Fundamental to portfolio construction is uncovering the goals and preferences of the investor - which is a lot easier said than done. This week, Fodder kicks off with Berkeley economist, Professor Shachar Kariv, on the science of uncovering investors' true preferences (vs their stated preferences, which are often wildly different). Harvard's Prof Hausmann then argues that emerging market bond funds should make people morally queasy. Bob Huebscher recaps the recent debate between Wharton's Jeremy Siegel and Yale's Robert Shiller about the outlook for equity returns. Rob Arnott argues that momentum and value are cheap, but low beta is well overpriced. And we finish with a white paper by AB on low vol investing in Australian Equities which makes a very helpful intro to the topic for your colleagues and clients.
All the best for another week's continuing education - Graham
P.S. Mark Your Diary! Professor Shachar Kariv will be in Australia to present at an IMCA Seminar on 11 July (Sydney) and 12 July (Melbourne).

QUOTE OF THE WEEK...

F.A.I.L. First attempt in learning

LATEST...

Finology
Revealing a client's true preferences
Game theory, econometrics and distributed computing power can reveal a client's true preferences for risk, loss, uncertainty, time and goals – with scientific precision and in terms that clients can understand.
Shachar Kariv, University of California, Berkeley | 0.50 CE | Opinion

Investing
The Hunger Bonds
Investing often creates moral dilemmas over goals. Should decent people put their money in emerging-market bond funds?
Ricardo Hausmann, Harvard Kennedy School | Opinion

Markets
Siegel v Shiller on equity valuations
Wharton's Jeremy Siegel and Yale's Robert Shiller squared off in a recent presentation about the outlook for equity returns.
Robert Huebscher, Advisor Perspectives | Opinion

Markets | Investing
Beware expensive factors
Investors should keep a close eye on relative valuations. Recent data suggests that momentum and value are trading cheaply in many markets, with low beta substantially over-priced.
Rob Arnott, Research Affiliates | Opinion

Strategies | Investing
The upside of less downside - how defence can win in Au equities
When equity markets fall - as they frequently do - the financial and emotional impacts can be lasting. By focusing on reducing downside, investors can have a smoother ride and still achieve the returns they seek.
Roy Maslen & Hamish Fitzsimons, AB Global | White Paper

Ratings uncertainty
...It is somewhat easier to assess the risk of companies where a given set of variables is known with some certainty...
Chris Farley, Farley Financial | Comment

Populism
This is nothing new... Democracies do not always elect the best or most suitable people, but they always represent the view of the majority.
Peter Hecht | Comment

Not always the majority
...By definition, Trump does not represent the view of the majority of US voters. He represents the views of the 46% who voted for him...
Deirdre Keown, PortfolioConstruction Forum | Comment

RECENTLY...

Markets
The dramatic decline of risk - part 3 - Financial market risks
Overall stock market risk has declined modestly in the last 80 years, but the nature of risk has changed greatly. The risk stemming from market mistakes and, possibly, from irrationality has risen significantly.
Dr Woody Brock, SED | White Paper

Investing
What the ratings agencies are really good at
After the ratings failures of CDOs and other complex instruments in the GFC, many dismiss the work of the ratings agencies. But far from being hopeless, they do a wonderful job of assessing companies.
Tim Farrelly, farrelly's | 1 comment | Opinion

Markets | Investing
The worry about indexing is overblown
The number of indexes has exploded and now exceeds the number of stocks in the US. But overall, the US stock market is still dominated by active management. And 96% of index products are of insignificant size.
Urban Carmel, The Fat Pitch | Opinion

Markets
Rethinking the Next China
China is upping the ante on its connection to an increasingly integrated world, running against the grain of the populist anti-globalisation backlash that is brewing in many developed countries.
Stephen Roach, Yale University | Opinion

Markets | Investing
Populist discontent spells danger for markets
Governments must find a way to reconcile open markets with more evenly distributed income growth, or globalisation may reverse with dire implications for risk assets.
Jeremy Lawson, Standard Life Investments | 0.50 CE | 2 comments | Resources

The winds of change are stronger than you think: Q+A
Without more transparency in terms of the form protectionism might take, it is difficult to pinpoint specific sectors or stocks that would benefit from such an environment...
Ron Temple, Lazard Asset Management | Comment

Go Short!
1. The US is not a good proxy for the rest of the world. 2. Shorting is a fundamentally difficult strategy. Even if an asset is massively overvalued - and US equities are not - shorting is dangerous...
Tim Farrelly, farrelly's | Comment

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