Category Archives: Strategy

The VIX is Low, But Should You Fasten Your Seatbelt?

VIX has spent the whole of August below 14, and remains – at time of writing – close to its lowest levels in two years.  But the present calm may be dependent on a short-term seasonal effect; and we are approaching the traditional period where it ends. August is traditionally a quiet month for U.S. Read more […]

The Walking Dead Return (as Active ETFs)

In AMC’s “The Walking Dead,” we meet Rick Grimes after he awakens from a coma to find himself in post-apocalyptic world filled with legions of zombies.  Rick calls these zombies “walkers,” but as each season goes by (season seven starts this October) different groups name them other things, like biters, roamers, lurkers, etc.  The names Read more […]

Bank Lending: More Demand, Tighter Standards

Three times a year the Federal Reserve surveys bank lending officers about credit standards, loan pricing and the demand for borrowing.  The Survey provides insights into business and consumer borrowing as well as where the economy may be headed.  The results of the July 2016 survey, released today, echo the details in last week’s GDP Read more […]

The Consequences of Concentration: 5 – Genuine Skill?

Should active managers shift away from well-diversified portfolios and concentrate only on “high conviction” holdings in hope of generating higher returns?  We have suggested four consequences — higher risk, greater dominance of luck over skill, higher costs, and fewer outperforming funds — that are likely and logical outcomes of higher concentration.  All four apply even for active Read more […]

Home Prices Rising

This morning’s S&P CoreLogic Case-Shiller Home Price Indices report showed prices rising at about a 5% annual rate over the last 12 months.  Across the country the pattern varies with strong price gains in the Pacific Northwest and small price increases in New York and Washington DC.  The press release and data are available at Read more […]

The Consequences of Concentration: 4 – More Underperformers

Can active managers improve performance by moving from relatively diversified to relatively concentrated portfolios?  Doing so is likely to increase risk, shift the relative importance of luck and skill, and raise trading costs.  A fourth consequence is that the probability of active underperformance is likely to increase. A simple example provides some insight.  Imagine a market with five Read more […]

The Consequences of Concentration: 3 – Higher Costs

Some active managers argue that the remedy for widespread active underperformance is more aggressive, more concentrated portfolios.  If this is the correct prescription, it has a number of adverse side effects — for example, risk is likely to increase, and the relative importance of skill and luck in decision making is likely to shift in luck’s favor. A Read more […]

Party like it’s 2007

House sales and prices are rising.  Home sales in June were 5.57 million at annual rates, the highest since February 2007 when national home prices peaked.  Currently prices as measured by the S&P/Case-Shiller National Home Price Index are climbing at a 5% annual rate and are a mere 3% from their all-time peak. What next?  Read more […]

The Consequences of Concentration: 2 – Luck Ascendant

Is the remedy for active managers’ well-known performance difficulties to become more active? Some observers think so, and argue that less diversified, more concentrated portfolios should be the wave of active management’s future.  But there are a number of adverse consequences to concentration — for example, risk is likely to increase.   A second consequence is that in manager Read more […]

Credit Cards and Retail Sales

This morning’s release of the S&P/Experian Consumer Credit Default Indices showed that default rates for bank cards – such as VISA, MasterCard or others – climbed year to date while other categories of consumer borrowing such as mortgages and auto loans did not. Even though the bank card rate at 3.11% is 61 basis points Read more […]