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1/ Some highlights from annual letter...
2/ 2017 was a Goldilocks period for stocks (especially) growth, with both EPS growth and multiple expansion.
2018 showed strong EPS growth, but huge multiple contraction across styles.
2018 showed strong EPS growth, but huge multiple contraction across styles.
3/ Even after the decline (which left stocks a lot cheaper), broad measures of valuation show a fairly expensive U.S. market today.
4/ But--and this is perhaps most important data point--valuation measures are useless for short-term (<3 years) predictions. They do show some relationship with forward 10-20 year real returns, but don't use value to make short term market decisions.
5/ value spreads (dispersion) are starting to widen quickly, too. So market is cheaper, and there are more really cheap stocks relative to expensive ones.
6/ Trend signals are all now signalling to be out of the market. But trend following can come with LONG periods of bad performance and should be adopted only if you are truly committed to the idea. Check @alphaarchitect @choffstein for more research on TF.
@alphaarchitect @choffstein 7/ Factors had an odd year. Decent first three quarters, followed by very bad fourth quarter. One thing dominated throughout the year: mega caps.
@alphaarchitect @choffstein 8/ It looks like value beat growth in the fourth quarter, but price-to-book didn't work, so whats up? mostly its just mega caps in value killing everything. Market cap, not valuation, dictated return.
@alphaarchitect @choffstein 9/ One great client said to me recently that quarterly performance reviews with quants can be counterproductive. This table shows why. In short periods, factors can be almost a coin toss. Over longer periods, they've tended to deliver.
10/ As for OSAM, read the end of the letter for our plans. But in the meantime, follow our new co-CIO @ChrisMeredith23.
If you have factor/market questions, let us know
If you have factor/market questions, let us know
