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  1. Monday, January 21st, 2019
    dear prudence

    A variety of laws and regulations are in place to guide those who provide investment advice, direct management, or stewardship of assets on behalf of others.  At the core of them is “the prudent man rule,” which first arose as a concept almost two centuries ago.

    But what constitutes prudence?

    Arthur Brooks, in a 2017 New York Times opinion piece,New York Times | The printed version was entitled, “Nobody Here But Us Chickens.” questioned today’s most common interpretation of the word.  He wrote, “The connotation of prudence as caution, or aversion to risk, is a modern invention.  ‘Prudence’ comes from the Latin ‘prudentia,’ meaning sagacity or expertise.  The earliest English uses from the 14th century had little to do with fearfulness or habitual reluctance.  Rather, it signified righteous decision making that is rooted in acuity and practical wisdom.”

    I quite like “acuity and practical wisdom” as a ... continues

  2. Sunday, November 18th, 2018
    the dangers of maximization

    In a recent posting,Epsilon Theory | The title is “Getting Out: A Godfather Story.” Ben Hunt wrote, “My goal as an investor is NOT to maximize my investment returns or to maximize my personal wealth.”  Instead, his goal is to “minimize my maximum regret.”

    As Hunt explains, that’s not the way of the investment world, with its benchmarks and optimizers and breathless searches for the best stock, the best strategy, the best manager, etc.  He says that the business is based upon the assumptions that we are maximizers and “that we SHOULD BE maximizers” — and sees that at the root of many problems.

    I discussed the differences between maximizers and satisficers in three postingsthe research puzzle | This is the first one of the three; click the “next post” link at the bottom to get to the other two. written 2013, based upon ideas in The Paradox of Choice by Barry Schwartz.  Basically, a maximizer is that person who ... continues

  3. Monday, October 22nd, 2018
    best and brightest

    Last fall, I watched the Ken Burns film, The Vietnam War.Ken Burns | This documentary is well worth its eighteen-hour length.  In a discussion around the same time, David SalemEpsilon Theory | Salem has a distinguished background in the investment business and recently started writing an interesting series for Epsilon Theory. encouraged me to read The Best and the Brightest,Kirkus | This short review gets at the assumed brilliance of the players involved. David Halberstam’s account of the origins and early years of that war.  I did so, and went a step further by reading another book in tandem with it, Neil Sheehan’s A Bright Shining Lie.Wikipedia | This provides a good summary.  Halberstam won a Pulitzer for his reporting from Vietnam; Sheehan was awarded one (plus a National Book Award) for his book.

    Halberstam looks primarily at the people and policy making in Washington, while Sheehan tells the story of the Vietnam conflict itself and of John Paul Vann’s ... continues

  4. Wednesday, August 29th, 2018
    quant questions

    Quantitative investment management has been around for quite a long time.  Three decades ago, changes were often made at a monthly frequency, based upon attributes identified by leading academics and developed into strategies by new units set up at Wall Street firms.

    Today, according to Bank of America Merrill Lynch, “A seismic shift in assets and resources toward data-driven, systematic strategies and shorter-term investment strategies, which tend to rely on access to better, faster and larger stores of data is underway.”  The quant rush is definitely on.

    There are a host of questions for investors to consider, some of which are outlined below.  Most of them have been covered in extensive depth elsewhere; this, then, is not meant to be a comprehensive list of questions or a detailed analysis of any of them.  Instead, it represents what seem to be some open questions of importance, based upon where we are right now and how quantitative investing has been embraced in ... continues

  5. Tuesday, July 24th, 2018
    through the glass door

    When investigating and analyzing investment organizations, one of the hardest things to assess is “culture.”  In the workshops that I lead on due diligence and manager selection (here’s the next one:tjb research | Make sure to look at the rest of the site for related resources and services for allocators and asset managers.), we spend a fair amount of time on culture, how to analyze it, what makes for a “good” culture, etc.

    I start not with definitions from the investment world, but with general principles about culture from those who study it.  As I like to say, “Investment people are people and investment organizations are organizations.”  Certainly there are aspects of those organizations that are different from ones in other fields, but when you bring people together in groups, the same kinds of issues and behaviors appear over and over.  A grounding in the basic concepts helps in the assessment of the sustainability of an ... continues