Monday, May 21, 2012

Investment Theory is Bunk

So I'm in the middle of grinding out the CPE for renewing a couple licenses. Fortunately, they're pretty much the same, so I can do investment theory twice. Could do it in my sleep, now. Risk versus return, right?
OK, let's go calculate some expected values based on Beta, the sacred ratio of a stocks volatility to the market! Alas, maybe not. Seems that since, oh, about forever, the way to make money is invest in companies that make money. Who knew? Haugen & Harris. They documented in 1972 that more stable stocks performed better. Then Haugen showed that it held in 1970-1990. Now, they've shown it for 1991-2010. So, how has portfolio theory reacted?
Yes, you're shocked. But now that you've peeled yourselves off the floor from the realization that all the investment professionals are trained in utter bull, is this an opportunity? Heck, yes. Like in more important endeavors, it's just a matter of finding what the herd ignores.
I'll be needing those eyebrows back. And kids: a warning about what happens if you mention Hittites on the internet: If Henny Youngman were a pelecypod amellibranch, he’d be you. (By the way, Phra the Phoenician says “hello”!)

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