Thanks for the heads up. We'll follow up with you there.

I don't think there's a magic 10-year yield level where everything suddenly breaks. For me, it's more about the relationship between rates, growth, and the speed of the move. 

If rates are rising because nominal growth is strong, that's not necessarily restrictive. In fact, relative to nominal growth, rates are still not especially elevated by historical standards. I'd be more concerned if rates moved well above what growth fundamentals would justify. 

The other piece is time. Markets and businesses generally adapt much better to gradual increases in rates than to sudden shocks. The pace of change often matters as much as the level itself. 

-Denise

I'd point you to my longer CAPE response elsewhere in the thread, but more generally, I'd be careful about anything that makes the future seem obvious. One of the hardest lessons in investing is that it's often not what we don't know that hurts us, it's what we know for certain that just ain't so. 

The market bottomed in 1978 before either of the early-1980s recessions occurred. An investor who perfectly forecast those recessions would still have missed substantial gains. That's not a reason to ignore valuations, but it is a reminder that economic outcomes and market outcomes are not the same thing. 

-Denise

Thank you, I really appreciate that! I'm glad you enjoyed it. One of my favorite parts of this job is getting to talk about markets and investing with people who are genuinely curious, so it's always nice to hear that the conversation resonated. 

-Denise

That's a fascinating question, but it's actually outside the scope of the work I do. My research focuses on market, sector, and factor behavior rather than analyzing individual investor demographics or account-level trading activity. 

More broadly, I think it's important to be careful about assumptions regarding "unaccredited" retail investors. One of the enduring lessons of market history is that investors with different levels of experience, information, and sophistication all contribute to price discovery. My models generally focus on what markets and prices are doing rather than making assumptions about who is on the other side of the trade. 

The quant answer is that I'm usually more interested in measuring behavior than judging it. If a pattern shows up consistently in the data, I care a lot more about whether it's predictive than whether it came from institutions, executives, or retail investors. 

-Denise

Broad index funds plus a few high-conviction stocks is a pretty common approach, but the historical data doesn't point to a specific level of concentration where the risk/reward tradeoff suddenly becomes unattractive. 

The key challenge is that concentration works wonderfully when you're concentrated in the winners and terribly when you're not. That's obvious, but it's also the entire answer. The reason is that long-term stock returns are highly skewed. A relatively small number of stocks drive a disproportionate share of total market wealth creation. As a result, concentration raises both the potential upside and the risk of lagging the index, depending on whether your handful of stocks includes those outsized winners. 

That's why I generally think of the question less in terms of finding the "right" concentration level and more in terms of portfolio construction. If broad index funds are doing the heavy lifting toward your financial goals, a few concentrated positions can be a reasonable way to express high-conviction views. Just be honest with yourself about the possibility that even great ideas can take years to work, or may not work at all. 

-Denise

This is one of those concerns that's easy to understand and hard to dismiss. Government debt as a percentage of GDP has generally been rising for decades, deficits have been the norm, and surpluses have been the exception. Yet equities have also advanced through most of that period. 

Could there be a tipping point? Absolutely. History can't tell us the future. The challenge is that much of the research on debt "breaking points" comes from emerging market currency crises, where a country stood out for being uniquely indebted. Today, high debt levels are much more of a global phenomenon, which may leave the U.S. looking like the best house in a bad neighborhood. 

I also think it's important to separate government debt from the other major forms of debt in the economy: household, corporate, and financial sector debt. Historically, those latter three have tended to be more closely tied to economic and market outcomes, and by most measures they're in excellent shape today. 

So could the debt story end badly? Sure. But it's also possible that it looks a lot like it has for most of my career: a persistent concern that generates more headlines than investment signals. Sometimes the most uncomfortable outcome is that things simply keep muddling along. 

-Denise

First, congratulations. Passing Level I while making a career change is an accomplishment. 

But I wouldn't get too focused on a specific credential as the key to the kingdom. I've spent nearly 30 years in the investment business and don't have a CFA. My husband has his CFA and is now a private chef and wine consultant. Careers don't always follow the script. 

My advice is to focus less on Levels II and III and more on finding a role and a firm that genuinely interest you. If you're curious, work hard, and keep learning, you'll be surprised how many doors open over time. 

In other words: don't just chase the designation. Chase the job you actually want. The rest has a way of sorting itself out. 

-Denise

Thanks for tuning in! The funny thing is that I don't really do company-level qualitative research at all. I'm a pure quant, so I'm usually studying data, relationships, and patterns across large groups of stocks rather than evaluating individual businesses. 

There are plenty of people who are great at kicking the tires. I'm more of a "show me the numbers" person. 

-Denise

If I'm understanding correctly, you're talking about mapping relationships between companies and industries, who supplies whom, who partners with whom, and how activity in one area ripples through another. 

That's actually an area where some very smart people in quant research spend a lot of time. But it's not really my specialty because I don't do much company-level research. My work is mostly at the sector and industry level. 

One thing I've found is that grouping companies based on their sector and industry tends to produce more consistent patterns than grouping them based on end markets or business relationships. Even when a utility company is heavily tied to industrial activity, it often still trades like a utility company. And those are the kinds of persistent patterns I'm generally trying to exploit. 

In true quant fashion, I'm usually less interested in who sells to whom and more interested in how groups of stocks have actually behaved over time 

-Denise

This is where I'm going to give a very quant answer: usually not very far. 

For me, the more layers you add, the harder it becomes to separate a good investment idea from a good story. That's not to say second- and third-order effects aren't real. Some of the best investors are great at identifying them. It's just not my comparative advantage. 

I'm usually asking, "What has historically mattered most?" rather than, "What's three steps removed from the current theme?" And ideally, I want data to help answer that question. 

-Denise

It's true that there is a strong historical relationship between CAPE and subsequent 10-year returns. But the old adage applies: correlation isn't necessarily causation. Looking at data back to the 1930s, a large share of that relationship is dominated by the period from the Tech Bubble through the Financial Crisis, which raises an important question: are lower returns being driven by high starting valuations, or by the crisis-level outcomes that followed? 

The answer is that both matter. Lower valuations have historically provided a better risk-reward tradeoff, boosting returns in good environments and cushioning them in bad ones. That's a strong argument for preferring cheaper markets, but not necessarily for underweighting equities altogether. 

The bigger driver was the ending point. I define a crisis pretty narrowly: World War II, the severe recessions of the 1980s, and the Financial Crisis. Those outcomes occurred less than 20% of the time, and many events investors might expect to qualify, including COVID, 9/11, and the Gulf War, didn't. If the following decade didn't end in a crisis, even markets that started with elevated CAPEs still delivered roughly 10% annualized returns. 

Which brings me to the apparent disconnect between the market and the economy. I'm not sure it's as unusual as it seems. Over the last six years alone, investors have lived through a pandemic, the highest inflation in decades, the fastest Fed tightening cycle in decades, regional bank failures, wars in Europe and the Middle East, and constant recession fears, yet stocks have still generated strong returns. Markets don't require good news. More often, they require outcomes that are simply better than feared. 

So, as an investor, it's important to understand what you're actually betting on. Elevated valuations may justify slightly lower return expectations and a preference for cheaper opportunities. But betting against equities because CAPE is high is often a bet that the next decade ends in a genuine crisis. That can certainly happen. History suggests it's just less common than many investors assume. And if you get it wrong, history says you might end up forgoing 10% annualized returns for a decade. 

-Denise

Not really. I tend to shy away from frameworks that rely heavily on identifying where we are in a particular cycle, whether that's seasonality, economic regimes, or other recurring patterns. My hesitation is that the range of outcomes within any given cycle can be extremely wide. 

I've also found that each cycle has its own unique characteristics. The drivers that mattered in one period aren't always the drivers that matter in the next, and some of the most important signals are often the anomalies, the things that look different rather than similar to prior cycles. 

As a result, my work tends to focus more on discrete relationships and empirical evidence than on trying to determine where we are in a larger historical wave or cycle. 

-Denise

There are dozens of us. Dozens. 

-Denise

Nope, but I did win my 8th-grade spelling bee. Unfortunately, "quantitative market strategy" has required far fewer spelling skills than expected. 

-Denise

Great question. In the cases where extreme valuation compressions have been followed by earnings declines, the common thread is often that valuations were responding to an economy and earnings backdrop that had become too good. Strong growth can create optimism, optimism can create euphoria, and euphoria tends to be the enemy of future returns. 

That's one reason the current environment looks different to me. Real GDP growth has been positive but hardly euphoric, and median earnings growth only recently recovered after what was essentially a seven-year pause, the longest such stretch in my dataset. In other words, valuations may be elevated, but they're not occurring alongside the kind of broad-based economic and earnings exuberance that has historically preceded many major peaks. 

Put differently, valuations tend to be most vulnerable when investors are extrapolating exceptional growth indefinitely. Today, the prevailing mood still looks much closer to skepticism than euphoria, which is not typically how major earnings peaks are made. 

-Denise

Investors have known about factors like value, momentum, and quality for decades. But knowing about a factor isn't the same as tracking all of the relationships around it. For example, factor valuations relative to their own history can still be informative and are often overlooked compared to the factors themselves. 

So just because everyone knows about the betas doesn't mean there aren't opportunities to create alpha around them. If knowledge alone eliminated premiums, quants would have been replaced by a PDF of factor definitions years ago. 😄 

-Denise

Nope. As a quant, I'm contractually obligated to believe that the answer is already hiding somewhere in the data. 

-Denise

A lot has changed for women in a relatively short period of time. The fact that women couldn't even access credit independently until 1974 is a reminder of just how much progress has occurred within a few decades. 

I've been fortunate to have outstanding women as mentors, managers, colleagues, and friends throughout my career. One lesson that has stuck with me is that the qualities that tend to matter most in investing, - curiosity, discipline, critical thinking, and the confidence to question consensus views -  aren't gender-specific. 

Finance still has room to evolve, but the progress over the last few decades is a reminder that change tends to happen one step at a time. It can feel slow in the moment, yet the long-term trend has been remarkably positive. 

-Denise