Practical analysis for investment professionals
13 December 2017

Best of 2017: Top Stories for Investors

For this old lion value investor, 2017 was a frustrating year. It was difficult to find economic data to support the impressive liftoff in equity values. I know because I tried.

On the positive side, firms across the globe finally seem ready to invest in growing their businesses rather than in share buybacks. But I cannot get the idea out of my head that for years excess cash was invested in share buybacks. Since we are in the midst of an eight-year bull market, you cannot tell me that recent buybacks were executed with the same economics as those in 2009. Isn’t this a huge destruction of capital?

Hiring in the United States is up, but when adjusted for inflation, wages are flat to down over the last — get ready for it — 40 years! Multi-factor productivity is waning. Car loan defaults are soaring. And in my forthcoming Weekend Reads, you will see that one in three US citizens has debt that is at least six months in arrears. But equities march ever upward as if Mount Everest suddenly went flat.

Be that as it may, just like every year, 2017 featured some outstanding stories. Here are my picks for the best of 2017.

Investing

Part of this bull run — and the double entendre is intended — is due to the massive lovefest for exchange-traded funds (ETFs) that sent crazed capital charging into the markets. So what wins the gold for my story of the year in 2017? Steven Bregman’s presentation on some of the frightening eccentricities of ETFs from the 2016 Grant’s Interest Rate Observer conference. Thank you, Chris Scibelli, for sending it to me.

This perennially useful infographic shows the vast infrastructure of the United States and helps explain the country’s extensive competitive advantage.

Investment decision makers have two very big jobs: to see the world for what it is, not what they would prefer it to be; and to be decisive with that understanding. In terms of skill acquisition, the first job is actually easier, while advice on decision making usually devolves into aphorisms and hyperbole. That’s why I love this curated list of how successful business people make decisions.

Blockchain! There, enough said. Here is an ace graphic showing the effect of blockchain technology on various industries, courtesy of one of my favorite publications.

Economics

Is the combined threat of machine learning and big data getting you down? Are you worried about how you will compete with such excellent and perfect intelligence? Do not fret. Human beings are spectacular and our minds are still not well understood. But if you want to insulate yourself against obsolescence, then I recommend embracing lifelong learning.

A candidate for my story of the year and winner of the bronze is this disturbing examination of how highly talented employees are frequently denied advancement opportunities for obscure reasons. One such reason: Their supervisors prefer to keep and harvest talent to advance their own careers. Think this does not happen? I beg to differ.

Quantitative Methods

Earlier this year, I highlighted an overview of Renaissance, that most famous of quant hedge funds, and how it makes its sausage. By now, Renaissance has likely radically changed its algorithms. But this insight into their methods is far from madness.

How to ask good questions of your data is critical to gaining an understanding of what is really happening in the world. I recommend this examination of how to unlock the power of the expert opinion buried within normal datasets.

Lies, Damn Lies, and Financial Statistics” summarizes some of the leading thinking on how data is used to manipulate reported outcomes. To me, it is a must-read for those who love “factor models,” for example.

Behavioral Finance

Philip E. Tetlock and Dan Gardner’s Superforecasting: The Art and Science of Prediction is one of the more interesting books about finance and economics to come out in recent years. Many of you are familiar with it already, and if you are like me, you also want to read the primary research on which its conclusions are based. Tetlock has provided free access to some of his research. Just follow the link and click on the “Research” tab.

Way back in March I said that this piece would be a leading candidate for story of the year  The intervening months did not change that opinion. It wins my silver medal in 2017. The title says it all: “Why Facts Don’t Change Our Minds.”

Though I already emphasized the importance of lifelong learning, it is also critical to know how to unlearn things. This story makes the case: How do we unlearn anything?

Environmental, Social, and Governance (ESG)

The World Bank created standards for underwriting bond issues from the world’s poorest nations this year. Anyone who has traveled to regions where people live at subsistence level recognizes the stark reality: Capital goes much further in those locales than in the host nation. I am hopeful that this helps these poorer nations to raise much-needed capital.

Another runner-up for my story of the year describes how every time a climate disaster strikes, we all get poorer. An obvious point — but it is hard to see the cost of recent natural disasters being priced by equity markets. Apparently, the costs of these disasters are already being discounted . . . hah!

Technology

You know I am a critic of artificial intelligence (AI). Why? In part, because we are operating without a proper theory of the mind and of intelligence. In other words, we are heading down the wrong path in understanding the human brain.

The best AI story I have read was sent to me by a man who worked in that field for over 30 years. It questions the myth of a superhuman AI. The explanations of the criteria that need to be met for AI to achieve the lofty heights of natural intelligence are especially illuminating.

When Data Is Worth More Than Assets,” was another story-of-the-year contender. It’s a fascinating thought piece that jarred my normal contexts.

Fun Stuff

I love quantum physics (and Einsteinian physics, too). Rare is the scientific work that simplifies and explains these theories clearly, but this infographic succinctly describes both types of physics for the layperson.

This catalog of the worst corporate lingo sins keeps me laughing. C’mon, you know you’ve used some of this language. Finance is rife with this garbage.

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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.

About the Author(s)
Jason Voss, CFA

Jason Voss, CFA, is a content director at CFA Institute, where he 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. Jason also ran a successful blog titled What My Intuition Tells Me Now. Previously, Voss was a portfolio manager at Davis Selected Advisers, L.P., where he co-managed the Davis Appreciation and Income Fund. He 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: jason.voss@cfainstitute.org

2 thoughts on “Best of 2017: Top Stories for Investors”

  1. Excellent summarization Jason. Helped me, as I caught up on articles I missed out on due to my schedule. thanks

    1. Hello Dinesh,

      Thank you for your kind words. I am pleased that you enjoyed some of the articles I featured. Best wishes for a prosperous new year to you!

      Jason

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