Introducing my new blog

Greetings fellow investors. I’m starting a new blog about investing. I’m a finance professor at the Ivey Business School at Western University, in Canada, where I’ve been teaching finance and investments, and researching about stocks and investing for over thirty years. I have a PhD in finance from the University of Pennsylvania’s Wharton School, and I have a Chartered Financial Analyst designation. I’ve served on foundations, endowments, and pension boards; I have a consulting company; and I’ve provided expert witness testimony about investments, in federal court.

Most recently, I’ve co-authored (with Andrew Lo at MIT) In…

Among today’s investors, there’s a huge misalignment between wishful thinking and evidence-based expected returns

Photo by Bruno Figueiredo on Unsplash

One of my favorite investment cartoons features a financial advisor and his client huddled around a computer monitor. With a grin on his face, the advisor is saying to his client, “Now let’s see what your portfolio looks like when we factor in you winning the lottery…” While this may seem like an extreme case of wishful thinking, less extreme cases happen all the time: investors often inflate expectations for the return on their investments. We’re currently seeing a huge gap between hope and reality. …

Are markets truly efficient, or can technical analysis reveal secrets? The answer depends on what you believe.

Elephant photo by Archie Fantom on Unsplash. Donkey photo by Nick Fewings on Unsplash.

When I recently came across a chart in a Wall Street Journal article I had a strong sense of déjà vu. While I may not be able to remember what chores I had agreed to do earlier in the day, I knew I had seen a similar chart in a book I read 40 years ago. When I pulled the book off my office shelf, there it was, in the “new and revised fifth edition” of a classic investment book originally published in 1948 (and as I found out later, now in its eleventh edition). The book was Technical Analysis…

Don’t Play to Win — Play to Not Lose

Photo by Renith R on Unsplash

Here are two quick trivia question for you (10 points for one correct answer, 100 points for getting both correct, and 1,000 points if you can connect the two). Who wrote these best-sellers:

(1) Extraordinary Tennis for the Ordinary Player.
(2) Winning the Loser’s Game.

The answers are Simon (Si) Ramo and Charles (Charley) Ellis, respectively. Ramo was the co-founder of a major aerospace company and oldest person to receive a patent. Ellis was the founder of a major financial services consulting company, and was dubbed by Money magazine as the Wisest Man on Wall Street. As we describe in…

An increase of only 0.50 percent in rates could send stocks down by 20 percent or more

Photo by Ussama Azam on Unsplash

In 1994, the Federal Reserve, led by its chairman Alan Greenspan, surprised markets by aggressively hiking interest rates five times, from 3.00 percent to 5.5 percent. After three consecutive years of rising stock prices, the S&P 500 index was down by 1.5 percent for the year. There were also unintended consequences related to the rate hikes, such as Orange County losing $1.5 billion on leveraged interest-sensitive derivatives contract. Fast forward to 2021: Why did markets recently have one of their worst weeks in nearly eight months in reaction to the Fed signaling it might raise rates in late-2022? I’ll use…

Buying stock of publicly traded companies that own bitcoin is an indirect — but not necessarily rewarding — way to invest in crypto

Photo by Executium on Unsplash

Bitcoin has been in the news in the past week on several different fronts. El Salvador, which doesn’t have its own currency, became the first country to make bitcoin legal tender for all debts. MicroStrategy Inc., a provider of analytics software and services — the public company that owns the most bitcoins and whose CEO, Michael Saylor, is encouraging other firms to hold bitcoins within their treasury departments — doubled-down by issuing $500 million in debt in order to buy more bitcoins. And bitcoin prices got a boost from a tweet by (who else?) Elon Musk, who indicated that Tesla…

6 original charts that show returns, risk, trading volume, short-interest, and outlook for meme stocks versus FAANG stocks

Photos by Bill Jelen on Unsplash and by NASA on Unsplash

The stock prices of GameStop Corp. (GME) and AMC Entertainment Holdings, Inc. (AMC) continue on their wild rides in 2021. This year AMC is up over 2,600 percent percent and GME is up over 1,500 percent. They are two of the so-called meme stocks along with, Bed Bath & Beyond, Blackberry, Sundial Growers, and others. Can the ascent of these meme stocks continue to the moon or will short-sellers like hedge funds prevail and send prices crashing back to earth? We’ve seen fights like this before, particularly during the dot-com era. I’ll explain what meme stocks are and examine the…

It matters how we think about risk and return

Photo by Klim Musalimov on Unsplash

Today, during the National Hockey League (NHL) playoffs, I get to write about two of my favorite topics: investing and hockey (ice hockey, of course — as a stereotypical Canadian who’s skated on frozen ponds and backyard rinks since the age of four, could I be talking about any other kind?). One specific aspect of hockey holds valuable lessons for investors: the exciting time late in a game when the coach of the team that’s behind in the score replaces the goalie with an extra attacker.

I’ll summarize and add my thoughts to a provocative and popular paper by Cliff…

What the renowned scientist’s 18th-century market misadventures can teach us about the crypto markets today

“Isaac Newton” by paukrus is licensed under CC BY-SA 2.0. Photo by Clay Banks on Unsplash.

When you think of Sir Isaac Newton, what comes to mind? For me, it’s an image of him sitting under an apple tree, being hit in the head by falling fruit and suddenly coming up with the law of gravity. (I did some fact-checking and found that the concept of gravitation did come to Newton’s mind when apples occasionally fell as he sat under an apple tree, while in a contemplative mood, and that famous apple tree still grows at his childhood home, Woolsthrope Manor near Grantham, England — but there’s no evidence suggesting an apple actually hit him on…

Like the weather, the outlook can change quickly

Is that a lightning bolt, or last weeek’s bitcoin price chart? (Photo by Brandon Morgan on Unsplash)

I recently wrote about bitcoin’s risk and return. One of the take-aways was: “Bitcoin offers over-sized risks for the potential returns, with volatility that is orders of magnitude greater than with traditional investments.” Two weeks later — an eternity in crypto-investing — we can see that the volatility is there. Writing about bitcoin is like writing about the weather in an ever-changing climate — you can start writing about the thunderstorms and when you think you are done, the sun comes out, so depending on when you are reading this, the weather may have changed. …

Stephen Foerster

I’m a Finance prof, CFA, and author of In Pursuit of the Perfect Portfolio (with Andrew Lo). I write stories about investing. (I don’t give financial advice.)

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