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“Efficient” Markets and the Search for Alpha

“Efficient” Markets and the Search for Alpha. A discussion about the efficient market hypothesis, the financial crisis, and what they collectively tell us about the potential to create portfolio alpha

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“Efficient” Markets and the Search for Alpha

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  1. “Efficient” Markets and the Search for Alpha A discussion about the efficient market hypothesis, the financial crisis, and what they collectively tell us about the potential to create portfolio alpha A discussion of the anomalies to the efficient market hypothesis and how you can use them to add value to client portfolios A few useful quotes, Wall Street sayings and other tidbits that can make great talking points with clients

  2. “Is there anyone in this room who actually believes that Fed policy or Washington politics or quantitative easing or any of that stuff has any real impact on the financial markets?”

  3. The Random Walk (no insight gained by fundamentals or previous prices) • Time in the market, not timing the market • Markets are too efficient to be timed • Market correlations, for example equities and GDP, are inexact • Riskier assets provide additional return via a risk premium • Markets largely move independently from macroeconomic factors The Efficient Market Hypothesis

  4. Time in the Market instead of Timing the Market

  5. Sadly, the investor experience is decidedly NOT Logarithmic

  6. The Random Walk and the Imperfect Correlation of Markets and Market Influences

  7. The Impact of the 8/11/11 Introduction of “Operation Twist” on the Stock/Bond Relationship

  8. The stock/bond relationship-an inconsistent hedge

  9. . Hurricane Sandy, the SOMA Portfolio and QE

  10. The Impact of Macro-economics on R-Squared

  11. QE Contagion?

  12. While Markets Are Reasonably Efficient, Investors are Not

  13. While Markets Are Reasonably Efficient, Investors are Not

  14. The Risk Premium? ($SPX/SPLV)

  15. Anomalies

  16. Anomalies

  17. Anomalies

  18. Anomalies

  19. Anomalies

  20. Anomalies

  21. Anomalies

  22. Anomalies

  23. Anomalies

  24. Anomalies

  25. Anomalies

  26. Crisis… Risk & Opportunity

  27. “A gold mine is simply a hole in the ground surrounded by liars.” -Mark Twain

  28. “Bull markets are born in despair, grow on pessimism, mature on optimism, and die in euphoria.” - Sir John Templeton

  29. “Buy when there’s blood in the streets.” - Baron Rothschild “…but wait awhile if it is more than ankle deep… or if it is your own blood.” -Unknown

  30. Ask five economists and you'll get five different answers - six if one went to Harvard. -Edgar R. FiedlerHe who lives by the crystal ball soon learns to eat ground glass. -Edgar R. Fiedler

  31. “Capital markets without losses are like religion without hell.” -Daniel Mitchell of the CATO Institute

  32. “In the land of the blind, the one-eyed man is king.” -Desiderius Erasmus

  33. The Lunching Government Economist

  34. "Remember the First Law of Economics: For every economist, there is an equal and opposite economist--so for every bullish economist, there is a bearish one. The Second Law of Economics: They are both likely to be wrong."  ---William A. Sherden

  35. "We have two classes of forecasters: Those who don't know--and those who don't know they don't know."  ---John Kenneth Galbraith

  36. “The four most dangerous words in investing are 'This time it's different.’” - Sir John Templeton

  37. “History does not repeat itself, but it oftentimes rhymes” -Mark Twain

  38. “The markets can remain irrational longer than most investors can remain solvent.” - John Maynard Keynes

  39. “Only when the tide goes out do you discover who's been swimming naked.” -Warren Buffett

  40. “If you want to know what is happening in the market, ask the market” -Japanese Proverb

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