Hot Features
Premium
Trade like a pro: Leverage real-time discussions and market-moving ideas to outperform.
Make yourself aware of the remarkable findings in academic papers that test whether the stock market can be beaten. On the whole, they conclude that it is very difficult to out-smart the markets (that is, doing better than just buying a broad spread of investments and going to sleep for a decade or two). However, there are some nuggets of gold hidden in the academic jargon and maze of statistics. The findings provide rigorously derived corroborative evidence of what many great investors have been telling us for decades, and, in some cases take things a little further.
Historical studies of share returns using millions of pieces of data have shown what academics call “anomalies” – patterns of returns which do not fit the paradigm of stock market pricing efficiency. I call the most convincing of these anomalies “stock market inefficiencies”. They present opportunities to follow rules to short-list companies that may set you on the road to out-performance – if the historical inefficiency continues. In many cases the pattern seen in the data does disappear and so it is a fool’s errand to continue investing that way. In other cases, the mispricing is caused by decision-making flaws deep in the human psyche that are difficult to escape (the field of behavioural finance helps us here). When these psychological issues are widespread the investor has more reason to believe that the anomaly will persist.
But short-listing shares this way is not the same as buying them for a portfolio. The collection that meets the criteria has then to be subject to crucial qualitative tests, including business prospects, managerial competence and integrity and stability tests.
One example: Benjamin Graham discovered……………
………………To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
