Six Investment Insights from Howard Marks

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When a veteran investor sits down to talk with a senior editor from one of the world’s top financial news organizations, the results are bound to be interesting. And that’s exactly what happened when Howard Marks, CFA, co-chairman of Oaktree Capital Management, spoke with John Authers, senior editor for markets at Bloomberg.

During their recorded conversation, which was part of the 73rd CFA Institute Annual Virtual Conference, Marks shared how his thought processes have developed over more than four decades of experience in high-yield fixed income markets. He offered six insights for investors:

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Investment Optimism during the COVID-19 Crisis

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The COVID-19 global pandemic is redefining market mechanics, policy responses, and business operations. CFA Institute convened a panel of experts — including Nicholas J. Colas, co-founder of Datatrek Research; Meredith Sumpter, head of research strategy and operations at Eurasia Group; and Jack Ablin, CFA, chief investment officer at Cresset Capital — to discuss the pandemic’s effects on global economies.

Starting off with a positive note, Ablin said that we are going into this with our eyes wide open — more so than in the 2008 Global Financial Crisis or The Great Depression of the last century. The large, rapid response in the United States has amounted to roughly 35% of GDP. Sumpter was encouraged by the aggressive fiscal and monetary policies pursued by developed economies around the world, saying that the pandemic has revealed the resiliency of human nature. 

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Bigger than Ever

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The CFA Institute Annual Conference is the investment industry’s largest and longest-running educational gathering of investment professionals. It’s an unrivaled opportunity to access high-quality, unbiased content and the latest thinking on critical industry issues. And this year’s event has the potential to reach a larger audience than ever before.

There’s still time to register for this free online event and participate in three days of presentations, conversations, and virtual programming specially designed for the current environment.

Monday’s sessions will keep an eye on the big picture, with expert investor Howard Marks, CFA and geopolitical analyst Peter Zeihan discussing global macro and market outlooks in uncertain times.

Tuesday’s presenters will offer ways to improve investment decisions with personal insights, including guidance from behavioral economist Daniel Crosby and neurobiologist Donald Altman.

On Wednesday, sessions will discuss investing through the crisis, with Aswath Damodaran discussing valuation in an unstable environment, Annie Duke explaining how to make smarter decisions in a time of uncertainty, and Catherine D. Wood examining how innovation gains traction during tumultuous times.

Archived recordings of every presentation will be available online, with additional insights and commentary published on the CFA Institute Annual Virtual Conference blog.

All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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The Revolution Will be Publicly Traded

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Are investors suffering from a lack of investment opportunities? Some observers have declared that the role of the public equity market is in decline, based on increasing growth and activity in private markets. Jay Clayton, chair of the Securities and Exchange Commission, has also warned that shrinking public markets have reduced access to investment opportunities.

However, the best opportunities may be hiding in plain sight. Catherine D. Wood, CEO and chief investment officer of ARK Investment Management, expects disruptive innovation to propel existing companies to massive valuations. The biggest gains may come not from the ideas generated by hot new startups, but from the companies using those ideas to increase productivity and reduce costs. Read More

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Annie Duke: Accepting Wrong Gets to Right Faster

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Making Better Decisions

Who likes to openly admit that they were wrong? Not many people, although Annie Duke, former professional poker player and author of Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts, finds that being wrong offers opportunities to improve her decisions.

Duke has said that she learns faster when she’s not afraid of being wrong. During her career as a poker player, she realized that most of our decisions are made against a backdrop of uncertainty — sometimes we’ll be wrong because we won’t have all the facts. Embracing our wrong decisions as opportunities to learn helps to make more effective decisions in the future.

Duke’s studies in cognitive psychology and poker playing have given her a unique perspective on probabilistic thinking. After 18 years of focusing on her mistakes and understanding the “why” behind the outcomes, she has added to what she calls “the stuff we know” box. Keeping an open mind and being receptive to ideas from those around us is how we fill this box and use it to our advantage.

So, how do you strengthen the muscles of admitting failure to become a more effective decision maker?

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Time for Financial Professionals to Sharpen Their Saws

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Time for Financial Professionals to Sharpen their Saws

How can you improve your professional performance?

“Sharpen the saw,” says Stephen R. Covey, author of The 7 Habits of Highly Effective People. Covey uses the metaphor of a woodcutter, straining to fell a tree with a blunt saw, to illustrate the importance of taking time to develop our skills. When we step away from our immediate responsibilities and focus on our professional growth — turning away from the proverbial tree to sharpen our saw — we set ourselves up to do our jobs better and improve our performance over the long term.

Covey’s insights raise an interesting question for financial professionals: What specific actions can we take to do our jobs better? Read More

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PIMCO’s Sundstrom discusses how to navigate the “recession moment”

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Geraldine Sundstrom, a managing director at PIMCO and portfolio manager who focuses on asset allocation strategies, keeps getting the same question from clients: “When is a recession going to come?”

At the 72nd CFA Institute Annual Conference, hosted by CFA Society of the UK, Sundstrom argued that we aren’t at the end of the economic cycle yet. As she sees it, we are late in the economic cycle, and she explained how investors can position their portfolios to take advantage of late-cycle growth while protecting against the risk of a recession. Read More

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Understanding the Secrets to Perfect Timing with Daniel Pink

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Are there really secrets to the best timing for activities and events in our lives? Best-selling author and behavioral science expert Daniel H. Pink asserts that there are. At the 72nd CFA Institute Annual Conference, hosted by CFA Society of the UK, Pink shared some of the secrets that he gleaned from analyzing research on the timing of life.

According to Pink, research on timing has been siloed in many areas. Social psychologists, economists, linguists, anthropologists, and even endocrinologists have all conducted their own inquiries, looking at different aspects of similar problems. Pink sifted through the research to find evidence-based ways of informing the timing of our activities, work, and decision making.

Pink’s frustration with his own decision-making abilities led him to write When: The Scientific Secrets of Perfect Timing. He said that he was making all kinds of decisions about when to do things “in a sloppy way,” and he was looking for guidance that didn’t really exist. Read More

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Roger Ibbotson Explains the Price of Popularity

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Record executive Scooter Braun employed a simple formula to achieve wild success with Justin Bieber and other artists: identify talented performers right before they become household names. Yale Professor Roger Ibbotson thinks that investors should maximize their returns with a similar strategy — a strategy that hinges on popularity.

At the 72nd CFA Institute Annual Conference, hosted by CFA Society of the UK, Ibbotson compared a box of Bayer aspirin with a generic version of the drug. Their retail prices vary, even though the content is the same, and yet Bayer manages to attract a significant consumer base for their more expensive product. Stocks are no different, according to Ibbotson. “Popular stuff has higher valuations but lower expected returns,” he said.

Like many ideas in behavioral finance, Ibbotson’s thesis seems very common-sense. Its originality lies in the fact that unlike the CAPM, which correlates returns with risk, it considers the popularity of an asset. The model builds on CAPM to create PAPM, a Popularity Asset Pricing Model. Read More

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