Klement on Investing

Klement on Investing provides insights on global financial markets, combining empirical data analysis with an exploration of human behavior in economics, investment strategies, and the impacts of geopolitical tensions and policy decisions on markets. It challenges conventional wisdom and promotes understanding of complex financial dynamics.

Financial Markets Human Behavior in Economics Investment Strategies Geopolitical Tensions Policy and Economic Impact Market Analysis Inflation and Deflation Commodity Prices Supply Chain Vulnerabilities Investor Psychology

The hottest Substack posts of Klement on Investing

And their main takeaways

Persistence > performance

1 implied HN point • 19 Mar 24
💰 Finance Investing Stocks Momentum Returns Strategies
  1. Persistence of performance is more important than pure price momentum in predicting future returns.
  2. The Directional High Minus Low (D-HML) strategy focuses on the persistence of positive returns to generate excess returns of around 1% per month.
  3. D-HML strategy offers more downside protection during extreme drawdowns compared to traditional momentum strategies.

Home bias everywhere

1 implied HN point • 18 Mar 24
💰 Finance Investing Corporate Governance
  1. Investors tend to favor domestic companies over foreign ones not only in investment portfolios but also in shareholder voting decisions.
  2. Shareholders show a bias towards voting in favor of management proposals, especially in contentious issues, with a significant preference for domestic companies.
  3. Factors like potential business ties, governance rules, and information quality contribute to this home bias in voting behavior, making it challenging to hold domestic company managers accountable.

Hay fever, the deadly allergy

1 implied HN point • 08 Mar 24
🏥 Health Politics Allergies Health economics Public Safety
  1. Hay fever affects about one in five people in the UK, with higher rates in countries like Brazil and Australia.
  2. Hay fever can lead to accidents and injuries, especially when operating heavy machinery or engaging in physical activities.
  3. A study in Japan estimated that a 10% increase in pollen count leads to thousands of additional accidents, costing the economy billions of dollars.

You hit my soft spot…

1 implied HN point • 07 Mar 24
💰 Finance Investing Funds Market Analysis
  1. Active fund management may have an advantage in less efficient markets like UK small- and mid-caps.
  2. Due to reduced research and liquidity, UK small- and mid-caps have become under-researched and may present opportunities for generating alpha.
  3. Shares in UK small- and mid-caps sometimes follow macro trends over fundamentals, but a shift can lead to significant outperformance.

The very real effects of consumers’ hopes

1 implied HN point • 06 Mar 24
💰 Finance Consumer behavior Economic Indicators Consumer confidence
  1. Consumer sentiment surveys are essential indicators for future consumption, but some specific questions like the outlook on major purchases can predict consumption better than headline figures.
  2. Consumers tend to be overly optimistic about their future family finances compared to the overall economy, which can impact future consumption growth.
  3. The level of ex ante optimism, comparing expectations for family finances and the economy, can be a powerful predictor of future consumption growth, while ex post optimism influences savings ratios and credit usage.
Get a weekly roundup of the best Substack posts, by hacker news affinity:

Post-earnings announcement drift is not just for equities

1 implied HN point • 29 Feb 24
💰 Finance Investing Bonds Market Performance Strategies
  1. Post-earnings announcement drift exists for both stocks and corporate bonds, not just equities. This phenomenon occurs when stock or bond prices do not react as expected to earnings data, presenting an investment opportunity.
  2. Investors can exploit post-earnings announcement drift by buying stocks or bonds with positive earnings surprises that are undervalued and selling those with negative surprises that are overvalued.
  3. Implementing a long-short strategy based on post-earnings announcement drift for corporate bonds can result in significant annual returns and alpha, outperforming other bond investment strategies.

Sustainability helps you reduce costs

1 implied HN point • 12 Feb 24
💼 Business Sustainability Cost reduction
  1. Sustainability can help companies reduce costs by attracting skilled employees who value non-wage benefits like ESG criteria.
  2. Younger generations like Millennials and Gen Z prioritize softer criteria like a company's sustainability when looking for jobs, not just salary or career opportunities.
  3. Companies offering sustainability credentials, like being a certified B Corp, can attract more applicants, especially those with higher education and skills.

What happens if China sneezes?

1 implied HN point • 08 Feb 24
💰 Finance Global Markets Commodities Equities
  1. Commodity prices are sensitive to both Chinese and US macro developments, with oil reacting similarly to both.
  2. Global equities are less sensitive to Chinese shocks compared to US shocks, needing a larger Chinese shock to create a similar reaction.
  3. While the impact on global equities from the Chinese economy might be smaller than a US recession, a large enough shock from China could still derail global equity markets.

Improving valuations through better governance

0 implied HN points • 19 Feb 24
💼 Business Governance Valuation Liquidity Corporate Governance
  1. Improving share liquidity may not be the best way to increase company valuations. Focus on improving corporate governance instead.
  2. Increasing share liquidity by reducing the bid-ask spread can lead to a significant increase in company valuation, compared to measures like larger boards or institutional ownership.
  3. Improving corporate governance, measured by indices like ISS Board Quality scores, can have a more significant impact on increasing company valuations than just focusing on liquidity.

Germany will struggle to loosen its debt break

0 implied HN points • 15 Jan 25
💰 Finance Economics Debt Management Government Policy Public Spending Investment strategy
  1. Germany has a strict rule called the 'debt brake' that limits how much money the government can borrow and spend. Changing this rule is not as easy as some people think.
  2. There is a belief among some experts that the next German government will loosen this rule to allow more investment. However, there are significant challenges that may prevent this from happening.
  3. Public discussions often overlook the complexity of Germany's fiscal rules, leading to misunderstandings about how changes might be made. It's important to recognize the deeper issues at play.

Hedging hedge funds have higher (h)returns

0 implied HN points • 12 Nov 24
💰 Finance Investing Hedge Funds Risk management Market Analysis Performance Metrics
  1. Hedge funds can actually reduce their risks internally, which helps them perform better. They don't just rely on external factors.
  2. Most hedge funds have realized risks that are lower than expected, known as a negative risk gap. This can boost their overall returns.
  3. Funds that manage their risks well tend to have higher performance, while those that take on more risks often do worse.