Dissection of an Investment Presentation (Part 2)

Today I will continue my exemplar of things to watch for when viewing a financial presentation.

Remember my general recommendations:

• Do not be blinded by the light: their job is to make things look good.
• Accept no comparison without assessing the comparator.
• Challenge everything.

The presentation continues:

     > A significant amount of academic and industry research has focused…

Incomplete phrases like these are easy to challenge:

• Who determines significance?
• Who did the research?
• Who funded the research?
• What conflicts of interest were present?
• When was the research done?
• What was the research methodology?

All this information can help us to determine validity of the conclusions.

No responsible, advanced trader is going to accept empty claims just because they appear in a presentation. This can only serve marketing/advertising purposes in an attempt to persuade the gullible.*

This same lack of evidence is why I disregard other traders’ claims about their own personal investment success. I have written on this subject here and here. I write about my own performance every now and then to hold myself accountable. I do not expect you to take anything from those posts.

Remember, too, that finance and investing are all about the money. Somehow, I feel this puts us more at risk for fraud than other industries. As a public service announcement, go back and read some of my other posts on fraud to increase awareness and protect yourself (e.g. here, this whole mini-series, or any of my optionScam.com posts).

     > …on the tendency for assets that have performed well over the past
     > year to continue to perform well over the near term.

I need to know much more to evaluate these claims. Drawing conclusions from one and only one parameter value is shortsighted (e.g. here, here, and here). I would rather see discussion of a range and why they selected 12 months.

These comments regarding momentum also apply to the value factor.

This presentation is clearly intended to be more for marketing and advertising than it is research because the latter would not omit so much critical information. I try to avoid being sold by any presentation lacking critical information. I would highly recommend you do the same.

     > Why have we selected momentum and value as the two factor
     > exposures we attempt to maximize? Of the several hundred asset
     > pricing factors researchers have identified over the past few of
     > decades, there are only a few that stand the test of time and
     > remain statistically significant through various market cycles.
     > Of those few, momentum and value are among the most robust.

I discussed last time why the “several hundred” detail is irrelevant if not damning.

Hard data is needed to fulfill claims that momentum and value have “stood the test of time” and are “statistically significant.”

Again, do not accept hollow statements in a presentation without understanding the supporting (or lack thereof) evidence.

I will continue in the next post.

* This arguably includes many people. The financial industry likely gets away without reporting performance, in large part,
   for this reason alone.