There’s a curious magic trick in finance: a return that appears when nothing happens. No news, no surprises, no change in price. Just carry—the part of a trade’s return that comes from standing still. Currency traders have long known this sleight of hand. Borrow low-yielding yen, buy high-yielding Aussie dollars, collect the difference in interest […]

Peter Lynch was an exceptional investor. He took over the Fidelity Magellan fund in 1977 and over the next 13 years increased the assets under management from $18 million to $14 billion. This was not just a triumph of marketing — over this period he averaged a return of 29% a year, doubling the return […]

Practically every money manager or advisor will tout the benefits of experience, particularly their own experience (But no, being a good chess player doesn’t make you a good investor — that’s a topic for another day.) But experience only matters if it has been used as a learning opportunity. It is the knowledge derived from […]

One of the most persistent bad ideas in finance is the belief that if we just “work harder” at the math, we can make economics as predictive as physics. Build better models, fit more data, solve the markets. It’s a comforting fantasy, especially for quants. It’s also wrong. Andrew Lo and Mark Mueller’s paper, “Physics […]

One of the recurring assumptions in financial theory is that investors form return expectations, adjust for risk, filter through their utility function, and then perfectly optimize their portfolio. This sounds great in a textbook. In the real world, it’s nonsense. People are messy. Markets are noisy. And portfolio decisions are usually a half-baked soup of […]