Binging on Beta
I didn’t think I needed, wanted, or could handle another investing podcast in my life.
And then Corey Hoffstein from Newfound Research goes and does something like this…
…and totally redeems himself!!
Corey and his team at Newfound put out weekly, must-read research on quantitative investing, and now they have their own must-listen podcast, Flirting with Models. Unlike most of the other podcasts out there that release one episode per week, they have decided to take a page out of the Netflix playbook (Newfound and Chill, anyone?) by releasing a full season at once for your binge listening pleasure. The first season, titled “Boutiques & Bloggers”, contains six episodes of interviews with some of the best and brightest quant asset managers and ETF issuers. Here are some memorable quotes from a few of my favorite episodes:
Episode 1 – Adam Butler (ReSolve Asset Management) – The “Ultimate Gift”
“Crisis necessitates change and when I discovered that my previous way of thinking about the world was fatally flawed, then I had no framework. I had no compass. I was an empty vessel. And only when you’re empty are you ready to receive.”
“It’s using ensemble methods to extract a higher level of signal from the noise.”
“You’ve just got a lot more faith in the live trading of a portfolio if you’ve made very few decisions about how that portfolio should be formed.”
“I do believe that there are inefficiencies in the securities space. My belief in any particular type of inefficiencies are very loosely held.”
“There’s nothing magical about a twelve month look-back for trend following, or a 200 day moving average.”
Episode 2 – Toby Carlisle (Carbon Beach Asset Management) – Thinking Like an Acquirer
“The answer is that you have to keep on following the model and the reason is that we exercise our discretion far too frequently. We find lots of reasons to override the model, too many reasons to override the model and that’s particularly true when you do what I do, which is buy deep value stocks. Every single one of these stocks has a broken leg.”
“When you read [Buffett’s] letters, what he’s really saying is these are the economics of moats. We’re not hunting for just return on invested capital. That’s almost sort of a symptom of what we’re hunting for. What we’re hunting for is companies that have a moat and he says that over and over again.”
“Let’s say that you don’t possess Buffett’s genius, you need to find some sort of scientific or quantitative way of doing it, and I’ve been hunting for a smart way of doing that because that’s a way to beat the market as well.”
“I can speculate over a beer with anybody about whether those things are true or not, but do I want to invest on that basis? No. I want to invest where I think I have a little bit of an edge and I think that one of the places that I do is that I’m prepared to ignore that stuff.”
“It’s one of those funny things about investing that the very worst outcome that everybody was most nervous about actually comes to fruition. It comes to pass and then everybody says, well now the uncertainty is gone, so the stock’s up 15 percent.”
“I’m a value guy who tries to protect himself from his own behavioral errors by applying that value theory in a systematic way. So I think I’ve become less theoretically pure as I’ve gone along and become more practical.”
Episode 4 – Meb Faber (Cambria Investments) – “Just Survive”
“It’s really, really, really hard to pick a portfolio on a buy and hold basis that doesn’t decline at least 25 percent after inflation.”
“Inflation is the biggest risk for bonds. It’s kind of that slow erosion. Whereas stocks, it’s kind of that crash risk.”
“So there’s a lot of things I believe in. I mean, look, do I believe in ultra low cost, buy and hold investing and that taxes and fees matter? Absolutely. Do I think the vast majority of the money management industry charges way too much for buy and hold investing? Yes. Do I believe that there are plenty of brilliant investors and hedge funds and private equity and angel investors that are worth their weight in gold? Absolutely. Do I rail against financial advisors that charge too much and do nothing? Yes. Do I believe that financial advisors are worth their weight in gold for what they do if they do offer value added services like estate planning and taxes, insurance and behavioral coaching? Absolutely.”
“But I think the thing I believe in most is being a student of history, so trying to soak up as much knowledge of what’s happened in the past, what’s worked, what hasn’t worked, what’s are the really dumb mistakes people make.”
“The biggest compliment you can give any money manager in our entire world is simply that they survived.”
Episode 6 – Jack Vogel (Alpha Architect) – Momentum in Theory, Momentum in Practice
“Clearly there probably is, in some instances, data mining…but really academics are trying to better explain what happened in the past in stock returns.”
“You want to make sure you understand why an anomaly exists and whether or not it is easily arbitraged.”
“There’s some very valid behavioral reasons that potentially people are overreacting to news for value, under reacting to news for momentum.”
“I think going forward, If you’re trying to do any sort of factor investing you want to know why. And the “why”, at some level, should be because its a little bit riskier or there should be some systematic behavioral error that people are making now and that you expect them to continue to make in the future.”
“I would say that the factor anomalies should work after trading costs, but what I would also say is that there’s clearly a size limit. Warren Buffet, with multiple hundreds of billions, can’t run a momentum strategy. That is a true fact.”
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