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Bigger Extremes, Better Returns | Cliff Asness on the "Less Efficient Market Hypothesis" – Validea's Guru Investor Blog
In this episode of Excess Returns, we sit down with AQR founder Cliff Asness for a fascinating discussion about market efficiency, behavioral finance, and the future of quantitative investing. In this wide-ranging conversation, we explore Cliff’s recent paper “The Less Efficient Market Hypothesis” and discuss why markets might actually be becoming less efficient over time, despite advances in technology – a counterintuitive but compelling argument. We dig into how social media and constant connectivity might… Read More
Validea Trend Following Update: November 2024 – Validea's Guru Investor Blog
Below is our trend following update for November of 2024. Our trend following system uses multiple moving averages to identify the long-term trend in a variety of equity indexes, asset classes, sectors and investment styles. All but one of the major asset classes and equity indexes rare currently in uptrends. Commodities are the lone exception and has moved back into a downtrend. All sectors remain in uptrends according to our system. Across the value and… Read More
The Six Most Controversial Takes from Excess Returns in 2024 – Validea's Guru Investor Blog
In this episode of Two Quants and a Financial Planner, Jack and Matt dive into some of the most controversial takes we’ve heard on Excess Returns in 2024. From Aswath Damodaran’s spicy thoughts on the Berkshire annual meeting (spoiler: he’s not a fan) to Cem Karsan’s mind-bending perspective on options being the “dog” rather than the “tail,” we’re breaking down six of the hottest takes from 2024. We explore everything from Meb Faber challenging the… Read More
Research Paper Summary: "Migration" by Eugene Fama and Ken French – Validea's Guru Investor Blog
In a landmark paper titled “Migration,” finance luminaries Eugene Fama and Kenneth French uncover the dynamic mechanisms driving two of investing’s most studied phenomena: the small-cap and value premiums. Their findings challenge conventional wisdom and offer crucial insights for investors seeking to capture these return premiums. The Surprising Source of Small-Cap Outperformance The small-cap premium has long intrigued investors, but its true source may surprise many. Fama and French discover that the premium comes almost… Read More
The Magic of Simplicity: Joel Greenblatt's Two-Factor Investment Strategy – Validea's Guru Investor Blog
In a field where complexity often reigns supreme, Joel Greenblatt’s “Magic Formula” stands out for its remarkable simplicity. Using just two variables to select stocks, this approach has produced impressive returns while challenging conventional wisdom about what it takes to beat the market. The Formula Unveiled At its core, Greenblatt’s Magic Formula combines just two fundamental factors: The strategy ranks stocks on these two metrics and combines the rankings to find companies that are both… Read More
Five Top Twin Momentum Stocks – Validea's Guru Investor Blog
The Twin Momentum strategy, based on research by Dashan Huang and his colleagues, represents an innovative approach to momentum investing that combines both fundamental and price momentum factors. This dual approach was found to generate significant outperformance compared to using either type of momentum in isolation. The Strategy’s Foundation The academic foundation for this strategy comes from Huang’s research, which demonstrated that combining fundamental momentum indicators with traditional price momentum could lead to enhanced returns… Read More
Validea's Value Spread Report: November 2024 – Validea's Guru Investor Blog
Here is the latest value spread update for November 2024 from Validea’s market valuation tool. Rather than focusing on market-cap weighted indexes like the S&P 500, our tool focuses on the valuation of the average stock relative to history. We use the median of our investable universe of 2700 stocks to perform the calculation. To compare value vs. growth, we look at the top decile of the cheapest stocks and compare it to the top… Read More
Validea's Top Benjamin Graham Stocks - November 2024 – Validea's Guru Investor Blog
Benjamin Graham, widely recognized as the pioneer of value investing, developed a methodical approach to identifying undervalued stocks. Validea has adapted Graham’s principles into a systematic strategy that prioritizes financial stability and proven performance over speculative growth. Investment Criteria: The strategy focuses on finding established companies with strong balance sheets, consistent profitability, and attractive valuations. By applying these strict criteria, investors aim to identify financially sound businesses trading below their intrinsic value, while maintaining a… Read More
Making Sense of Markets in a Post Election World | Grant Williams and Ben Hunt – Validea's Guru Investor Blog
In this special “Emergency Room” episode of Excess Returns, Matt Zeigler is joined by Ben Hunt and Grant Williams for a candid discussion of the 2024 post-election landscape and its implications for markets. The guests explore how trust, or lack thereof, shapes both political and market narratives, examining the transformation of capital markets into what they describe as a “political utility” where “number go up” has become the prevailing faith. Key topics include: This wide-ranging… Read More
Top 10 High Shareholder Yield Stocks - November 2024 – Validea's Guru Investor Blog
Shareholder yield is a financial metric that captures the total return a company provides to its shareholders, expressed as a percentage of its market value. It combines three key elements: Why Shareholder Yield Is Important Shareholder yield is valuable for several reasons: Here are Validea’s top 10 high shareholder yield stocks for November 2024. These stocks not only have high shareholder yields, but also score highly according to our quantitative models based on investing legends… Read More
Three Technology Dividend Aristocrats Warren Buffett Might Like – Validea's Guru Investor Blog
Dividend Aristocrats are an elite group of S&P 500 companies that have increased their dividend payments consistently for at least 25 consecutive years. These companies represent the gold standard for dividend reliability and corporate stability, making them attractive to income-focused investors seeking steady returns and lower volatility. The Technology Sector Exception While traditional Dividend Aristocrats must show 25+ years of dividend increases, the technology sector follows modified criteria. Given that many technology companies only began… Read More
Practical Lessons from Cullen Roche – Validea's Guru Investor Blog
In this episode, we look at the biggest lessons we have learned from Cullen Roche, one of our most frequent and insightful guests. We cover: Whether you’re an investor building a portfolio or someone wanting to understand how the financial system actually works, this conversation delivers clear insights from one of finance’s most practical thinkers. 🖥️ Watch on YouTube 🎧 Listen on Apple Podcasts 👂 Listen on Spotify
The Critical Importance of Process Over Outcomes in Investing – Validea's Guru Investor Blog
Investors always focus on outcomes when evaluating their success. But that approach has a major flaw. If that outcome wasn’t generated by a sound process, then it is likely the result of luck and also likely won’t be repeatable. Consider two contrasting scenarios that perfectly illustrate a crucial lesson for investors. The first involves a day trader who experienced remarkable success during the cryptocurrency boom of 2017. Over several months, this trader generated impressive returns… Read More
Five Lessons from Meb Faber – Validea's Guru Investor Blog
In a recent episode of the Excess Returns podcast, investment manager and researcher Meb Faber shared several thought-provoking insights about investing and wealth building. Here are five key takeaways from his discussion: 1. Rethinking Dividends Faber challenges the conventional wisdom around dividend investing, arguing that while dividends aren’t inherently bad, they shouldn’t be the primary focus of an investment strategy. He points out that dividends are essentially a value factor, and investors might be better… Read More
Validea's Market Valuation Report: November 2024 – Validea's Guru Investor Blog
Here is the latest update for November from Validea’s market valuation tool. Rather than focusing on market-cap weighted indexes like the S&P 500, our tool focuses on the valuation of the average stock relative to history. We use the median of our investable universe of 2700 stocks to perform the calculation. Despite the recent strong run in the market, the median stock in our database got less expensive in October as earnings have been coming… Read More
Martin Zweig: The Conservative Growth Master Who Built a Fortune Through Disciplined Investing – Validea's Guru Investor Blog
Martin Zweig may have owned one of the most expensive penthouses in Manhattan, but his path to wealth was paved with disciplined, methodical investing rather than risky speculation. Let’s examine how this legendary investor developed and executed his “conservative growth” strategy that produced market-beating returns for decades. Early Days of a Market Maven Zweig’s fascination with the stock market started early, when his uncle gifted him six shares of General Motors stock at age 13.… Read More
Making Money from Market Chaos | Inside the Volatility World with Kris Sidial – Validea's Guru Investor Blog
In this episode of Excess Returns, Jack Forehand and special guest host Brent Kochuba dive deep into the world of long volatility and tail risk strategies with Kris Sidial, founder of the Ambrus Group. Kris shares invaluable insights from his experience managing volatility-focused strategies and navigating major market events. 🔑 Key Topics Covered: Kris provides a fascinating glimpse into how vol traders operate during market stress events, explaining how these strategies aim to deliver explosive… Read More
Could the Election Spark a Small-Cap Value Rally? Here are 5 Stocks That Could Benefit – Validea's Guru Investor Blog
With the election over and a Trump victory looking likely, small-cap stocks could be a major beneficiary. Not only are small-cap stocks cheap compared to their large-cap counterparts, but they also saw significant outperformance the last time Trump won. But not all small-cap stocks are equal. So we thought it would be a good time to look at the highest scoring small-cap stocks using Validea’s guru models, which are based on the strategies of legends… Read More
Validea's Top NASDAQ 100 Stocks - November 2024 – Validea's Guru Investor Blog
The NASDAQ 100 has outperformed all the other major indexes for a long time now. Due to its strong run, and the fact that it is dominated by growth companies, many investors think that there aren’t too many fundamentally sound stocks left in the index. But our quantitative models are still seeing value in some names within the index. Validea’s guru system uses 22 quantitative strategies based on historically successful investors like Warren Buffett and… Read More
Practical Lessons from Tobias Carlisle | Value Investing, Buffett and the Importance of Survival – Validea's Guru Investor Blog
In this episode, we sit down for a deep dive into lessons from value investor Tobias Carlisle, exploring several key insights from our conversations with him over the years. In this Halloween-themed episode (complete with plenty of Reese’s cups), we break down Toby’s perspectives on what makes an ideal business, the critical importance of survival in investing, portfolio concentration vs diversification, and whether today’s tech giants can maintain their dominance. We cover how See’s Candy… Read More
Five Lessons from Guy Spier – Validea's Guru Investor Blog
In a wide-ranging conversation on the Excess Returns podcast, renowned investor Guy Spier shared valuable insights about investing, personal growth, and learning from mistakes. Here are five key lessons from his discussion that can benefit both professional and individual investors. 1. Learn Early from Your Mistakes One of Spier’s most emphatic points is that making mistakes early in your career can be beneficial – if you learn from them. He emphasizes that mistakes are inevitable,… Read More
Five High Free Cash Flow Yield Stocks That Pass the Strategies of Legends – Validea's Guru Investor Blog
Earnings can be easy to manipulate. But cash flow can provide a better indication of the health of an underlying business. Combining high free cash flow yield stocks with the fundamental criteria of Validea’s guru models, which are based on the strategies of Wall Street legends like Warren Buffett, Peter Lynch and Martin Zweig can help find fundamentally sound stocks that trade at discounted valuations. What is Free Cash Flow Yield? Free cash flow yield… Read More
Academic Research Summary: Does It Matter Why Factors Work? – Validea's Guru Investor Blog
A groundbreaking new study challenges conventional wisdom about how we look at investing factors. The paper, “Does Peer-Reviewed Research Help Predict StockReturns”, written by Andrew Chen of the Federal Reserve Board, Alejandro Lopez-Lira of the University of Florida, and Tom Zimmermann of the University of Cologne, asks a provocative question: Does peer-reviewed academic research actually help predict stock returns better than simply mining data for patterns? The Key Finding: Data Mining Works Nearly As Well… Read More
The Contrarian's Guide: Inside David Dreman's Value Investment Strategy – Validea's Guru Investor Blog
David Dreman made his name and fortune by going against the crowd. As one of the pioneers of contrarian investing, he built an impressive track record by systematically targeting stocks that were out of favor with the market. Let’s explore how Dreman developed his contrarian approach and break down the key elements of his quantitative strategy. The Psychology Behind Contrarian Investing At the core of Dreman’s philosophy is his deep understanding of investor psychology. He… Read More
Validea's Top Ten Warren Buffett Stocks - November 2024 – Validea's Guru Investor Blog
Validea’s Warren Buffett strategy, also known as our “Patient Investor” strategy, is inspired by the investment principles of Warren Buffett, as interpreted from the book Buffettology by Mary Buffett. This strategy aims to emulate Buffett’s long-term, value-based approach to investing. The strategy looks for firms with consistent earnings over the past decade, consistently high return on equity and total capital, strong cash flows and reasonable valuations. Here are the top ten highest scoring stocks for November 2024.… Read More
Finding Picassos: How Great Microcaps Become MultiBaggers | Ian Cassel – Validea's Guru Investor Blog
In this episode of Excess Returns, we sit down with Ian Cassel, founder of MicroCap Club and Intelligent Fanatics Capital Management. We explore the fascinating world of microcap investing, where Ian shares his expertise in finding and investing in ultra-small public companies. We dive deep into Ian’s investment philosophy, discussing how he identifies promising microcap companies, the importance of finding exceptional management teams, and his approach to portfolio management. We cover: – What defines a… Read More
Practical Lessons from Meb Faber | Dividends, Trend Following and a Timeless Asset Allocation – Validea's Guru Investor Blog
In this episode, we dive into our conversations with Meb Faber, analyzing some of his most interesting takes on investing and wealth management. We explore several clips from our interviews where Meb shares perspectives that often challenge conventional wisdom, including his thoughts on dividend investing, trend following, and the Federal Reserve. We discuss: – The limitations of dividend-focused investing strategies – Asset allocation insights from the Talmud – A different perspective on the Fed’s recent… Read More
Five Fundamentally Sound Dividend Kings – Validea's Guru Investor Blog
Dividend Kings represent the cream of the crop when it comes to dividend-paying stocks. These elite companies have increased their dividends for at least 50 consecutive years, demonstrating exceptional financial stability, consistent growth, and a strong commitment to shareholder returns. This remarkable achievement requires companies to maintain profitable operations through multiple economic cycles, recessions, and market downturns while continuously growing their payouts to shareholders. The Power of Combining Dividend Kings with Guru Models While a… Read More
The Importance of Expectations in Investing – Validea's Guru Investor Blog
Oftentimes in investing, all of us think we have figured something out. We think we know that a growth company is going to achieve great results going forward. Or we think a value stock will turn things around. And we think we can profit from it. But there is typically one major problem with that approach: the market has usually figured it out too. And this idea applies to much more than investing. Consider the… Read More
Five Technology Stocks Peter Lynch Might Like – Validea's Guru Investor Blog
Peter Lynch’s legendary investment approach combined growth and value principles to identify companies trading at attractive prices relative to their growth rates. Validea’s interpretation of Lynch’s methodology focuses on his famous PEG ratio (Price/Earnings relative to Growth) while incorporating other key fundamental factors. For technology companies, this disciplined framework can help identify promising growth stories that haven’t become overvalued. Understanding the Lynch Model The cornerstone of Lynch’s strategy is finding companies with P/E ratios that… Read More
Finding Twin Momentum Stocks – Validea's Guru Investor Blog
The Twin Momentum strategy implemented by Validea is based on research by Dashan Huang and his colleagues, who discovered that combining fundamental and price momentum could lead to significant market outperformance. Their research showed that while both types of momentum individually provided excess returns, the combination of the two factors created an even more powerful investment approach. The Two Pillars of Twin Momentum Fundamental Momentum The first component examines a company’s fundamental momentum using seven… Read More
Validea's Top 10 Dividend Aristocrats - October 2024 – Validea's Guru Investor Blog
The Dividend Aristocrats are an elite group of S&P 500 companies that have not only paid but increased their dividend payments to shareholders for at least 25 consecutive years. This track record demonstrates exceptional financial stability, consistent earnings growth, and strong corporate governance. As of 2024, there are fewer than 70 companies that have achieved this status, representing various sectors including consumer goods, healthcare, and industrials. These companies are often considered defensive investments and are… Read More
Practical Lessons from Rob Arnott – Validea's Guru Investor Blog
In this episode of Two Quants and a Financial Planner, we dive deep into the insights we’ve gained from our conversations with investing legend Rob Arnott. We explore Rob’s unique perspectives on identifying market bubbles, the challenges facing value investors in today’s market, and how the rise of passive investing is reshaping market dynamics. We break down Rob’s thoughts on the power of narratives in investing, challenge common assumptions about interest rates and value/growth performance,… Read More
Five Stocks Both Warren Buffett and Peter Lynch Might Like – Validea's Guru Investor Blog
Warren Buffett and Peter Lynch are two of the most renowned investors of all time, each with their own distinct approaches to finding great companies. While their strategies differ in many ways, there are currently five stocks that manage to satisfy the criteria of both investing legends, according to Validea’s guru-based models. Let’s examine why these companies have caught the attention of both the Oracle of Omaha and the mutual fund maestro. The Buffett Approach:… Read More
Validea's Top 10 Joel Greenblatt Magic Formula Stocks - October 2024 – Validea's Guru Investor Blog
Joel Greenblatt’s Magic Formula is an investment strategy outlined in his book “The Little Book That Beats the Market.” The formula aims to identify high-quality companies trading at attractive valuations. It focuses on two key metrics: return on capital and earnings yield. The idea is to find companies that are both profitable (high return on capital) and undervalued (high earnings yield) relative to other companies in the market. The strategy involves ranking companies based on… Read More
An Evidence-Based Look at the Struggles of Value Investing | Larry Swedroe – Validea's Guru Investor Blog
In this episode of Excess Returns, we sit down with Larry Swedroe to tackle some of the most pressing issues in investing today. We dive deep into topics that are on many investors’ minds, including: Larry brings his decades of experience and research to bear, challenging common assumptions and offering nuanced perspectives that often go against conventional wisdom. We explore the importance of maintaining a long-term view, the dangers of recency bias, and why Larry… Read More
The Challenges of Bubbles – Validea's Guru Investor Blog
The term “bubble” has become ubiquitous in financial media. If you follow financial news, you might conclude that we’re currently surrounded by bubbles. Stocks, bonds, cryptocurrencies – all have been labeled as bubbles at various points. But are we really in a world of pervasive financial bubbles, or is the term being used too liberally? Defining a Bubble Before we can identify bubbles, we need to define what constitutes one. While there’s no universally accepted… Read More
Practical Lessons from Jerry Parker – Validea's Guru Investor Blog
In this episode, we dive deep into the world of trend following with legendary trader Jerry Parker. We explore key insights from our previous interviews with Jerry on Excess Returns, discussing his experiences as one of the original Turtle Traders and how his approach has evolved over time. We cover a variety of topics, including: – The challenges of sticking to a trading system, even when you’re trained to follow it. – Jerry’s goals for… Read More
Building a Quantitative Strategy Based on Warren Buffett's Approach – Validea's Guru Investor Blog
Warren Buffett, widely considered the greatest investor of all time, has generated incredible returns over decades at Berkshire Hathaway. While Buffett hasn’t published a detailed explanation of his investment approach, we can glean insights from those who have studied him closely. Let’s explore how we build a quantitative strategy to identify “Buffett-style” stocks for our Validea model based on Buffett. The Buffett Philosophy Before diving into quantitative criteria, it’s important to understand the core tenets… Read More
Validea Trend Following: October 2024 Update – Validea's Guru Investor Blog
Below is our trend following update for October of 2024. Our trend following system uses multiple moving averages to identify the long-term trend in a variety of equity indexes, asset classes, sectors and investment styles. All the major asset classes and equity indexes rare currently in uptrends. The lone laggard from last month, commodities, has now shifted and is in an uptrend as well. All sectors remain in uptrends according to our system. Across the… Read More