Finance Professor Vivek Singh talks research findings and what works for him when it comes to investing
Singh, the College of Business Distinguished Performance in Research Award recipient, is among the top researchers in the world in his discipline.
Finance Professor Vivek Singh’s publication record puts him in the top 5 percent of all active financial research professors, according to a study measuring productivity of all research-active finance professors in the last 50 years.
According to Google Scholar, Singh had nearly 400 citations within the past five years. His research has a 100 percent publication rate. And his very first major research project — his Ph.D. dissertation on the 1999-2002 dot-com start-up bubble that he researched and wrote in real time — was made into a book.
Singh’s research stats make the 2018 College of Business Distinguished Performance in Research Award recipient seem like he might be too preoccupied to chat. That is, until you reach out and connect with him in person.
He recently sat down and shared his research insight with us. During the conversation, Singh causally kicked back in his office. He had students come by to say hello. Colleagues asked him to join them for dinner following the evening investment course he teaches. To Singh, it’s all woven together. His research, impressive as it cumulatively is, is just a part of his every day.
“We are all using our curiosity and education to find answers that may make the world a better place. In my opinion, that’s why we are all here.”
Making the world a better place is a noble pursuit. But let’s start at the individual level. Any personal investment secrets you could share?
No secrets, but I do have some straightforward advice that’s worked for me that many financial experts, including Warren Buffett, would agree with.
If you are an investor, you want to steer away from actively managed investment companies. When I say actively managed, I mean the companies who say, ‘If you invest with us, we will give you a lot of returns.’ Do not trust this — no one can guarantee you a large return.
Instead, invest in a low-cost ETF (exchange-traded funds) passively managed fund. That is the only thing that has consistently worked for me. Not only have I seen it proven true, it’s also well documented and researched. If you have an adviser, I encourage you to talk with him or her prior to making any changes, but ensure that your adviser is not guiding you towards an actively managed company.
Also, read The Economist. It’s the best place to keep up on market behavior.
How did your interest in research start to take shape?
I owe my start to the internet mania of the late 1990s. I was a Ph.D. student at the time, so I didn’t have much money. But I had friends who were working. They were young and not married, so they had money floating around, and many people were investing in start-up dot-com companies.
Financial experts knew there had to be some kind of bubble going on. The evaluations were too unrealistic — a dot-com would emerge in the market and the valuation would shoot up 600 percent in some cases. The experts attributed this to the man-on-the-street, the average investor who might not know the true worth of things, being caught up in the internet mania.
But I wanted to see if financial institutions showed this manic crowd behavior too. And, if they did, what’s the consequence of that? At the time, nothing like this was done before; it was a hard sell to my dissertation adviser. But I wanted to find out.
My research did show what I hypothesized — financially savvy people did drive up the bubble. Instead of providing a corrective stabilizing force, banks, insurance firms, investment companies, investment advisers, university endowments, hedge funds and internally managed pension funds participated in herds in the rise and, to a lesser extent, in the fall of new economy stocks.
The bubble burst in 2002 and I was able to prove what I was theorizing in real time. I believe that’s why I got so much press and I was approached to publish a book. It also reinforced my interest in seeking out financial questions to answer.
What’s a current research project you’re working on?
I am coming to a conclusion on a project that I’ve been working on for nearly a decade and we expect that it will have huge implications in the business of investing money.
Currently, in capital markets, the companies that are small are desired a lot more by investors than large companies. This is because — when all things are equal — the belief is you should invest in smaller companies if you want to make a higher return on your investment. But my research partners and I are finding that this is wrong.
This is because we use mean values. But this isn't always the best measure, especially when numbers are skewed to the right or left. And that’s what happens here. There are a minority of small firms out there to buy or invest in. So when one performs well, it drives up the mean.
It’s like looking at a mean household income verses the median household income; the mean is driven up by a handful of billionaires out there; the median is a more accurate number of what’s really in our neighborhoods. So we generally ignore the mean when looking at household income. However, in finance, we are fixated on it because of technical reasons.
Our research finds that when using the median, investing in larger companies is actually the way to go. So how the industry is currently measuring the value doesn't make sense in this area; it leads to wrong conclusions.
Why do you devote so much of your time to research?
This ties in with the most important question a researcher can ask: Why does this matter?
As an educator who focuses on investment, it is my responsibility to inform others on how this world works, why it works the ways it does and — if I find it doesn't work — ways on how to make it better. Research needs to be something we can collectively benefit from.
Research also adds to my students’ experiences in the classroom. Our students are very curious and some are already very financially sophisticated. They want knowledge that goes beyond the textbook; they want to know how this information will apply to them. And, with the research I’ve done, I’m confident in my abilities to answer their questions.
It’s truly about making the world a better place. And I bet if you asked any of the researchers here this question they’d say the same thing.