“Efficient” Markets and the Search for Alpha
description
Transcript of “Efficient” Markets and the Search for Alpha
![Page 1: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/1.jpg)
“Efficient” Markets and the Search for Alpha
A discussion about the efficient market hypothesis, the financial crisis, and what they collectively tell us about the potential to create
portfolio alpha
A discussion of the anomalies to the efficient market hypothesis and how you can use them to add value to client portfolios
A few useful quotes, Wall Street sayings and other tidbits that can
make great talking points with clients
![Page 2: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/2.jpg)
“Is there anyone in this room who actually believes that Fed policy or Washington politics or quantitative easing or any of that stuff has any real impact on the financial
markets?”
![Page 3: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/3.jpg)
• The Random Walk (no insight gained by fundamentals or previous prices)
• Time in the market, not timing the market
• Markets are too efficient to be timed
• Market correlations, for example equities and GDP, are inexact
• Riskier assets provide additional return via a risk premium
• Markets largely move independently from macroeconomic factors
The Efficient Market Hypothe
sis
![Page 4: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/4.jpg)
Time in the
Market instead
of Timing
the Market
![Page 5: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/5.jpg)
Sadly, the investor
experience is
decidedly NOT
Logarithmic
![Page 6: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/6.jpg)
The Random Walk and
the Imperfect
Correlation of Markets and Market Influences
![Page 7: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/7.jpg)
The Impact of the 8/11/11 Introduction of “Operation Twist” on the Stock/Bond Relationship
![Page 8: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/8.jpg)
The stock/bon
d relationsh
ip-an inconsistent hedge
![Page 9: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/9.jpg)
.
Hurricane Sandy, the SOMA Portfolio and QE
![Page 10: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/10.jpg)
The Impact of Macro-economics on R-Squared
![Page 11: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/11.jpg)
QE Contagion?
![Page 12: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/12.jpg)
While Markets Are Reasonably Efficient,
Investors are Not
![Page 13: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/13.jpg)
While Markets Are Reasonably Efficient,
Investors are Not
![Page 14: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/14.jpg)
The Risk Premium
?
($SPX/SPLV)
![Page 15: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/15.jpg)
Anomalies
![Page 16: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/16.jpg)
Anomalies
![Page 17: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/17.jpg)
Anomalies
![Page 18: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/18.jpg)
Anomalies
![Page 19: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/19.jpg)
Anomalies
![Page 20: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/20.jpg)
Anomalies
![Page 21: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/21.jpg)
Anomalies
![Page 22: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/22.jpg)
Anomalies
![Page 23: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/23.jpg)
Anomalies
![Page 24: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/24.jpg)
Anomalies
![Page 25: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/25.jpg)
Anomalies
![Page 26: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/26.jpg)
![Page 27: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/27.jpg)
Crisis…
Risk & Opportunity
![Page 28: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/28.jpg)
“A gold mine is simply a hole in the ground surrounded by liars.”-Mark Twain
![Page 29: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/29.jpg)
“Bull markets are born in despair, grow on pessimism, mature on optimism, and die in euphoria.”
- Sir John Templeton
![Page 30: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/30.jpg)
“Buy when there’s blood in the streets.”- Baron Rothschild
“…but wait awhile if it is more than ankle deep… or if it is your own blood.”-Unknown
![Page 31: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/31.jpg)
Ask five economists and you'll get five different answers - six if one went to Harvard.
-Edgar R. Fiedler
He who lives by the crystal ball soon learns to eat ground glass.
-Edgar R. Fiedler
![Page 32: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/32.jpg)
“Capital markets without losses are like religion without hell.”
-Daniel Mitchell of the CATO Institute
![Page 33: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/33.jpg)
“In the land of the blind, the one-eyed man is king.”
-Desiderius Erasmus
![Page 34: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/34.jpg)
The LunchingGovernme
nt Economist
![Page 35: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/35.jpg)
"Remember the First Law of Economics: For every economist, there is an equal and opposite economist--so for every bullish economist, there is a bearish one. The Second Law of Economics: They are both likely to be wrong." ---William A. Sherden
![Page 36: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/36.jpg)
"We have two classes of forecasters: Those who don't know--and those who don't know they don't know."
---John Kenneth Galbraith
![Page 37: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/37.jpg)
“The four most
dangerous words in investing are 'This time it's different.’”
- Sir John Templeton
![Page 38: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/38.jpg)
“History does not
repeat itself, but it oftentimes rhymes”
-Mark Twain
![Page 39: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/39.jpg)
“The markets can remain irrational longer than most investors can remain solvent.”
- John Maynard Keynes
![Page 40: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/40.jpg)
“Only when the tide goes out do you discover who's been swimming naked.”
-Warren Buffett
![Page 41: “Efficient” Markets and the Search for Alpha](https://reader033.fdocuments.in/reader033/viewer/2022051317/56816358550346895dd40e04/html5/thumbnails/41.jpg)
“If you want to know what is happening in the market, ask the market”-Japanese Proverb