Saturday, August 13, 2011

Wild Swings in the Stock Market - New Research

By Zach Kouwe

Mebane Faber of Cambria Investment Mangement (and one of my clients) has a new research report out that examines some myths around buy and hold investing. It's especially prescient since Mark Cuban, owner of the Dallas Maverick, said this weekend that buy and hold investing was a "crock of shit." Cambria has a different investing philosophy than Cuban, namely a trend following quantitative approach.

In this paper, Faber takes a look at big one-day moves in the stock market, sometimes called "Black Swans." One of his conclusions is that, most of these events (both up and down) occur during times when the market is already falling. Avoiding the big swings not only helps you sleep better at night, but can give you better returns as well. Read the paper for more info.

Cambria Quantitative Research Monthly August 2011