
A Distracted Walk with Fundamental Analysis - theocs
https://portfolio.construction/blog/2019/02/a-distracted-walk-with-fundamental-analysis
======
throwawaymath
The “article” is trying to do a basic refutation of the efficient market
hyppthesis (EMH), but there’s really not much meat here. In fact this looks
like pretty weak content marketing in order to sell a product (and the tone is
little ranty - Eugene Fama is just “someone in academia”???). The author’s
argument is that the EMH doesn’t really work because we can’t assume
information spreads instantly - which is true, okay sure, but that’s actually
not a core claim Fama postulated in the EMH.

While we’re at it, what’s the point of quantifying your pedagogy using the
mathematical formalisms if you don’t explain any of the variables? More
importantly none of the conclusions are rigorously defended, which is suspect
since there are half-baked attempts at quantifying the ideas. The author
presents an under-specified equation and then basically sums up his argument
by saying, “well this seems like a stretch, because everyone wouldn’t receive
the same information and act simultaneously, right?”

But that’s not what the EMH postulates! Informational efficiency does not
require simultaneity. Either the author doesn’t actually understand the EMH or
isn’t attempting to refute it in good faith. Even if the model doesn’t
perfectly map real world markets, it’s not so simple than you can just
rhetorically debunk it like this.

I think this[1] is a much more substantive and nuanced article on the same
topic. It was coauthored by Cliff Asness, who has the following
qualifications:

1\. He has a PhD in finance/economics from the University of Chicago. His
dissertation was focused on value momentum.

2\. His advisor was Eugene Fama himself. He’s famously disagreed with (or at
least critiqued) his mentor’s work.

3\. He founded AQR Capital Management, one of the most successful hedge funds
in the world. As can be expected, he’s now a billionaire.

4\. He still regularly publishes research and hosts a commentary blog in which
he critiques the research of others.

Asness obviously doesn’t believe in the EMH, but his take is much more
balanced than an outright refutation.

_________________________

1\.
[https://www.aqr.com/-/media/AQR/Documents/Insights/Journal-A...](https://www.aqr.com/-/media/AQR/Documents/Insights/Journal-
Article/The-Great-Divide.pdf)

~~~
ThrustVectoring
You can discount any article that claims to refute the efficient market
hypothesis unless the author includes a bit about how they have already
arbitraged this deficiency away and are currently sitting on a multi-billion
dollar pile of money.

So uhh, given that he's _got_ billions of dollars, there may actually be
something there. Then again, the core skill of hedge funds is to convince
people to let you manage their money, which is somewhat different than actual
investing skill, so it's still unclear.

~~~
throwawaymath
_> You can discount any article that claims to refute the efficient market
hypothesis unless the author includes a bit about how they have already
arbitraged this deficiency away and are currently sitting on a multi-billion
dollar pile of money._

That's not really fair at all, actually. In general it's perfectly reasonable
to prove something non-constructively. There's no _a priori_ reason to assume
that a disproof of the efficient market hypothesis would be accompanied by a
formula which can generate arbitrary amounts of money for its user. Finance is
far more complicated than that.

 _> So uhh, given that he's got billions of dollars, there may actually be
something there. Then again, the core skill of hedge funds is to convince
people to let you manage their money, which is somewhat different than actual
investing skill, so it's still unclear._

That Asness has accumulated billions of dollars in personal wealth is really
only one dimension of why I'd say he's particularly qualified to comment on
it. In my opinion, it's not even the most compelling - I'd say the fact that
he received a doctorate under Fama and is involved in the academic community
is a much more resounding affirmation of his arguments.

As for AQR's performance, it's a fair point that most hedge funds don't have a
great return. But if you're looking for constructive examples to argue against
the EMH, you can just cite Renaissance, Bridgewater, Soros, Baupost, Citadel,
DE Shaw or Two Sigma.

------
mswen
"Incorporate this however you’d like, either as some future value bonus or
future discount factor risk, but the mood of the masses must to be included.
And with that, what might be a good investment opportunity in isolation,
isn’t."

The paragraph above is the final conclusion of the post. It strikes me this is
largely a restatement the following words of wisdom attributed to the
economist John Maynard Keynes: The market can remain irrational longer than
you can remain solvent.

In some ways this is similar to being way too early with a technical
innovation. The lack of traction or uptake in the market can last longer than
your runway. I've been there.

------
ucaetano
> I’ve shown that with simple changes to the definition we can make technical
> analysis a viable approach.

Wow, someone give this guy a Nobel Prize...

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pfortuny
The author thinks that randomness is just a simplification: no, it is the
statement of lack of information about the future.

Random (in markets) does not mean “following a uniform distribution”. It means
modelled by a random variable (which is a technical term).

------
reificator
I expected this to be about some killer feature for Excel for layout, or users
preferring to do their layout in a grid, or something like that. I've seen a
lot of documents written in Excel that seemed more appropriate for Word
instead.

In fact, the title used for submission here ("More fiction is written in Excel
than Word") is a twitter link from halfway through the article.

The linked article's title is "A Distracted Walk with Fundamental Analysis",
which seems a much more appropriate title for the content.

~~~
dang
Yes. We changed the title back.

The HN guidelines say: "Please use the original title, unless it is misleading
or linkbait; don't editorialize."

[https://news.ycombinator.com/newsguidelines.html](https://news.ycombinator.com/newsguidelines.html)

