Featured and Latest Posts
What Eugene Fama Really Says About Efficient Markets
Eugene Fama’s Efficient Market Hypothesis (EMH) is often misrepresented. Far from claiming that markets are always right, Fama argues that whilst markets aren’t perfectly efficient, they’re efficient enough that consistently beating them is extremely difficult.
He outlines three forms of efficiency—weak, semi-strong, and strong—based on how much information is reflected in prices. Whilst evidence supports the weaker forms, Fama himself rejects the strong form that assumes insider information is priced in.
For Fama, EMH is a useful framework, not a flawless rule. Prices can be wrong—but not in ways that investors can reliably exploit.
Growth, Value, and the Long Game: Discount Rates, Cash Flows, and Who Should Own What
Growth stocks sound like the perfect match for aggressive, long-term investors—offering high return potential, long horizons, and exciting prospects. But beneath the surface lies a more complex story. Growth and value stocks respond differently to changing economic conditions, and understanding these differences is crucial to building a resilient portfolio.
This post explores why growth stocks are more sensitive to changes in the discount rate, whilst value stocks are more exposed to changes in expected cash flows. We examine the deeper implications of ‘good beta’ and ‘bad beta’—concepts developed by John Y. Campbell and Tuomo Vuolteenaho—and how they influence the real-world risks investors face. Finally, we turn to lifecycle investing: why young investors with risky jobs may benefit from growth, and why older investors might tilt towards value. The result is a more nuanced framework for asset allocation—one that considers not just age or return potential, but how your investments interact with your income, career, and future opportunities.
Why the DCF Model Doesn’t Work for Options—and How Black-Scholes-Merton Changed Everything
Most finance textbooks start with the discounted cash flow (DCF) model—project the cash flows, pick a discount rate, and voilà: you’ve got a valuation. It’s neat, tidy, and timeless.
But try applying it to an option and the whole thing falls apart.
Options don’t behave like bonds or businesses. Their value hinges not on steady cash flows but on uncertainty, volatility, and probability. And that’s precisely why the DCF model fails—and why a revolutionary model was needed. Enter the Black-Scholes-Merton model: a groundbreaking approach that reimagined valuation through the lens of hedging, replication, and risk-neutral probabilities.
This post explores why options broke the DCF mould—and how Black, Scholes, and Merton changed finance forever.
Rethinking Risk and Return: The Intertemporal Capital Asset Pricing Model (ICAPM)
The Capital Asset Pricing Model (CAPM) remains a cornerstone of modern finance, showing how risk and return are linked through a single factor: market beta. But real-world investors care about more than just today’s risk—they care about how their investment opportunities change over time. That’s where the Intertemporal Capital Asset Pricing Model (ICAPM) comes in. Introduced by Merton (1973), the ICAPM extends the CAPM’s single-period framework to a dynamic, multi-period world, where investors hedge against changes in income, inflation, volatility, and other economic risks. This post explores how the ICAPM reframes asset pricing, explains anomalies, and offers a more realistic foundation for portfolio construction and long-term investing.
Good financial decisions aren’t about predicting the future—they’re about following a sound process today.
In investing, outcomes are noisy. Short-term performance often reflects randomness, not skill. Yet fund managers continue to pitch five-year track records as if they prove anything. They don’t.
As Ken French puts it, a five-year chart ‘tells you nothing’. The real skill lies in filtering out the noise—evaluating strategy, incentives, costs, and behavioural fit.
Don’t chase what worked recently. Stick with what works reliably.