• Most people familiar with behavioral economics will probably have heard of Daniel Kahneman and Amos Tversky. They are pillars in the field of psychology and were even the subjects of Michael Lewis’ latest best-selling book.i Somewhat lesser known, but by no means less influential, is Herbert Simon. Last week marked what would have been the late Herbert A. Simon’s 101st birthday. Simon was a pioneer in the study of decision-making among individuals and organizations, which earned him the Nobel Prize in 1978. His research is applicable to several domains including political science, psychology, and economics.

  • Caveat Emptor:
    Hedge Funds to Mutual Funds…

    June 15, 2017
    Performance Chasing, Return Expectations

    Morningstar recently publicized plans to change the way they handle the historical track records of mutual funds that have converted from a hedge fund. Currently, they display pre-mutual fund track records with two caveats: they do not include the hedge fund track record in category percentile rankings or when calculating a fund’s “star rating”. The SEC allows fund companies to market the pre-conversion history so Morningstar has included them as well. However, the research team at Morningstar recently concluded that the SEC should change its policy. Leading the way, they will remove pre-conversion track records from their database in the third quarter.

  • Expectations for small cap stocks have ebbed and flowed recently, especially since the presidential election. The Russell 2000 index is up about 16% since the end of October, but only 1.0% year-to-date through May, on a price-return basis. The number of earnings-per-share (EPS) estimate revisions has been increasing since the beginning of the year. However, the number of negative revisions has also been increasing—and there have been more of them.

  • Call it the impact of a surprisingly strong economy. Or call it the result of a pessimistic bar set too low in the first place. But don’t call the recent strength in corporate earnings expected. In aggregate, first quarter earnings growth surpassed analyst expectations at a rate rarely seen in the past 15 years, and it may even have sparked a sentiment shift on Wall Street.*

  • VIX Spikes 46% as S&P 500 Index Crashes

    May 24, 2017
    Investment Behavior, Volatility

    A week ago, doom and gloom headlines abounded as the VIX Index spiked 46% and the S&P 500 Index crashed, falling a panic-inducing 1.79%! Hopefully, my sarcasm is evident, but in case it’s not – I am being sarcastic. It is always amazing to me how recent market behavior can influence our psychology, and usually not in a positive way.