Investing Expertise
Can analysts, experts and gurus really give you an investing/trading edge? Should you track the advice of as many as possible? Are there ways to tell good ones from bad ones? Recent research indicates that the average “expert” has little to offer individual investors/traders. Finding exceptional advisers is no easier than identifying outperforming stocks. Indiscriminately seeking the output of as many experts as possible is a waste of time. Learning what makes a good expert accurate is worthwhile.
What It Takes to Drive the Big (Hedge Fund) Rigs April 12, 2005
Hedge funds now haul about $1 trillion in capital from opportunity to opportunity around world markets. Hedge fund managers have latitude to operate in ways that mutual fund managers do not in terms of leverage, shorting and types of assets traded (such as derivatives). What makes the best hedge fund managers successful? In their March 2005 paper entitled “Hedge Fund Performance and Manager Characteristics Education and Age Matter…”, Haitao Li, Rui Zhao and Xiaoyan Zhang correlate the background characteristics of hedge fund managers with the performances of their funds. Using a dataset encompassing 1,000+ hedge funds over the period 1994 to 2003, they conclude that: More…
Trust Me, It’s a Great Stock March 13, 2005
In his December 2004 paper, Michael Cliff examines the period 1994-2003 to answer the following question: “Do Independent Analysts Provide Superior Stock Recommendations?” For his investigation, “independent” means not involved in an investment banking relationship between one year before and two years after a recommendation. He finds that: More…
Investment Managers: Randomly Walking the Plank? February 2, 2005
In the February 2005 issue of The Financial Review, Burton Malkiel offers “Reflections on the Efficient Market Hypothesis: 30 Years Later” as a pudding-based proof of his famous proposition. He pits the performance of professional investment managers against that of market indices and finds that: More…
Can the “Experts” Help You Beat the Market? November 19, 2004
Should investors follow the recommendations of experts in picking stocks? Consider the findings in a April 2001 paper entitled “Can Investors Profit from the Prophets? Security Analyst Recommendations and Stock Returns” by Brad Barber, Reuven Lehavy, Maureen McNichols and Brett Trueman. Using the Zacks database for the period 1986 through 1996, they conclude that: More…
