Jack Forehand & Justin Carbon public
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Excess Returns is an investing podcast hosted by Jack Forehand and Justin Carbonneau, partners at Validea. Justin and Jack discuss a wide range of investing topics, including factor investing, value investing, momentum investing and behavioral finance, with the goal of helping those who watch and listen become better long term investors, all in twenty minutes or less per episode.
 
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Factor timing seems so sensible on the surface. The idea of adding exposure to out of favor factors appeals to investors' desires to buy low and sell high. But the reality is much more complicated than that. In this episode, we look at what the academic research shows about factor timing and some different approaches to building investment strategi…
 
Investors love dividends. They like them for their potential to beat the market. They like them for the income they provide. Some even like them because of their perceived safety. But the reality of all of those things is a little bit different than the common perception. When you look at each of the benefits that buying high yield stocks provides,…
 
Sometimes as investors we tend to focus their efforts on the wrong things. We will spend a lot of time building complicated strategies. We will focus on trying to beat the market. We will trade when there is no need to. But in doing this we will often miss what is usually the biggest driver of our returns: our own behavior. In this episode, we spea…
 
David Dreman is a well known contrarian investor and the author of Contrarian Investment Strategies: The Next Generation. Dreman's Kemper-Dreman High Return Fund was one of the best-performing mutual funds ever, ranking as the best of 255 funds in its peer groups from 1988 to 1998, according to Lipper Analytical Services. In this episode, we take a…
 
Investors will seek any type of edge they can find. Many run complicated models to try to generate an excess return. Others endure the pain that generating long-term excess returns using factors often entails. But sometimes the easiest ways to boost returns are also the most simple. In this episode, we look at the rebalancing premium and how proper…
 
When we started our podcast in 2019, we were hoping we could create something that would be educational and informative for people who follow our content. But one of the biggest surprises for us is how much we have learned ourselves. We have been fortunate to interview some of the smartest investors we know, and each interview has taught us somethi…
 
Although the word unprecedented tends to be overused, we are seeing many things in the market currently that many of us haven't seen before. Fiscal stimulus has increased to levels that truly are unprecedented, inflation may become an issue for the first time in a long time, and many investors are arguing the fundamentals don't matter anymore This …
 
In a world where inflation is not a threat, a standard 60-40 portfolio does an excellent job of providing growth, while also limiting downside when stocks get choppy. You don’t need anything more than the last 40 years, when the 60-40 portfolio had its best stretch ever, to illustrate that. The 60/40 has produced a 9.2% annualized return going back…
 
We have had many experts in factor investing on the podcast. We have even had some who have published research in academic journals. But we haven't had anyone who has produced the volume of research that our guest this week has. Jason Hsu is the co-founder of Research Affiliates and founder of Rayliant. He is also an associate editor of the Journal…
 
Research shows that value stocks can generate an excess return because the market tends to overestimate their problems, and value investors benefit when it realizes that. But despite that being true on average, many value stocks actually have even bigger problems than the market has priced in. This week, we look at one of the quantitative strategie…
 
There have been so many books written about Warren Buffett that it can be hard to keep track of them. But before all of that could happen, someone had to be the first. This week we are joined by Robert Hagstrom, whose book The Warren Buffett Way was the first book that took a detailed look at Buffett's investment strategy. And subsequent to that, h…
 
The growth of ARK investments has been one of the biggest stories of the past decade in the ETF space. its flagship fund, the ARK Innovation ETF has seen its asset explode over the past year or so. In January of 2020 the fund had about $1.8B in assets and at the peak earlier this year the fund was at $27B. But many in the investing community have w…
 
With the rapid growth in ETFs, it seems like almost every product idea possible has been tried. So it is rare to find something that is unique and hasn't been done before. This week, we talk to someone who has done not one, but two things that were never done before in the ETF space. We speak with Robert Cantwell, the founder and CEO of Upholdings.…
 
There is no shortage of discussion in the media about the valuation of the market. And with the big market run we have had recently, valuations have once again become stretched. But what does market valuation tell us about the future returns of the market? And is there anything investors can do to adjust their portfolios based on market valuations?…
 
The 4% rule has become one of the cornerstones of retirement planning. And in many ways that makes sense because investors who have spent 4% of their portfolio annually have historically had a very high chance of making their money last. But with expected returns on both stocks and bonds at historical lows, the 4% rule may not work as well in the f…
 
The stock market has had a huge run since last March. That fact, combined with unprecedented government stimulus, the potential for future inflation and other risk factors has many investors worried. In this episode, we look at some things investors can do to deal with high levels of uncertainly, and the risks associated with them. We also look at …
 
We are currently in a very challenging time for building multi-asset portfolios. The 60-40 portfolios is coming off one of its best decades ever, but the expected future returns on both stocks and bonds are very low. And unprecedented monetary and fiscal stimulus have added additional variables into the equation. This week we talk to Jim Masturzo, …
 
The success of of the low volatility factor can be challenging to explain. Investing theory teaches us that to get an additional return, we need to take additional risk and if we reduce risk, our return should come down with it. But low volatility seems to defy that rule. In this episode, we look at the low volatility factor, how it is defined, and…
 
Deep value investing is about buying companies that other investors don’t want. It is about investing in companies where the current situation doesn’t look great – actually in many cases it looks horrible. On average, investors tend to overestimate the problems in these types of businesses and as a result, stocks of these companies get cheap. But f…
 
The emerging market universe includes a very diverse set of countries, many of which are sorely lacking in the types of freedom enjoyed by their people. Some of the biggest countries in emerging market indexes like China are also some of the worst offenders in this regard. It has been commonly accepted by many that investing in these types of compa…
 
This week, we look at some interesting research that took a unique approach to explaining the value and size premiums. We examine the paper "Migration" by Eugene Fama and Kenneth French. The paper grouped stocks into categories based on their size and valuation and then looked at how the migration between those groups impacted both the value and si…
 
With the stock market at all-time highs and returns over the past year some of the best in history, the word "bubble" is getting thrown around more and more by investors. But before we jump to conclusions, it is first important to understand what a bubble is and what the term means from a practical standpoint for investors. In this episode, we look…
 
The last 40 years have been an exceptionally strong period for a portfolio of stocks and bonds. With stocks performing well and bonds benefitting from a tailwind of constantly falling interest rates, a portfolio consisting of only the two asset classes has been all investors have needed. But a deeper look at market history reveals that there were s…
 
Investors tend to associate momentum with growth stocks. If you try to name a typical momentum stock off the top of your head, you will probably think of names like Google or Facebook or Amazon. And that is especially true when we have gone through a growth dominated period like we have in the past decade. But the reality is that momentum doesn't c…
 
Many investors think all value strategies are fairly similar to each other. And as a result they expect the value funds they invest in will all perform similarly over time. But the reality is that the behind the scenes details that go into building a value strategy can play a major role in how it performs and lead to major deviations in performance…
 
There have been hundreds of books written about Warren Buffett and Berkshire Hathaway. So it rare for a book come out that does something that none of the others have. But a new book coming out in April does exactly that by offering the first full chronological history of Berkshire Hathaway, from the period prior to Buffett all the way to the curre…
 
The Motley Fool is not known for their quantitative models. They are known for a discretionary growth style of investing that attempts to identify game changing companies and then holds them for the long-term, seeking to generate returns that are multiples of their original investment. But despite their discretionary nature, their book The Motley F…
 
Systematic value strategies have had one of the worst performing periods in their history in the past decade. This extended underperformance, coupled with changes in the market and economy that many argue are unfavorable for the strategy have led many to question whether it is permanently broken. As believers in the strategy, we have a natural tend…
 
There is a popular narrative out there that value investing is back. And it makes sense given the huge run that many value funds have had off the market bottom. But when you look beneath the surface, it turns out what drove those returns may have little to do with value at all. In this episode, we look at what has actually driven the returns of man…
 
In this episode, we are joined by Kevin Zatloukal. Kevin teaches Computer Science at the University of Washington and has his Ph.D. in Computer Science from MIT. He previously was a programmer for both Microsoft and Google. He is also a member of O'Shaughnessy Asset Management's Research Partner Program, where he has written two papers applying mac…
 
In this episode, we discuss the major points Warren Buffett covered in his 2021 annual letter and talk about some lessons investors can learn from them. We discuss: - the importance of recognizing mistakes and learning from them - why operating earnings are a better measure of Berkshire's business than GAAP earnings - the evolution of Buffett's inv…
 
In this episode, we are joined by John Montgomery, the founder and CIO of Bridgeway Capital Management. Bridgeway is unique in the world of Wall Street, where profits are usually the primary motive, in that it donates 50% of its profits to charity, makes everyone who works at the company a partner, and strives to maintain a low ratio of compensatio…
 
In this episode, we are trying something new. There is so much academic research out there about markets, and what drives their returns over time, that it can be very difficult for investors to keep up with all of it. So we are going to start highlighting some of our favorite academic papers each month and breaking down their key lessons. We start …
 
The rapid rise and fall of GameStop earlier this year was unlike anything many of us have seen in our investing careers. The stock's price went from the single digits to upwards of $400 per share in a very short time, and then lost most its value in the weeks that followed. In this episode, we take a look behind the scenes at the factors that led t…
 
Risk is one of the most difficult concepts in investing to define. Part of that is because we face many risks as investors that come from many different directions. But another part of it is that risk is ultimately different for every investor, which makes a universal definition impossible to find. In this episode, we look at some of the most impor…
 
Joel Greenblatt produced exceptional returns as managing partner at Gotham Capital, a New York City-based hedge fund he founded. The firm averaged a remarkable 40 percent annualized return over more than two decades .In his 2005 bestseller The Little Book That Beats The Market, Greenblatt laid out a very simple two variable strategy that more than …
 
There is perhaps no investment factor with more long-term data to support it than momentum. But despite that, its real world usage lags far behind other factors like value. Part of the reason for this is the fact that momentum can be much less intuitive for investors. It is easy for investors to understand why they should buy a stock that trades at…
 
Our economy is changing. Gone are the days where the biggest companies require substantial physical assets to operate and grow their businesses. Most of the companies that dominate our economy today rely on assets like technology, brand value, and patents to power their businesses. In this episode, we look at the impact of intangible assets on valu…
 
There are many misconceptions about private equity. Most investors see it as a domain where high net worth investors and institutions earn returns that can't be achieved via public markets. Investors typically also view the success of private equity as the result of the ability of private equity firms to go in and make operational changes to busine…
 
After a decade of struggle, the past six months have finally given value investors reasons for optimism. Although the recent outperformance pales in comparison to the underperformance over the course of the decade, the fact that performance has improved, coupled with the arguments that a move toward increased fiscal stimulus may lead to a higher in…
 
Dividend based investing strategies are very popular among investors. The ability to receive regular cash payments from the equities they own and a belief that dividend paying stocks outperform the market are both major drivers of this popularity. But this preference for dividend stocks often exceeds the reality of the benefits they provide. In thi…
 
Peter Lynch is one of the most successful mutual fund managers of all time. Lynch guided Fidelity Investment's Magellan Fund to a 29.2 percent average annual return from 1977 until his retirement in 1990, almost doubling the S&P 500's 15.8 percent yearly return over that time. And he did it with an approach that is very unique among history's most …
 
There is a common misconception that a good company is always a good investment. But that sometimes isn't the case. The reason for that comes down to the role that expectations play in investing. Companies with good fundamentals typically have high expectations built into their stock price, while companies with poor fundamentals typically have low …
 
When we started our podcast late last year, we were hoping we could create something that would be educational and informative for people who follow our content. We were hoping we could take some of the lessons we have learned in running quant models over the past decade and share them with other investors who are looking to learn and improve. But …
 
No investor can match the combination of Warren Buffett's annual returns and the period of time he has been able to sustain them. Buffett has generated those returns in a variety of ways, many of which your average investor could never copy. But Buffett's greatest contribution to the investing world likely isn't his returns or his approach to picki…
 
The way economic policy is implemented has undergone some major changes in the past decade. The Federal Reserve's response to the Great Financial Crisis, and the continued quantitative easing in its aftermath, marked a significant change in the way the central bank implements monetary policy. And the fiscal policy response to the current crisis als…
 
The academic research supporting the momentum factor is very strong. But most of that research focuses on the momentum in a stock's price. An interesting research paper written by Dashan Huang looked at the potential to enhance the excess of return of price momentum by also looking at the momentum in a firm's fundamentals. In this episode we discus…
 
We have reached the one year anniversary of the podcast so we wanted to take a break from our regular investing episodes for a week and reflect back on our first year and what we have learned. In this episode we talk about our biggest lessons from our first year of podcasting and some of the behind the scenes details that go into creating the podca…
 
There is a tendency for those of us who support quant models to talk about them as if they are these things that just run on autopilot over the long-term that are free from all the decision-making issues that plague us as human beings. That just isn’t the case, though. There are many decisions that go into the development, optimization, and evoluti…
 
Value investing has struggled for over a decade now. Although no one will dispute that fact, there are significant disagreements about whether this is just another of the long periods of underperformance that have been common in the history of value or if something about the strategy has become broken. In the first year of our podcast, we have talk…
 
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