Top Five Articles from July: Forward P/E, Active Management, Ariely

1. Dumb Alpha: Trailing or Forward Earnings?

In the spirit of dumb alpha, Joachim Klement, CFA, writes, we can say that simple trailing P/E ratios are far better value indicators than forward P/E ratios. Or as I tell my colleagues at work: Never ever use forward P/E ratios. Ever.

2. Reduced Viability? Banks, Insurance Companies, and Low Interest Rates

In the current low-rate environment, there is reason to wonder about the viability of banks, insurance companies, and indeed any institution that generally depends on the spread between long- and short-dated liabilities for its profits, says David Schawel, CFA.

3. Is Active Management Dead? Not Even Close

Rumors of active management’s demise are greatly exaggerated, AthenaInvest’s C. Thomas Howard tells Jason Voss, CFA. Howard presents evidence to back up his case and discusses tools to help change active management for the better.

4. The Vagaries of Using CAPE to Forecast Returns

Historically the CAPE ratio has worked well in predicting the future real returns of stock markets. But recently the earnings side of the CAPE ratio has come under increased scrutiny, Joachim Klement, CFA, observes.

5. Dan Ariely on the Power of Irrational Thinking

“Thinking about opportunity cost is necessary to thinking well about money, but it’s just not humanly possible,” states Dan Ariely. Matthew Borin shares this and other insights from Ariely’s recent Take 15 interview with Will Ortel.

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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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