Cullen Roche: Pragmatic Capitalism

Share the post "Let’s Talk About the VIX (Again)"I’m getting a lot of questions these days about the low volatility we’re seeing in the stock market. So, step into my office and crack open an ice cold Bud Light. Just kidding, I don’t give people Bud Light in my office. I give them Coors Light.¹ Anyhow, a few years back I said that the VIX doesn’t really tell us much. Barry Ritholtz recently wrote a good piece on Bloomberg saying the same thing. But maybe there’s something to learn here so...

Share the post "QE, Stock Buybacks and Other Stuff"Did QE work?  That remains one of the most common questions in finance and economics. My answer is simple – it depends! I know, that’s not a super helpful answer, but hang around and let me explain in more detail.I want to use a simple analogy to analyze how QE works and whether it actually works. I’ve done this in the past, but I think it’s clearer in my mind now so hang in there. So, QE is a basic asset swap. We all know that by now. The...

Share the post "Let’s Talk About Expert Predictions"Come into my office ladies and gentleman. We need to have a discussion about a growing problem in the investment world – guru worship & putting expert predictions in perspective.Investing is hard. Really hard. In fact, the overwhelming majority of professionals and amateurs are bad at it. That’s why indexing is growing so fast. So it’s only natural to hang your hat on the expertise of gurus. This makes sense. There’s nothing wrong with...

Share the post "Getting What You Need vs What You Want"I’m still hung up on the fiduciary standard because, according to my inbox, this is actually a controversial topic. So, let’s try this again.If I had to summarize the fiduciary problem in finance it would be this:Too many finance professionals sell people what they want rather than selling people what they need.When you walk into the doctors office you have certain expectations. You expect that the doctor will fix you by doing certain...

Share the post "Being a Fiduciary, Part Deux"Here’s Matt Levine on the Morgan Stanley decision that I wrote about yesterday:This is exactly right. Matt is just describing the world as it is today. Which is really the crux of the whole debate about the fiduciary rule. But that world is changing in large part because the salesman are forcing the stores to change. So, to elaborate on Matt’s analogy – the brokerage firms are like malls. Malls earn a profit by charging companies to sell their...

Share the post "Can you be a Fiduciary Without the Best Low Cost Options?"Here’s some blockbuster news from AdvisorHub:Wow. A brokerage firm purges the largest low cost fund manager on Earth from their platform. That’s amazing. This is like the food court in your local mall purging pizza.  Which is a pretty good analogy for what a brokerage firm is these days.The big brokerage firms have armies of employees who work the food court. They provide access to the various vendors and advise the...

Share the post "Can You Pick the Best Factors?"In the footnotes of my last post on factor investing I asked if I was being too skeptical:Maybe I’ve read too much Carl Sagan who once said:“If we are not able to ask skeptical questions, to interrogate those who tell us that something is true, to be skeptical of those in authority, then, we are up for grabs for the next charlatan (political or religious) who comes ambling along.”This is a very stupid comment. There is no such thing as reading...

Share the post "It’s Always Different This Time – Sports Edition"Although I live in Southern California I will always be a Washington sports fan. I didn’t forget where I came from after all. But even though I reside in the sunny skies of SoCal I am tormented all year by the storms that accompany every Washington sports team. This is especially true of the Nationals and Capitals who have dominated regular season play in recent years and have been colossally consistent choke artists in the...

Share the post "Factor Investing – Tilting at Windmills"(I hope you have your big boy pants on today because I am about to unleash another beat down on factor investing. I apologize in advance to all my colleagues in finance who love factor investing so much.)Factor investing is all the rage these days. If you don’t know what it is, stop being such a loser and get with the times.¹ Factor investing involves allocating your portfolio to certain “factors” that have been shown to generate excess...

Share the post "Why Deviating From Global Bond Weighting is Smart Indexing"When it comes to equity indexing I am a huge fan of trying to replicate something pretty close to global cap weighting. There are mountains of evidence showing that anything other than this is a recipe for poor performance.  But when it comes to bonds the story is very different. In fact, more active bond managers do significantly better than their equity counterparts when compared to their benchmarks. PIMCO went into...