Practical analysis for investment professionals
21 April 2017

Weekend Reads for Investors: Tread Water Edition

Posted In: Weekend Reads

Global markets seem stuck in neutral with neither enthusiastic buyers nor sellers having the upper hand.

Put another way, there is a tension in capital markets.

Some believe that corporate earnings are set to soar and justify rich valuations, or that new technologies like artificial intelligence (AI) will probably lead to economic efficiencies. Others point to increased geopolitical tensions, forthcoming populist-influenced elections in Europe, Brexit, and the likely rise in interest rates as reasons to be a bit less sanguine. In other words, investors are treading water.

I have a hard time identifying the huge “buy” case for assets. Are we nearer to the bottom of equity valuations? Is an increase in interest rates good for fixed-income portfolios? Is geopolitical tension fully discounted in corporate operating strategies? I would love to hear the buy case if any of you have some insight.

Regardless, I think I still have a good ear for interesting and important investing stories. So read on.


If an asset trades on an exchange and there is liquidity, chances are that any mispricing of securities will lead to rapid arbitrage and profit for high-frequency traders, right? Wrong. Many high-frequency trading (HFT) shops are closing their doors. (Enterprising Investor, Financial Times)

Those of you who have followed my work on Enterprising Investor know that I believe in active management in concept, though not so much in execution. See, for example, my ongoing series The Active Equity Renaissance, co-authored with C. Thomas Howard, or Alpha Wounds. (Enterprising Investor)

Why am I an ardent supporter of active management? First, I know what it takes to be a successful active manager, and I know that most of what I did as one is not discussed in popular or academic finance. Second, if you believe individual businesses can outperform their competition and create value for their creditors and shareholders, then you believe human beings can identify opportunities and execute on them. Consequently, you believe human beings can observe and identify businesses that have opportunities to outperform. If you believe these are reasonable assumptions, then you believe in active management in theory, if not in execution. Howard and I are not the only ones who believe in active management: The storied active management firm Capital Group is starting to take on passive investors. (Financial Times)


I did not know quite how to categorize this disturbing story — behavioral finance or economics — about how highly talented employees are frequently denied opportunities for advancement for many obscure reasons. One such reason: Their supervisors like to keep and harvest talent for their own career advancement. Think this does not happen? I beg to differ. (Wall Street Journal)

I am a critic of gross domestic product (GDP) as a measure of economic growth. Why? Because GDP does not gauge improvements in efficiencies, which are what economics is about. Instead, it measures growth in output. This excellent podcast discusses this, as well as the unintended consequences of emphasizing output over efficiency in how we measure economics. (Bloomberg)

Behavioral Finance

Normally this category is full of interesting stories. However, the only one that really caught my attention the last month was this piece about “How to Learn New Things as an Adult.” Thanks to my colleague, Lauren Foster, for recommending it to me. (The Atlantic)

Quantitative Methods

Speaking of colleagues, this next piece was sent to me by an old portfolio management friend, Keith Sabol, CFA, who is multi-talented and whose skills are seeking a new home. I can vouch for him on nearly every level. Want some proof? He sent me this compelling proposal about replacing modern portfolio theory (MPT). It is called “Epsilon Theory.” (Salient Partners)

We in finance are often not as fluent in statistics as our gushing love for them would suggest: “What If Breakeven Inflation and the ‘Term Premium’ Are Measuring the Same Thing?” One common error in judgment is sell-side research that shows two time series next to one another, from which we’re supposed to infer some significant and mystical relationship between them. You know the punchline, right? That’s right, there are no rudimentary descriptive statistics, such as r-squared, to even begin to assess the quality of the relationship. If you want more information on this, check out my piece, “An R-Squared Chart Taxonomy: Seeing Is Not Believing.” (Financial Times, Enterprising Investor)

While we are on the subject of the poor use of statistics, “Lies, Damn Lies, and Financial Statistics” summarizes some of the leading thinking on it. This is a must read for those who love, for example, “factor models.” (Bloomberg)

A fascinating map from several years ago shows that the United States is really 11 separate nations, each with its own culture. Understanding these different cultures goes a long way in explaining the 2016 presidential election. Thanks to a former colleague, Jan Squires, CFA, for this piece. (Business Insider)

Environment, Social, and Governance (ESG)

I began my career as an exploration and production analyst. For decades, the “peak oil” conversation has been a mainstay — if not in board rooms, then in barrooms. By definition, accessing finite resources does eventually lead to their full use. So some big oil companies are beginning to replace oil rigs with wind turbines. (Bloomberg)

On the governance front, a fake $3.6 trillion deal eluded any vetting by the US Securities and Exchange Commission (SEC). I have no insight into the quality of the examiners there, but I do believe that the SEC is chronically underfunded, with likely consequences on securities regulation in the United States. (Bloomberg, Enterprising Investor)

Fun Stuff

I assure you that I had lots of fun in the last month even though there is only one story in this category: a fascinating look into how the art of paper-cutting inspired the creation of a self-charging device that pulls energy from the environment. Can you say portable smart device charger? (R&D Magazine)

Music I listened to that inspired this article: In One Peace, Richie Havens, Buddy Holly, Cabaret Voltaire, The Roots, Pandit Chandrashekhar, the Beatles, Maceo Parker, and the Human League.

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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.

Image credit: ©Getty Images/ Animish Limaye / EyeEm

About the Author(s)
Jason Voss, CFA

Jason Voss, CFA, tirelessly focuses on improving the ability of investors to better serve end clients. He is the author of the Foreword Reviews Business Book of the Year Finalist, The Intuitive Investor and the CEO of Active Investment Management (AIM) Consulting. Voss also sub-contracts for the well known firm, Focus Consulting Group. Previously, he was a portfolio manager at Davis Selected Advisers, L.P., where he co-managed the Davis Appreciation and Income Fund to noteworthy returns. Voss holds a BA in economics and an MBA in finance and accounting from the University of Colorado.

Ethics Statement

My statement of ethics is very simple, really: I treat others as I would like to be treated. In my opinion, all systems of ethics distill to this simple statement. If you believe I have deviated from this standard, I would love to hear from you: [email protected]

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