part that messes most people up.

    Being able to communicate — to translate, if you will — is incredibly important.  Here are some widely-disparate examples I have seen of the need for such translations in the investment world:

    ~ Practitioners and academics have so much to teach each other, yet in most cases there is no ... continues

  5. Wednesday, July 23rd, 2014
    you get the market

    The debate between the believers in passive investment management and the believers in active management is destined to go on ad infinitum.  But the simple truth is that they are much more alike than different in terms of results.

    To simplify things, let’s look at the stock market, specifically the U.S. stock market.  For investment professionals, the “market” has long since meant the S&P 500, although there are other measures that capture more of the market than it does.

    The market thus described is weighted by capitalization and serves as the benchmark for huge numbers of active managers who are generally judged and rewarded (or not rewarded) based upon their relative performance versus that benchmark.  The active/passive debate revolves around which of those approaches is likely to produce better returns over time.  There are other issues — including the wisdom of spending gobs of time and money trying to outperform when history appears to not be on ... continues