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2018 Report Card For Hedge Funds

Hedge funds entered 2019 coming off their ninth­ straight year of trailing U.S. stocks (as measured by the S&P 500 Index) by significant margins. And for the 10­ year period ending 2017 — one that included the worst bear market in the post­ Depression era — the HFRX Global Hedge Fund Index produced a negative return (­0.4%), underperforming every single major equity and bond asset class. So how did hedge funds fare in 2018? The following table shows the returns
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Common Factor Investing Myth

William Sharpe, Jack Treynor, John Lintner and Jan Mossin are typically given most of the credit for introducing the first formal asset pricing model — the capital asset pricing model (CAPM). It was important because it provided the first precise definition of risk and how it drives expected returns. Fama & French Take It Further The CAPM looks at returns through a “one actor” lens, meaning the risk and return of a portfolio is determined only by its exposure to
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Do Surprises Really Move Markets?

French economist Louis Bachelier long ago remarked: “Clearly the price considered most likely by the market is the true current price: if the market judged otherwise, it would not quote this price, but another price higher or lower.” Prices will not change if the expected happens. It is the unexpected that causes prices to move. In an efficient market, any new information the market receives will be random, not in the sense of being good or bad, but in the
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Getting to the Point of a Point

                    A quick online search for “Dow rallies 500 points” yields a cascade of news stories with similar titles, as does a similar search for “Dow drops 500 points.” These types of headlines may make little sense to some investors, given that a “point” for the Dow and what it means to an individual’s portfolio may be unclear. The potential for misunderstanding also exists among even experienced market participants, given that
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