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Investing Research Articles

Expert Political Judgment: How Good Is It? How Can We Know? (Chapter-by-Chapter Review)

In his 2005 book Expert Political Judgment: How Good is It? How Can We Know?, Philip Tetlock describes the results of his long-term systematic measurement of the forecasting abilities of political experts. These results include insights into the critical success factors of forecasting. Making the very small leap that these insights apply also to experts in economics and financial markets, we offer here a chapter-by-chapter review of the insights in this book: Keep Reading

Ken Fisher on Market Analysis

Guru Grades ranks a group of 29 stock market experts according to our assessments of the accuracy of their stock market forecasts. Since Ken Fisher, CEO of Fisher Investments, has been at or near the top of the list since inception, we asked him to encapsulate his thinking on anticipating financial markets. He graciously agreed. Here is Ken Fisher on market analysis: Keep Reading

An Analysis of NFI FTDs: Regulation SHO Fails to Deliver

An investor recently obtained from the Securities and Exchange Commission (SEC) via the Freedom of Information Act a daily record over an extended period of aggregate Fails-to-Deliver (FTDs) known to the agency for NovaStar Financial Inc. (NFI). FTDs occur when brokers do not match short sales with shares to borrow within a specified number of business days. NFI investor Millerd1 suggested that there should be relationships between the FTDs for NFI and its total short interest, stock trading volume and stock price. Here are three hypotheses to test: Keep Reading

Who Reads Yahoo! Message Boards?

We get a varying flow of traffic from Yahoo! message boards, usually from boards of “Cramerized” stocks to either our review of Jim Cramer’s market timing record or our evaluation of his stock picking ability. Who reads these stock boards? Using a sample of 212 unique Internet Protocol (IP) addresses for readers recently visiting from five different Yahoo! message boards, we find that: Keep Reading

The Secret Ingredients of Top Analysts?

What makes a guru, or analyst, good? The research on this question is predominantly “technical” rather than “fundamental,” focusing on performance and performance persistence rather than process (hence, the frequent use of the word guru, implying mystical insight). In their preliminary and incomplete paper of November 2004 entitled “Determinants of Superior Stock Picking Ability”, Michael Mikhail, Beverly Walther, Xin Wang and Richard Willis seek to identify the determinants of consistent analyst stock picking outperformance. Using a sample encompassing 268,170 recommendations issued by 4,923 analysts for 7,845 firms during 1985-1999 from Zacks Investment Research, they tentatively find that the best analysts tend to: Keep Reading

Classic Papers: The Value of Investment Newsletters?

Recent research on the (stock picking and market timing) abilities of experts to generate excess returns has focused mostly on mutual funds and hedge funds. This focus stems from data availability (mutual funds via SEC filings) and headline value (hedge funds). Where is the research on investment newsletters? How do they rate in terms of excess returns? Digging deeper than usual, we find two on-target papers: (1) the February 1995 paper entitled “Market Timing Ability and Volatility Implied in Investment Newsletters’ Asset Allocation Recommendations” by John Graham and Campbell Harvey; and, (2) the November 1997 paper entitled “The Equity Performance of Investment Newsletters” by Andrew Metrick. Both papers draw upon the investment newsletter archive of the Hulbert Financial Digest. Using different aspects of this archive, they determine that: Keep Reading

The Morningstar Mutual Fund Rating System Works?

Can investors count on the widely cited Morningstar mutual fund rating system as an investment screener? In their recent paper “Morningstar Mutual Fund Ratings Redux”, Matthew Morey and Aron Gottesman investigate the relationship between number of Morningstar stars and future performance of mutual funds since June 30, 2002, when Morningstar overhauled their rating system in terms of granularity, risk measurement and treatment of share classes. Focusing on the three-year performance of domestic equity funds that were rated by Morningstar as of 6/30/02 (1,902 funds) and adjusting for fund loads and survivorship bias, they conclude that: Keep Reading

Finding a Use for Analyst Price Targets?

Might the relative sizes of the gaps between analyst target and actual prices indicate degrees of current misvaluation? In other words, is a stock with analyst target price twice its current price a better buy than a stock presently at or near its target price? In their February 2006 paper entitled “Target Prices, Relative Valuations and the Premium for Liquidity Provision”, Zhi Da and Ernst Schaumburg investigate the usefulness of relative gaps between target and actual stock prices as an indicator of misvaluations. Using recently issued target prices for about 1,700 stocks each month over the period 1996-2004, they conclude that: Keep Reading

Got a Winning Personality?

What personality traits, if any, support successful investing practices? In their March 2006 paper entitled “An Intimate Portrait of the Individual Investor”, Robert Durand, Rick Newby and Jay Sanghani investigate the relationships between personality and both investment decisions and portfolio performance. To measure personality, they apply three perspectives: (1) the “Big Five” personality traits (Negative Emotion-Neurotic, Extraversion, Openness to Experience, Agreeableness and Conscientiousness); (2) psychological gender traits (Masculinity and Femininity); and, (3) personality traits of Preference for Innovation and Risk Taking Propensity. Using personality profiles for 21 Australian self-directed investors along with information about their trading and investment performance during July 2004-June 2005, they conclude that: Keep Reading

Two Habits of Highly Effective Investors?

What are the essential habits of highly effective (wealthy) investors? In his March 2006 paper entitled “Why do Wealthy Investors have a Higher Return on their Stocks?”, Yosef Bonaparte analyzes data from the triennial Survey of Consumer Finances to find out why the wealthiest investors achieve superior stock returns. To frame the analysis, he defines two types of investment opportunity search: (1) informal (use of magazines, newspapers, online services and friends or relatives); and, (2) professional (use of experts such as accountants, financial planners and brokers). Using results from recent surveys, he concludes that: Keep Reading

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