Oyster Success in a Low-Return World

Using Risk Management and Behavioral Finance to Achieve Market Outperformance
1. Auflage 2018
ISBN: 978-3-319-99855-8
Verlag: Springer International Publishing
Format: PDF
Kopierschutz: 1 - PDF Watermark

E-Book, Englisch, 278 Seiten

Reihe: Progress in Mathematics

Following the Great Financial Crisis, the S&P 500 advanced more than 17 percent annualized from February 2009 through June 2018. At this pace, a buy-and-hold investor in the stock market would see their money double in 5 years and more than triple in 7 years. This performance has lulled many investors into thinking that such above-average returns will be with us into perpetuity. Unfortunately, this may not be the case. Far more likely, the return an investor may receive from the stock market will be slightly better than half the long-term average, about 5% to 7%. Most investment portfolios hold a greater allocation to stocks than any other class of investment asset. Massive amounts of wealth were created from the bull market since early 2009 providing institutions and individuals with a rising tide that lifted their portfolios above their goals without much effort. The environment of the future stands to be far less accommodating, so finding suitable investments (other than U.S. stocks) that can achieve the necessary returns (or make up the shortfall) will be a critical component of achieving goals in years to come. This book will explore those solutions.


Michael J. Oyster, CFA, CAIA is an investment strategist, researcher and creator of the Options Income Index. He began his professional investment career in 1994 with options advisory firm Schaeffer's Investment Research. As Schaeffer's senior quantitative analyst, he conducted detailed analysis of options and volatility metrics while managing product offerings including an S&P 500 Index options spread strategy. Upon joining Fund Evaluation Group, LLC (FEG) in 1999, Michael began researching traditional, hedge fund and options-based investment strategies as well as conducting and publishing independent research. As FEG's Chief Investment Strategist, he served as a thought leader and frequent presenter on markets and the economy. His first book, Mission Possible, was published in 2005, and he was twice commissioned by the Chicago Board Options Exchange (Cboe) to conduct research on and provide summary analysis regarding suites of their proprietary options indexes. He serves as a board member on the Freestore Foodbank Foundation and on the Lincoln W. Pavey Educational Foundation.

Autoren/Hrsg.

Oyster, Michael J.

Inhaltsverzeichnis

1;Dedication;5
2;Preface;6
3;Acknowledgments;9
4;Contents;11
5;List of Figures;16
6;List of Tables;18
7;Part I: Challenges in Investing;19
7.1;1: The Future Isn’t What It Used to Be;20
7.1.1;Stock Market Performance Building Blocks;21
7.1.2;P/E Ratios and the Bull Market of the 1990s;23
7.1.3;Future Returns;28
7.2;2: An Obsolete Fundamental Philosophy;32
7.2.1;Mutual Funds Have Disappointed;33
7.2.2;Equity Mutual Funds;34
7.2.3;Stock Picking;35
7.2.4;The Bottom Line: Market Efficiency;38
7.3;3: As a Group, Professional Investors Are the Market;40
7.3.1;Just Because Everybody Else Is Doing It;41
7.3.2;Mutual Fund Industry Growth Hurts Investors;43
7.4;4: The Specifics of Market Efficiency;47
7.4.1;What the Research Says About Efficiency;47
7.4.2;Weak Form EMH;49
7.4.3;The Semi-Strong Form EMH;50
7.4.4;The Strong Form EMH;52
7.4.5;A Surprising Quote from Benjamin Graham;53
7.5;5: Fund Manager Fees;57
7.5.1;How Fees Combined with Behavioral Errors Can Impact Returns;59
7.5.2;Hedge Fund Fees;61
7.6;6: To Err Is to Be Human. To Make a Behavioral Error Is to Be a Human Investor;64
7.6.1;Too Much Information (TMI);65
7.6.2;Not Enough Meaning;66
7.6.3;Need to Act Fast;67
7.6.4;What Should We Remember?;68
7.6.5;Behavioral Finance;68
7.6.6;Anchoring and Overconfidence;70
7.6.7;Illusion of Control;71
7.6.8;Gambler’s Fallacy;72
7.6.9;In-Group Favoritism and FOMO;73
7.6.10;Agency Friction;74
7.6.11;Prospect Theory;75
7.6.12;Conclusion;76
7.7;7: How Regulations Impact Investment Managers;78
7.7.1;The Volcker Rule;79
7.7.2;Regulations and the Stock Picker;81
7.7.2.1;The Impact of 2002;81
7.7.2.2;Enron;82
7.7.2.3;The Sarbanes-Oxley Act;84
7.7.2.4;WorldCom;85
7.7.2.5;The Fallout for Securities Analysts;88
7.7.2.6;Regulation FD;89
7.7.3;Conclusion;91
7.8;8: Performance Doesn’t Tell the Whole Story;92
7.8.1;Skill or Luck?;94
7.8.1.1;Equity Styles;95
7.8.1.2;Tracking Error;97
7.8.1.3;The Variables Behind Past Performance;98
7.8.1.3.1;Changes in the Manager’s Philosophy;98
7.8.1.3.2;Cash Inflows;99
7.8.1.3.3;Personnel Turnover;99
7.8.1.3.4;Business Decisions Above Investment Decisions;99
7.8.1.4;New Products;100
7.8.1.5;Who Outperforms the Benchmark?;100
8;Part II;102
8.1;9: Intuition;104
8.1.1;The Role of Trust;105
8.1.2;Intuition Defined;106
8.1.3;Intuition Versus Instinct;107
8.1.4;Red Flags and Green Lights;108
8.1.5;Suggestions to Consider Practicing;109
8.1.6;The Evolvement of Intuition;112
8.1.7;Mathematical Viewpoint;113
8.1.8;Psychological Analysis;114
8.1.9;Personality Typing: Myers-Briggs Take on Jung;114
8.1.10;Additional Research;118
8.1.11;Using Intuition in Decision Making;121
8.1.12;Final Five Take-aways;122
8.1.13;Conclusion;123
8.2;10: Focus on Asset Allocation;124
8.2.1;Asset Allocation and Portfolio Construction Philosophies;129
8.2.2;The Endowment or Yale Model;129
8.2.3;The Norway Model;130
8.2.4;The Factor or Canada Model;131
8.2.5;Manager-Centric or MIT Model;132
8.2.6;Conclusion;134
8.3;11: Indexing;136
8.3.1;Skill or Luck?;138
8.3.1.1;An Alternative to Active Management: Indexing;139
8.3.1.2;Types of Indexed Securities;141
8.3.2;The Future for ETFs;143
8.3.2.1;A Fundamental Truth of Investing;144
8.4;12: Active Share and Private Equity;147
8.4.1;Active Share;148
8.4.2;Private Equity;153
8.4.3;Conclusion;160
8.5;13: Momentum;162
8.5.1;Background, the Evolution of Momentum;163
8.5.2;Evidence of Momentum;165
8.5.3;A Basis in Behavior;166
8.5.4;Applying Momentum;167
8.5.5;Independent Research;168
8.5.6;Conclusion;171
8.6;14: Smart Beta;174
8.6.1;Fundamental Indexing;175
8.6.2;The Beginning of the Arnott/Asness Rivalry;177
8.6.3;Factor-Based;179
8.6.4;Factor Timing;182
8.6.5;Has/Will Smart Beta Survive Discovery?;184
8.6.6;Conclusion;185
8.7;15: Risk Management;187
8.7.1;Risk, the Only Path to Outperformance;190
8.7.2;Mean-Variance Optimization;190
8.7.3;It’s All About Equity Risk;192
8.7.4;If Equity Risk Is the Problem, Let’s Hedge It Out, Right?;194
8.7.5;Costless Collar;197
8.7.6;Conclusion;200
8.8;16: Buy-Write;202
8.8.1;An Alternative: Buy-Write;202
8.8.2;An Example: One Hundred Shares of Procter & Gamble;205
8.8.3;Stock Versus Index Options;207
8.8.4;The Vehicles Exist;208
8.8.5;A Strategy That’s Malleable;212
8.8.6;The Impact of Falling Rates;212
8.8.7;Bonds;213
8.8.8;Diversification in Bonds;214
8.8.9;Stock-Like or Bond-Like?;215
8.8.10;Buy-Writing as a Stock-Like Strategy;215
8.8.11;Buy-Writing as a Bond-Like Strategy;218
8.8.12;Structuring Buy-Write Correctly;221
8.8.13;The Downside;223
8.8.14;Conclusion;223
8.9;17: Put Selling;225
8.9.1;Put-Call Parity;227
8.9.2;Delta Hedging;231
8.9.3;Selling Puts for Rebalancing Purposes;232
8.9.4;Conclusion;234
8.10;18: The Options Income Index;235
8.10.1;Introduction;235
8.10.2;Questions Lead to Answers;237
8.10.3;What About Weeklys?;241
8.10.4;Questions Answered, Now Construction;246
8.10.5;What Can Go Wrong? A Case Study from 2008;246
8.10.6;Performance of the OICX;249
8.10.7;Conclusion;253
8.11;19: Portable Alpha;255
8.11.1;Leverage;257
8.11.2;The Costs;258
8.11.3;The Cost of Carry;258
8.11.4;Creative Portable Alpha;259
8.11.5;Portable Alpha with Less Liquid Alphas;261
8.11.6;Swaps;261
8.11.7;Factor Portable Alpha;262
8.11.8;Volatility-Based Strategies;264
8.11.9;Portable Alpha Using Volatility;266
8.11.10;Conclusion;267
8.12;20: Epilogue;268
9;Index;272