Posts filed under “Quantitative”
Source: 361 Capital
This chart comes to us via Blaine Rollins of 361 Capital. I find it provides great context for the current markets, especially given the amount of bubble chatter we hear these days.
How common are double-digit equity gains? How often do we see markets up 20 percent or more in a given year?
As it turns out, when markets are in the green, double-digit gains are the norm. Only one in four years where markets are positive do we actually record single-digit gainers. Indeed, three out of four positive years (19/76 or 0.25 percent) see gains that are in the double digits.
This year, the S&P 500 is up about 25 percent. How common are 20 percent plus years? As the distribution above shows, 20 percent or greater gains are surprisingly common. We have these sort of hot years about 30 percent of the time (34/115 or 0.295 percent of the time) — that’s almost one in three years since 1897 where we have seen markets up more than 20 percent.
We have been overdue for a correction of 10 percent or more for a while now. There is little doubt during this long market run, stocks have gotten pricier than they were, and sentiment has moved from disliking equities to warming up to them to becoming quite frothy. But none of these metrics suggest that the market is on the verge of crashing or even entering a bear market (down 20 percent or more).
Of the myriad reasons we could possibly see a correction beyond the pullback of the past five days, the markets’ year-to-date gains of double digits or even 20 percent are not one of them.
IBM and http://IBMblr.Tumblr.com celebrate the life of Benoit B. Mandelbrot, IBM Fellow Emeritus and Fractal Pioneer. In this final interview shot by filmmaker Erol Morris, Mandelbrot shares his love for mathematics and how it led him to his wondrous discovery of fractals. His work lives on today in many innovations in science, design, telecommunications, medicine, renewable energy, film (special effects), gaming (computer graphics) and more.
Leverage. Derivatives. Shorting. The three “dirty words” of finance, according to this week’s guest, became a regular part of our vocabulary after the 2008 financial crisis, but how can investors get back to “clean” investing principles? Our Financial Thought Leader this week is Cliff Asness, Managing and Founding Principal of AQR Capital Management, a global investment management firm which runs hedge funds, mutual funds, and a diversified collection of investment strategies. In this rare interview, he’ll discuss the three legs of his “investment stool” and the tools we can use to diversify our portfolios.
Source: Mental Floss As someone who has spent his fair share of time debunking nonsense, I love the elegant way Theodore Sturgeon trashed this anti-SciFi trope in the March 1958 issue of Venture: “I repeat Sturgeon’s Revelation, which was wrung out of me after twenty years of wearying defense of science fiction against…Read More
Last week, I mentioned Merrill Lynch’s Market Analysis Technical Handbook. I was somewhat smitten by the wire house attempt to explain the basics of technicals to a broader layperson audience. Several BP readers at Mother Merrill (as she used to be known) directed my attention to another annual release: US Quantitative Primer 2013. It is…Read More
Individual Investors Are Not Buying It Click to enlarge Lots of people have been discussing how negative investor sentiment is, showing the chart above. It shows markets making new all time highs as expectations that markets will be higher six months hence is at a mere 19% of AAII respondents. (See Individual Investors Are An…Read More
“He can take a model and turn it into a narrative” Right after the election, Felix wrote a post “When quants tell stories.” Clever as it was, I had issues with the underlying premise – namely, that the value of Nate Silver’s modeling lay more in the narrative tale as told by Silver…Read More
Cyclically Adjusted P/E Click to enlarge: Meb Faber of Cambria Investment Management looks at 10 years of earnings. Based on a methodology developed by Yale University Professor Robert J. Shiller, Faber concluded from an analysis of cyclically adjusted price-earnings ratios, designed to minimize the effect of economic swings on profits. Cyclically adjusted P/E, also known as CAPE,…Read More
Over the last few weeks, we have discussed the questionable data and mediocre results of Jeremy Siegel’s Stocks for the Long Run (See this, this and this). When we step back and take a look at The Really Long Run, we see a much clearer picture. The deep historical perspective as it pertains to the…Read More