Why factor investing isn't working

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larryswedroe
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Re: Why factor investing isn't working

Post by larryswedroe »

nedsaid
As far as the definition of risk, it seems we parse words too much here. If stocks get overbought and expensive, yes that is a behavioral cause but it seems like there is a pricing risk as a result.
Agree, just pointing out that in the literature on the factors the term risk is always referred to in reference to economic cycle type risks, not risks caused by behavioral preferences. Those would be behavioral based explanations for premiums or lack of

Bottom line we agree, anything can become risky if loved to much and cash rushes in---especially market beta!!!!
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Larry
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nedsaid
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Re: Why factor investing isn't working

Post by nedsaid »

larryswedroe wrote: Tue Jul 16, 2019 12:49 pm nedsaid
As far as the definition of risk, it seems we parse words too much here. If stocks get overbought and expensive, yes that is a behavioral cause but it seems like there is a pricing risk as a result.
Agree, just pointing out that in the literature on the factors the term risk is always referred to in reference to economic cycle type risks, not risks caused by behavioral preferences. Those would be behavioral based explanations for premiums or lack of

Bottom line we agree, anything can become risky if loved to much and cash rushes in---especially market beta!!!!
Best wishes
Larry
You beta believe it Larry. :wink: Thanks for clarifying the definitions. I know the academic language is very precise.
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nedsaid
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Re: Why factor investing isn't working

Post by nedsaid »

HomerJ wrote: Tue Jul 16, 2019 12:48 pm
nedsaid wrote: Tue Jul 16, 2019 12:44 pmBut in a market, nothing is independent of human behavior. In fact, people doing stupid things create lots of problems for the rest of us. It seems we are torturing the language here.
Excellent point.
You have been promoted from troll status to the smartest guy in the universe. As they say, flattery gets you everywhere! :wink:
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Northern Flicker
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Re: Why factor investing isn't working

Post by Northern Flicker »

But the REASON long-term bonds out-performed stocks is because people bought long-term bonds paying 10%, 12%, 15%, AND rates went down, so those bonds were worth even MORE.

Bonds will not have the same huge returns starting at 3% and dropping to 0.6%.
But if bonds drop from 3% to 0.6% over the next 30 years that drivers for that may also lead to bonds beating stocks over the period.
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Re: Why factor investing isn't working

Post by abc132 »

larryswedroe wrote: Mon Jul 15, 2019 5:06 pm abc
Just to comment, it seems interesting to me that those asking about factoring investing and odds of success and confidence levels seem to completely miss that TSM is a factor investment, just happens to be in one factor.
This was a general comment. For example, those noting value has underperformed for last 10 years in US (ignoring that it has outperformed int'l) tend to ignore the evidence that TSM has much longer periods of underperformance.

The evidence is that value has had similar persistence as market beta and if size was measured not as 50/50 it too would have more similar persistence to market beta.


Best wishes
Larry
Thank you for the clarification.

I will point out that it is universal people tend to simply ignore information they do not like, not anything that needs to be directed at Bogleheads, and not something that exists on one side of an argument and not on the other.

Simply posting the evidence will make the best argument.
fennewaldaj
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Re: Why factor investing isn't working

Post by fennewaldaj »

vineviz wrote: Tue Jul 16, 2019 8:41 am
larryswedroe wrote: Tue Jul 16, 2019 7:58 am fyi, there is clearly no risk story for MOM, low vol, profitability and quality.
I don't agree with Larry that there is "clearly" no risk story for these factors.

My view is that the risks associated with some of the other factors are somewhat more obvious and maybe better documented, but IMHO there are plausible risk explanation associated with momentum, low volatility, profitability, and quality.
I'm with Larry here. You can come up with risk stories for these premia but I would hesitate to call them good. The risk stories that I have heard sound pretty strange and unconvincing.
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vineviz
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Re: Why factor investing isn't working

Post by vineviz »

fennewaldaj wrote: Tue Jul 16, 2019 4:29 pm The risk stories that I have heard sound pretty strange and unconvincing.
Perhaps so, but it pays to remember that in finance may things which seem intuitive aren't true and vice versa.
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wickywack
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Re: Why factor investing isn't working

Post by wickywack »

larryswedroe wrote: Tue Jul 16, 2019 7:58 am The risk based explanations are why I have the MOST faith in the size and value premiums while I don't ignore the others that meet all the criteria of persistence, pervasiveness, robustness, intuitiveness and implementability. At very least want to avoid being on the right hand side of factors like MOM and quality.
Just curious, but how does your faith in size & value premiums compare to your faith in market beta premiums? Does it make sense to try to quantify "faith in premium" for various factors? And, if so, would it make sense to try to weight a factor portfolio accordingly?
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Re: Why factor investing isn't working

Post by larryswedroe »

wickywack
I have the most confidence in market beta, followed by high confidence in size and value because they also have risk based explanations and then less so in others with behavioral explanations though I don't ignore them because the evidence is so strong (at least don't want to be on other side of them).
So yes you should weight exposures based on the level of confidence have in them IMO.
I hope that is helpful
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Re: Why factor investing isn't working

Post by nps »

larryswedroe wrote: Tue Jul 16, 2019 9:52 am If you have good risk story for the other factors love to hear it. Having talked with many of the leading practitioners and academics I have not found one that believes there is a good risk story for these other factors.
Larry, in your book you cite several risk explanations for MOM: (1) the growth prospects of past winners are subsequently identified as more risky or they face greater beta (market) risk, (2) momentum stocks have large growth opportunities and risky cash flows, both of which can disappoint, and (3) recent winners have more exposure to liquidity risk. I think you clearly outline your skepticism of these explanations as well as profitability, quality, etc but do you think the folks who wrote those papers including Cliff Asness don't believe it either?
greenhill
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Re: Why factor investing isn't working

Post by greenhill »

larryswedroe wrote: Tue Jul 16, 2019 7:58 am greenhill
fyi, there is clearly no risk story for MOM, low vol, profitability and quality. Doesn't mean they cannot persist, especially in small stocks where limits to arbitrage are greatest and the evidence is they continue to persist as these are well known in some cases (MOM and low vol) for decades.

However there is a ton of evidence showing very simple and clear risk based explanations for value premium including value stocks have been much higher SD than the market, with market about 20% and large value about 28% and small value about 35%. So that alone should be enough for a risk based explanation. But there are many more including more volatile earnings and more irreversible capital. So while there are also behavioral explanations IMO the risk ones should not be ignored. Personally I think the premium is some of both, but surely is at least partially risk.

You can find a summary of the risk story and behavioral story in my complete guide to factor-based investing.

The risk based explanations are why I have the MOST faith in the size and value premiums while I don't ignore the others that meet all the criteria of persistence, pervasiveness, robustness, intuitiveness and implementability. At very least want to avoid being on the right hand side of factors like MOM and quality.

Larry
Larry,
Relatively new to this forum, I think my position is halfway between “ordinary” bogleheads and factorheads. Perhaps it’s the worst position in a discussion, because I would be disagreed by both sides.

IMO value is a very complex factor. I agree that there are both some risk and behavioral explanations behind it. In additional to these two explanations, I would hypothesize a third explanation, which is skill. Although all investors look at the same information, same financial statements, they must come to different conclusions. Individual investors, like me, have not much time/resources/tools to model stocks prices. If I have to pick a portfolio of individual stocks, using fundamental metrics like P/B and P/E to model stock prices is at least an upgrade from making blind guesses. OTOH, for professional investors, they certainly have much more sophisticated tools to model prices. If we invest in TSM, we get the weighted average skill of all investors. Meanwhile, by investing in the value factor, investors are following a set of rules constructed by P/B, P/E etc to pick stocks. If this set of rules is smarter than the average market, factorheads win, otherwise they don’t. In the past, this set of rules was superior than the average market perhaps because there weren’t so many sophisticated tools around and many individual investors didn’t ever hear about these valuation metrics, so the average skill of the market was much lower.

Regardless of behavioral biases, if skill is not perfect, it is natural that some stocks are overvalued while some others are undervalued. Thus, by tilting towards cheap stocks we could get the benefit of capturing the premium of some undervalued stocks. In addition, I suspect that the growth prospects of all stocks were relatively homogeneous in the past because the tech sector was small (I admit it is just a suspicion, need fact check), so the chance of “cheap” stocks being also undervalued stocks were higher in the past. (Side note: logically, cheap stocks may not be undervalued, and undervalued stocks may not be cheap, but intuitively the two should have some positive correlation.) However, when the skill of average investors improves and the market composition is so different nowadays, would value continue to be smarter than the average market? I don’t know.

The skill explanation I hypothesized is fundamentally different from behavioral explanation. The skill explanation is more about information asymmetry (aka investors would have made different investment decisions had they got the time/resources to obtain more information but for most of them it is nearly impossible to do so), while the behavioral explanation is more about cognitive bias (aka despite the fact that investors have got perfect information they still make biased decisions). Problem is, I think value has all of the three explanations behind it, and it is hard to accurately model how much of the historical value premium was due to risk/behavior/skill. My personal but not scientific believe is that the skill part behind value is the most dominant, while I agree that there is some risk story (aka more volatile earnings etc evidenced by higher s.d. of value stocks). After all, I would therefore conclude that value is too complex for me to touch it. Perhaps someone can try to re-define value to isolate the risk part of the premium.

Last but not least, I enjoy reading your articles which always give different perspectives towards investment. You definitely have some influence towards my portfolio. I appreciate your idea of diversification across more sources of risk. After some analysis I do have a few percentage tilt towards size. It just happens that my position is right in the middle between you and ordinary bogleheads.

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Re: Why factor investing isn't working

Post by nedsaid »

greenhill wrote: Wed Jul 17, 2019 12:20 am

Larry,
Relatively new to this forum, I think my position is halfway between “ordinary” bogleheads and factorheads. Perhaps it’s the worst position in a discussion, because I would be disagreed by both sides.

IMO value is a very complex factor. I agree that there are both some risk and behavioral explanations behind it. In additional to these two explanations, I would hypothesize a third explanation, which is skill. Although all investors look at the same information, same financial statements, they must come to different conclusions. Individual investors, like me, have not much time/resources/tools to model stocks prices. If I have to pick a portfolio of individual stocks, using fundamental metrics like P/B and P/E to model stock prices is at least an upgrade from making blind guesses. OTOH, for professional investors, they certainly have much more sophisticated tools to model prices. If we invest in TSM, we get the weighted average skill of all investors. Meanwhile, by investing in the value factor, investors are following a set of rules constructed by P/B, P/E etc to pick stocks. If this set of rules is smarter than the average market, factorheads win, otherwise they don’t. In the past, this set of rules was superior than the average market perhaps because there weren’t so many sophisticated tools around and many individual investors didn’t ever hear about these valuation metrics, so the average skill of the market was much lower.

Nedsaid: Not Larry but thought I would weigh in here. You have hit on something when you talked about skill. Pretty much, it is like outrunning the bear. You don't have to outrun the bear, you just have to outrun the other people who are with you! It seems to me that a Value investor isn't trying to be smarter than the market itself, a Value investor is trying to better capture the Value characteristics than most other Value investors. The prize goes to the better rule construction. To beat the market over long periods of time you just need to be in the better Value stocks. Problem is, there is disagreement what Value is and also disagreement as to how to capture it.

Larry can speak to this, but foggy memory recalls that the academic definition of Value is the 30% of the market with the best Value characteristics. So you have 30% Value, 40% Core, 30% Growth. Older definitions focused on Price to Book but the importance of book value has been decreasing in recent years. So you have Price to Earnings, Price to Cash Flow, Price to Sales. Probably other metrics I haven't thought of. So which metrics do you use? With the metrics, what ranges define Value, Core, and Growth?

Deep Value is just picking the cheapest stocks. Problem is some stocks are cheap for a reason. Hopelessly incompetent management, a dying company in a dying industry, obsolescence of its products compared to competitors. You want companies whose problems are temporary and fixable and not permanent. The companies with permanent problems are called Value traps. How do you tell the difference between a Value trap and a company that will turn around? Not always easy to tell. Another problem is that Value is associated with negative momentum, in other words Value stocks tend to drop even further in price after you buy them.

So what you do, is set a screen for momentum and pick the value stocks whose momentum is at least neutral. Like Will Rogers famously said, if the stock doesn't go up, don't buy it. The research says that doing this will improve results. This helps eliminate the Value traps and gets you into stocks with better odds of turning things around. The added step gets out of Deep Value.

Warren Buffett was a disciple of Benjamin Graham, who was focused on intrinsic value and margin of safety. Unlike the academics, Graham would evaluate securities individually. You would pick the margin of safety needed in order to invest in a stock. Then you would wait until the price dropped far enough below your calculation of intrinsic value to where you felt confident and safe to buy.

Buffett changed his thinking when his business partner, Charley Munger, introduced him to the concept of quality. Munger famously said that it was better to buy a great company at a good price than it was to buy a good company at a great price. So pretty much you are hoping here to snag great companies temporarily out of favor or whose price has been marked down in a bear market. Problem with Buffett's concept is that everyone knows who the great companies are and it takes great patience to wait until these great companies get within the price range at which you are willing to buy. But Warren Buffett is a very patient man. It is more of a Growth at a Reasonable Price approach.

My concept of Value is similar, buying good companies with temporary and fixable problems. It is the difference between picking up cigar butts to get a few last puffs out of each and buying the fine Cuban cigars when they go on sale. I say good companies because the truly great companies are just never cheap, it might take a bear market to get even a modest discount.

In academic terms, Buffett added Quality criteria to Value criteria. I doubt he worried much about price momentum, he just waited for a good price.

What Dimensional Fund Advisors do now is screen for Value, set momentum to neutral, and add Quality. Being more like Buffett.

Regardless of behavioral biases, if skill is not perfect, it is natural that some stocks are overvalued while some others are undervalued. Thus, by tilting towards cheap stocks we could get the benefit of capturing the premium of some undervalued stocks. In addition, I suspect that the growth prospects of all stocks were relatively homogeneous in the past because the tech sector was small (I admit it is just a suspicion, need fact check), so the chance of “cheap” stocks being also undervalued stocks were higher in the past. (Side note: logically, cheap stocks may not be undervalued, and undervalued stocks may not be cheap, but intuitively the two should have some positive correlation.) However, when the skill of average investors improves and the market composition is so different nowadays, would value continue to be smarter than the average market? I don’t know.

Nedsaid: In more recent human history, at least since the Renaissance, there have always been new and disruptive technologies. The railroads, oil, and later the automobile would have been the high tech of their day. I suspect Growth and Value have been around forever.

The skill explanation I hypothesized is fundamentally different from behavioral explanation. The skill explanation is more about information asymmetry (aka investors would have made different investment decisions had they got the time/resources to obtain more information but for most of them it is nearly impossible to do so), while the behavioral explanation is more about cognitive bias (aka despite the fact that investors have got perfect information they still make biased decisions). Problem is, I think value has all of the three explanations behind it, and it is hard to accurately model how much of the historical value premium was due to risk/behavior/skill. My personal but not scientific believe is that the skill part behind value is the most dominant, while I agree that there is some risk story (aka more volatile earnings etc evidenced by higher s.d. of value stocks). After all, I would therefore conclude that value is too complex for me to touch it. Perhaps someone can try to re-define value to isolate the risk part of the premium.

Nedsaid: What you define as skill, I would define as better factor loading. Who does the best job of capturing the excess returns from factors? A fund with high Value loading is a fund that has stocks with the best Value characteristics. This goes to setting good criteria for your value screens. Another topic but Quality improves Value and Quality improves the Size factor. Skill might also be combining Quality and perhaps Momentum to Value. It seems that combining factors improves results.

Last but not least, I enjoy reading your articles which always give different perspectives towards investment. You definitely have some influence towards my portfolio. I appreciate your idea of diversification across more sources of risk. After some analysis I do have a few percentage tilt towards size. It just happens that my position is right in the middle between you and ordinary bogleheads.

greenhill
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Re: Why factor investing isn't working

Post by greenhill »

nedsaid wrote: Wed Jul 17, 2019 12:53 am
Nedsaid,
I tend to agree with what you say in theory, for me I would say that pairing Value with Quality and Momentum (aka multifactor) is an upgrade of skill from using Value alone. But there are 2 potential problems. The first one is that despite having improved skill, the market as a whole also improves its skill and it will eventually catch up with the Value+Quality+Momentum strategy, though at a later time than Value alone. The second problem is, perhaps the Value+Quality+Momentum strategy is close enough to perfect in theory, but when the market on average is getting more efficient and skillful, the set of stocks which are cheap but stable with nice prospect may become an empty set. In fact, I think it’s already hard to name a few individual stocks which has reasonably low price-to-fundamentals ratios, stable earnings, nice growth prospects and good price momentum these days. My home country is Hong Kong, our benchmark Hang Seng Index is more like an emerging market these days but it’s still hard to find stocks with such characteristics in a “less efficient” market like Hong Kong. Even my mom who only had primary school education knows that we should try to pick such kind of stocks, which is very nice in theory, but hard and costly to really implement. In practice I think active investors are already being forced to sacrifice some quality for more value, or sacrifice some momentum for more quality, or any other possible combinations. But which combination is the right sauce? It would be another huge problem.

greenhill
larryswedroe
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Re: Why factor investing isn't working

Post by larryswedroe »

NPS
First, the idea of momentum, the intuition, is purely behavioral story, under and over reaction. With that said what the researchers like Toby Moskowitz for example (who wrote about crash risk in mom) are trying to do is to identify some possible risk based explanations as that would mean that it could not be arbed away. They make their best efforts to do so. Bottom line, based on my knowledge of them they believe it's behavioral (if not totally, almost totally).
In my books my goal was to present all the evidence so investors could decide for themselves.
Hope that is helpful
Larry
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Re: Why factor investing isn't working

Post by larryswedroe »

Greenhill
Glad you have found my musings helpful, that's why I write them (:-))

Hopefully you know I believe value is definitely some of both, especially in the small space where you have the lottery and black hole small growth stocks hurting returns to small in general. This is one reason why value premium is much larger in small than in large.

Sorry don't buy that skill story. The intuition doesn't make sense to me. There is no reason I can think of that the more expensive stocks can be the ones that are "undervalued". It's the same wrong thinking that Arnott uses in his argument for not market cap weighting--the most overvalued stocks are the highest market cap. In fact that is easily shown as false as the worse performers are the small growth stocks.

Finally, always happy to answer questions from readers of my books and articles, can email me directly at lswedroe@bamadvisor.com
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Re: Why factor investing isn't working

Post by nedsaid »

greenhill wrote: Wed Jul 17, 2019 3:03 am
nedsaid wrote: Wed Jul 17, 2019 12:53 am
Nedsaid,
I tend to agree with what you say in theory, for me I would say that pairing Value with Quality and Momentum (aka multifactor) is an upgrade of skill from using Value alone. But there are 2 potential problems. The first one is that despite having improved skill, the market as a whole also improves its skill and it will eventually catch up with the Value+Quality+Momentum strategy, though at a later time than Value alone. The second problem is, perhaps the Value+Quality+Momentum strategy is close enough to perfect in theory, but when the market on average is getting more efficient and skillful, the set of stocks which are cheap but stable with nice prospect may become an empty set. In fact, I think it’s already hard to name a few individual stocks which has reasonably low price-to-fundamentals ratios, stable earnings, nice growth prospects and good price momentum these days. My home country is Hong Kong, our benchmark Hang Seng Index is more like an emerging market these days but it’s still hard to find stocks with such characteristics in a “less efficient” market like Hong Kong. Even my mom who only had primary school education knows that we should try to pick such kind of stocks, which is very nice in theory, but hard and costly to really implement. In practice I think active investors are already being forced to sacrifice some quality for more value, or sacrifice some momentum for more quality, or any other possible combinations. But which combination is the right sauce? It would be another huge problem.

greenhill
With the continuing advances of Artificial Intelligence, algorithms and such, it is possible that the factors could be taken away. I know Larry Swedroe has that post publication that the factor premiums might have been reduced by 1/3. As far as factor crowding, that is money rushing into these corners of the market, no evidence this has happened except for Low Volatility. The valuation gaps between Value and Growth from what I have been told are very similar to 1999.

It seems that the Value premium has narrowed considerably for Large Cap stocks as these stocks have large trading volumes and are easy to short. Small Cap stocks have lesser trading volumes with higher bid/ask spreads and are more difficult to short. No evidence that I am aware of that the narrowing of premiums has happened with Small Value. Perhaps Larry himself can comment.

Markets can get distorted when torrents of money hit smaller parts of the stock market. The low volatility phenomenon is well known now, these type of stocks in some cases are more expensive than the market itself, you would see this with the Consumer Staples in the US market, which are priced like growth stocks. Most of the time, low volatility stocks are priced like Value stocks, something like 60% of the time. These types of stocks also have higher dividend yields, in a low interest rate environment, those seeking yield also buy these stocks.

Factors, in my opinion, are driven by human nature, human emotion, and human behavior. Driven by the old cycles of greed and fear. Low expectations are easier to beat in the marketplace than high expectations. I asked Larry if Value was cheap but not as cheap as we think and if Growth is expensive but not as expensive as we think, in other words is Value overvalued? He said this has not happened. The valuation gaps between Value and Growth have been widening and not narrowing from what I understand.

As far as market efficiency in your home market, Hong Kong is not lacking for fine minds. There are no barriers to the spread of the academic research, I am sure the literature is known of over there as well.
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Re: Why factor investing isn't working

Post by larryswedroe »

NEDSAID
The value premium has always been much larger in small caps than large caps which is why I developed the "Larry Portfolio" which is basically a global small value fund, and doing so provides the advantage of being able to hold less overall equity and cutting tail risk and sequence risk, using a risk parity type approach.

Note historically the large value premium has been economically but not statistically significant, for the reasons you cite (you only get the risk premium, not the behavioral premium because it's not hard to short the largest stocks).

And certainly in US no evidence that value has shrunk let alone disappeared. In fact I read today that one big investment bank came out with a "screaming" recommendation that now value is cheaper than it was in 99, just before it went on huge run.

Best wishes
Larry
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Re: Why factor investing isn't working

Post by psteinx »

Some issues with the factor enthusiasts' arguments:

1) To the extent that factor (out)performance in the past may have been behavioural, market structure has likely changed enough to cast serious doubt on forward performance.

The equity markets have changed DRAMATICALLY in the last few decades, from very little institutional investment, and little use of mutual funds, as late as the 1970s, to the modern era rife with mutual funds in general, and index funds in particular, taking a LOT of the casual investors out of the price-setting equation entirely (they're in index funds), and transferring a lot of what active decision-making remains into the hands of professionals. Yes of course there are still individual, poorly informed investors out there making bad decisions, but their likely impact now is MUCH smaller, and there is a lot more savvy money taking the opposite side of their bets.

Limits to arbitrage generally implies that it can be hard to short certain overvalue securities. But it's easy to be long undervalued securities. The amount of money chasing smart beta/factors/etc is likely much larger now than it was in 2000. How much have DFA's AUM grown in that time? How about all the other smart beta funds? If the only behavioural advantage of DFA and the like is avoiding a relatively small % of overvalued, hard-to-arb securities, I'm skeptical of the size of the advantage that would provide vs. total market (more or less) investing.

2) To the extent that it's RISK (or supposed to be):

Many portfolios that focus on only a subset of the market will be riskier than the market as a whole. That's why we prefer diversified portfolios rather than single stock or small baskets of stocks. The question isn't, "Does your portfolio's SD go up if you only invest in ~3% of the market (by market cap)", but rather "Does your portfolio's SD go DOWN if you omit certain slices of the market, or overweight others?"

By analogy, if we consider the BIG market of investment opportunities - stocks and bonds mainly, if you lower your stock allocation, relative to the global average allocation to stocks, your expected risk will generally fall in a significant and observable way. And furthermore, that's widely understood by investors, and their advisers. It's why those with less risk tolerance are advised to be 40/60 or 20/80 or whatever, and those with more risk tolerance are pushed the other way.

But how many folks out there are being advised to overweight large growth within their portfolio, to lower risk?

Or, if we take a more Sharpe-ian view of things, if the default recommendation is to hold the global market portfolio of all investment assets, with deviations from that per the particular circumstances of various investors (including, but not limited to tax situation and risk tolerance), what group is being advised to overweight large growth? To underweight small-value, within their equity allocation?

3) The particulars of determination of value:
F-F's research used price-to-book as primary sorting criteria. The implication is that book value has strong meaning, and a decent relationship to a company's true economic value. And during the primary period for F-Fs original research, 1926-199x, that might have been true. But the economy then was more industrial and more physical. Companies created profits in relation to fixed investments - factories, railroads, etc. If a widget factory sat on the books at $5M, but the stock market valued it at $2.5M, there's a good chance the market undervalued it.

But markets have changed. Economic leadership is much more about intellectual property and non-tangible assets (and liabilities) nowadays. Book value may translate to minimal, if any liquidation value if a company goes under or is sold for a pittance. Furthermore, companies buying back stock at various rates (sometimes leveraging up to do so), creating, if I understand things correctly, further serious distortions in book value per share as a useful measure.

Yes, you can supplement price to book with price to earnings or other measures. But if you do so, you're introducing new problems, and moving the goalposts some versus the original claim (roughly, that low price-to-book companies are, over time, a superior investment).

4) The argument equating market factor (beta) with size, value and other factors is weak:
In response to skepticism about factors, the argument is sometimes made that beta is just another factor like the others, has been negative for long stretches, and yet even factor skeptics will generally accept beta as expected to be positive, and these skeptics do generally have equity market exposure.

But there's a key difference, IMO.

Forward estimates of the equity risk premium (ERP, or Beta), are at least moderately observable. Forward estimates of size and value premiums are much less so.

Specifically:

* You can readily observe interest rates, both nominal and real, over various time frames. While one should be mindful of reinvestment risk and default risk of even safe instruments, I think it's fair to say that the forward return of bonds (assuming you match duration to the timeframe of interest to you), is fairly clear (EDIT - had said "quite high" by mistake), barring extreme outlier situations in the future.

* You can readily observe price to earnings (or better E/P) ratios of stocks, and, with slightly more difficulty, you can at least get some idea of the volatility of earnings over time. Making fairly plausible assumptions about growth of E based on long historical sequences, or just common sense and intuition, you can estimate the earnings yield of stocks. This gives you some basis to estimate the long term return of stocks, from current levels. Of course, volatility in valuations (i.e. P/E of market going way up or down) could (and has, historically), cause substantial variation between realized and expected returns. And different folks can reasonably disagree about expected changes in earnings levels of stocks. But, at the least, it's not hard to start with present values of E/P and do some hypothesizing about expected returns, from that.

* But for small, value, and the other factors, this is much less the case. While you can dig around in French's or others' data and try to do some historical analysis and draw some conclusions, I think you're on much shakier ground here than with equities (ERP/beta) as a whole. And current and historical relationships between value and growth, small and large sectors of the market are less available, and probably less uniform (i.e. definitions of "value" seem to vary widely) than the market.

So, I can look at current equity valuations and hazard an estimate that future ERP, over a long enough period of time, should be positive and reasonably substantial. It would be rather harder for me, or others, to hazard such an estimate about small and/or value.

(Long post already, so I'll continue in another post)
Last edited by psteinx on Wed Jul 17, 2019 3:12 pm, edited 1 time in total.
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Re: Why factor investing isn't working

Post by psteinx »

More issues with factor investing:

4) Conflicts of interest:

This board has generally shown an appropriate amount of skepticism towards those, EXTERNAL to the board, with conflicts of interest. Whole life insurance advocates and Edward Jones advisers, for instance, both are treated with skepticism. So too, are specific figures and specific articles and claims by various folks.

But, IMO, this board shows too much deference to those with conflicts, but who post here. And I don't want to isolate it to the main such individual who has posted in this thread. To the extent that many on this board accord significant weight to "person X says Y, and person X knows a lot more about investments than I do", they should also be aware of conflicts that person X may have. No, the discussion of issue Y should not devolve into ad-hominems against person X, but neither should blank assertions of person X about issue Y be accepted uncritically.

5) Backtesting

There's little doubt that small-value investing performed great, from about 2000-2004. Advocates for SV will frequently tout backtests/historical performance during periods that include 2000-2004. So be it - it's part of the record.

And yes, F-F published research before then that was seen as positive towards SV. DFA launched and jumped on this bandwagon before then, and some individuals may have advocated SV before then. Bravo to them.

But one should be cautious about overweighting that time period, even for individuals or entities that were onboard before then. Performance from 2004 onward has been lackluster. And the universe of POSSIBLE ways to outperform the market is large, and has been so for a long time.

The market has, I think, a shorter memory for the failures than for the successes. So, in any given year, many people are advocating many methods to beat the market. Some prove successful in the following few years, some not. The unsuccessful ones slink away, and the successful ones trumpet their success, even if it tails off into ho-hum returns after an initial burst. Were they good, or lucky? It's hard to say. And even if they WERE good, will they be good in the future, or were there methods successful in light of market conditions that have since changed?

5b) Backtesting, part 2

Also, even for those who have advocated something in the past that subsequently turned out successful, how many OTHER things did they advocate, before or after that key success, and how did THOSE things turn out? I won't get too specific here, as it does risk getting a bit ad-hominem-y. But before you get too fond of a guru-individual or an investment company with past success, consider carefully all the other ideas they've promoted besides the most successful 1 or 2, and how many of THOSE proved successful. And if you don't know their history well enough to say, then perhaps you shouldn't be considering them such a guru to begin with. People, and companies, have a way of promoting past success and sweeping failure under the rug...
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Re: Why factor investing isn't working

Post by nedsaid »

larryswedroe wrote: Wed Jul 17, 2019 1:15 pm NEDSAID
The value premium has always been much larger in small caps than large caps which is why I developed the "Larry Portfolio" which is basically a global small value fund, and doing so provides the advantage of being able to hold less overall equity and cutting tail risk and sequence risk, using a risk parity type approach.

Note historically the large value premium has been economically but not statistically significant, for the reasons you cite (you only get the risk premium, not the behavioral premium because it's not hard to short the largest stocks).

And certainly in US no evidence that value has shrunk let alone disappeared. In fact I read today that one big investment bank came out with a "screaming" recommendation that now value is cheaper than it was in 99, just before it went on huge run.

Best wishes
Larry
I beat them to it. On Sunday Jun 16, 2019 10:01 p.m., I put out a buy signal on US Large Value, US Mid Value, and US Small Value. I even did my best Jim Cramer imitation and hit the buy button. I did this mostly in jest as stlutz put me up to it. I don't want people rearranging their portfolios based upon my posts, folks need to act in accordance to their own investment plan.

I do believe this to be an opportune time for Growth to Value rebalancing and I have started to do that myself. I don't do extreme tilts myself and what I am doing is a modest retilt of my portfolio. We had such a Large Growth run that over time my portfolio sort of untilted. So what I am doing is restoring my tilts. No guarantees obviously.
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Re: Why factor investing isn't working

Post by nedsaid »

psteinx, as far as I know, there are two or three people who have said that they are Buckingham clients, which is Larry's firm. I think Larry has sold some books as a result of posting here but I doubt that amounts to very much money for him. He gets additional hits on his articles posted online. Don't think he is here trying to get business, I have never been approached by any firm for my business based upon my participation here. Most all of the folks who are tilting here are doing it on their own. I have seen a few portfolios here of someone using a DFA Advisor, saw one here yesterday, none of them were with Buckingham. The amount of time Larry has spent here is way out of proportion to what little financial benefit he might have received.

Posters here have recommended such folks at Alan Roth, Rick Ferri, Bill Schultheis, the Garrett Planning Network for consideration when someone asked for advisor referrals.

I would say the Bogleheads are a pretty tough crowd. I think everyone gets questioned here, no one gets a free pass.

I am not a client of Buckingham.
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Re: Why factor investing isn't working

Post by nedsaid »

By the way, psteinx made a couple of very good posts regarding the case against factor tilting.

My enthusiasm for factor tilting does not approach anything like religious fervor. The approach makes sense to me and represents a refining of my approach and beliefs that I have had for a long time. This is not a big departure from my long held investment philosophy. I have always been Value oriented though I have owned pretty aggressive investments as well, I favor International diversification for both stocks and bonds, and I have in more recent years tilted my portfolio towards Mid/Small Cap stocks.

For me the factors argument is more likely that not and a preponderance of evidence vs. proof beyond a reasonable doubt. The arguments for factors are compelling but not airtight. There have been lots of arguments about the data, one is that markets have changed so dramatically over the years that one has to wonder about the comparability of data from one decade to another.

So I hear loud and clear what is being said above in two long posts. There are some pretty good arguments against factor tilting and I have discussed these on the forum as well.

It is important that people have strong underlying beliefs that are grounded in reality. One good reason to study philosophy, which I sadly have really not so much. Just that I realize the importance of a world view and being grounded in strong beliefs. We have to assume certain things or we really cannot even think clearly. Beliefs affect perception, pretty much after my neighbor pulled up in a Subaru Outback Station Wagon, I saw the darned things all over the place, beforehand I didn't know the darned things existed.

What I am trying to say is that there is so much information out there that it can be a daunting task for an investor to sort the good information from sales puffery. Not always so easy to tell the difference. Having a strong grounding in core beliefs and a good investment philosophy helps us sort out what is helpful to us and what is not.

Also no good investment approach works all of the time and you need the conviction to stick to your plan when things look bad. The worst thing you can do is to sell your investments right at a market bottom and re-enter the markets only after security prices have recovered significantly. Conversely, folks get enthusiastic after markets have performed really well, performance chasing does not enhance returns. Buying high and selling low is not a good strategy but lots of folks do that anyways, wondering why the markets are rigged against them. Nothing wrong with the markets, just bad behavior based upon extremes of emotion. You can do this with investing strategies, strategies tend to start working again after people give up on them.
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Re: Why factor investing isn't working

Post by TropikThunder »

psteinx wrote: Wed Jul 17, 2019 2:08 pm No, the discussion of issue Y should not devolve into ad-hominems against person X, but neither should blank assertions of person X about issue Y be accepted uncritically.
I think this criticism is misplaced. The only name I see invoked uncritically here (with almost religious fervor) is Jack Bogle. If you’ve read this thread and still think people are accepting the pro-factor argument without question just because “Larry said so”, I don’t think you’ve been paying attention.
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Re: Why factor investing isn't working

Post by psteinx »

nedsaid wrote: Wed Jul 17, 2019 4:33 pm psteinx, as far as I know, there are two or three people who have said that they are Buckingham clients, which is Larry's firm. I think Larry has sold some books as a result of posting here but I doubt that amounts to very much money for him. He gets additional hits on his articles posted online. Don't think he is here trying to get business, I have never been approached by any firm for my business based upon my participation here. Most all of the folks who are tilting here are doing it on their own. I have seen a few portfolios here of someone using a DFA Advisor, saw one here yesterday, none of them were with Buckingham. The amount of time Larry has spent here is way out of proportion to what little financial benefit he might have received.

Posters here have recommended such folks at Alan Roth, Rick Ferri, Bill Schultheis, the Garrett Planning Network for consideration when someone asked for advisor referrals.

I would say the Bogleheads are a pretty tough crowd. I think everyone gets questioned here, no one gets a free pass.

I am not a client of Buckingham.
How much do you think the assorted advisers who publish articles on financial websites get paid (directly)? How much do advisers who blog get, directly (from advertisements or whatever)? How much do you think the royalty income is on books written by financial advisers?

I'd venture, between nothing and a pittance, in comparison with the time those folks spend doing it.

For some types of exposure, advisers likely pay (not GET paid). i.e. Weekend local financial talk shows on AM radio or local TV.

Advisers in general (and not Swedroe specifically) struggle for exposure and clients. Firm and adviser income is, I think, generally linked MUCH more strongly to AUM than real outperformance versus benchmarks.

Keep in mind that Swedroe's potential market is not just St. Louis area folks, but national, through both clients who may work directly with his firm despite being non-local, and through his firm's BAM Alliance.

Swedroe gets to post here for free, on perhaps the most popular financial forum for US passive investors. And he gets lots of praise, little criticism. I have, IIRC, been cautioned by mods at least once for what I thought was relatively mild criticism (Edit - I'm not sure if that was against Swedroe or a different figure who blurs the line...), and I may be cautioned again for this post.

Anecdote - About 6-8 years ago, the one and only meeting to date that I'm aware of the St. Louis area Bogleheads occurred at Swedroe's firm, in a large room. I attended, as did perhaps 60 other people. Swedroe gave a presentation. He's a pretty good presenter, IMO. I even remember one of the jokes he told. It was not a hard-sell, and I don't recall him handing out business cards at the end or the like. But it was, to this person who has been soft-sold before, a fairly clear soft-sell, and I'd be surprised if the large attendance there did not result in some solid prospects for him/his firm.

Now, none of that is to say he can't or shouldn't participate in a forum like this. For that matter, I sometimes wish we had a few more solid insurance guys, Ed Jones reps and the like, even if I wouldn't agree with everything they'd say. And furthermore, I suspect that participation by Swedroe on this forum is at least partially driven by his personal interest and enjoyment in the topics. But plenty of non-advisers post here to greater extent that Swedroe, often with far less praise. I'd like people to keep in mind that Swedroe's assertions are not magical truths, and that, while readers should be skeptical of just about everything they read on these forums, by any poster (including me), they should perhaps reserve a little extra skepticism for posts from those with significant conflicts of interest.

And on-point with the factor discussion in particular, evaluate claims about the past robustly - not only what went well, but what perhaps did not go well...
Last edited by psteinx on Wed Jul 17, 2019 6:49 pm, edited 1 time in total.
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Re: Why factor investing isn't working

Post by psteinx »

TropikThunder wrote: Wed Jul 17, 2019 5:22 pm
psteinx wrote: Wed Jul 17, 2019 2:08 pm No, the discussion of issue Y should not devolve into ad-hominems against person X, but neither should blank assertions of person X about issue Y be accepted uncritically.
I think this criticism is misplaced. The only name I see invoked uncritically here (with almost religious fervor) is Jack Bogle. If you’ve read this thread and still think people are accepting the pro-factor argument without question just because “Larry said so”, I don’t think you’ve been paying attention.
Well, it's hard to get away from the wisdom of Jack Bogle in a forum called Bogleheads.

FWIW, I don't think every single word out of Bogle's mouth was a pearl of wisdom either, but Bogle didn't post much here, and those who quote him or argue on his behalf seldom have much if any financial conflict of interest in advocating his line of thinking.
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Re: Why factor investing isn't working

Post by psteinx »

nedsaid wrote: Wed Jul 17, 2019 4:54 pm Also no good investment approach works all of the time and you need the conviction to stick to your plan when things look bad.
I think this idea is sometimes oversold. Sometimes it's expressed along the lines of "don't follow investment strategy X unless you'll stick with if for years" (and X is sometimes SV tilting).

There are costs to switching investment strategies. Sometimes tax costs. Sometimes transaction costs. Sometimes mental anguish. Sometimes time and effort. Sometimes ???.

So you shouldn't switch willy-nilly. But in general, you should try to be invested in whatever is the best strategy for the future, at assorted time horizons (1 day/week/month/year/decade/lifetime). And if, based on improved understanding, you now think that new strategy Y is better than old strategy X, net of switching costs, then you should generally switch.
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Re: Why factor investing isn't working

Post by MotoTrojan »

rascott wrote: Tue Jul 09, 2019 11:24 am
schooner wrote: Tue Jul 09, 2019 11:22 am
rascott wrote: Tue Jul 09, 2019 11:19 am
TropikThunder wrote: Tue Jul 09, 2019 11:14 am
schooner wrote: Tue Jul 09, 2019 11:11 am

Mr. Swedroe walked back his Vanguard recommendation in his response and said he would have recommended DFA. I think those are a bit more expensive. Add in an advisor fee (you don’t want to be a “fool” with the “tools” as Mr. Swedroe pointed out) and you’re looking at an expensive investment strategy
Not everyone has to pay an advisor to get access to DFA funds.

True....I have DFA funds available via my HSA.

There are low cost ETFs out there that do a great job of tracking close to several of the DFA funds, as well.
Interesting, what are the expense ratios? Do you pay an account/management fee on your hsa?


I think the DFA Large Cap Value fund is 0.37% ER.

No, this is an employer provided plan. Others may have DFA in their 401k plans.
My 401k does. Pretty reasonable ER. Hadn’t thought much about any of them; curious to research the International large cap.

https://www.guideline.com/funds
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Re: Why factor investing isn't working

Post by psteinx »

For those who perhaps think **I'm** too much of a factor skeptic, and/or in the interest of fuller disclosure, I've got some 529 money for my kids in DFA Large Value.

In my defense, it was an automatic conversion from some other fund, I think when DFA got involved in Missouri's 529 plan.

But for the other side, that switch happened ~2 years ago, and I haven't switched from the DFA fund to one of the Vanguard offerings... (money in and out of the relevant 529s has all gone to/come from the DFA fund).
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Re: Why factor investing isn't working

Post by psteinx »

And in still fuller disclosure, my/our portfolio is complicated, with all sorts of quite non-BH things, including assorted individual stocks, some of which are rather value-y (and some not). Overall, I'd guess we have a non-trivial overall tilt to large value, especially but not exclusively the large financials/banks.

But this is more driven by my enthusiasm, past or present, for certain specific stocks/securities and the financial sector, and less so from much conscious tilting to LV explicitly based on F-F research. But there was a time when I was a stronger supporter of the F-F approach than I am now.
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Re: Why factor investing isn't working

Post by nedsaid »

psteinx wrote: Wed Jul 17, 2019 5:32 pm
nedsaid wrote: Wed Jul 17, 2019 4:33 pm psteinx, as far as I know, there are two or three people who have said that they are Buckingham clients, which is Larry's firm. I think Larry has sold some books as a result of posting here but I doubt that amounts to very much money for him. He gets additional hits on his articles posted online. Don't think he is here trying to get business, I have never been approached by any firm for my business based upon my participation here. Most all of the folks who are tilting here are doing it on their own. I have seen a few portfolios here of someone using a DFA Advisor, saw one here yesterday, none of them were with Buckingham. The amount of time Larry has spent here is way out of proportion to what little financial benefit he might have received.

Posters here have recommended such folks at Alan Roth, Rick Ferri, Bill Schultheis, the Garrett Planning Network for consideration when someone asked for advisor referrals.

I would say the Bogleheads are a pretty tough crowd. I think everyone gets questioned here, no one gets a free pass.

I am not a client of Buckingham.
How much do you think the assorted advisers who publish articles on financial websites get paid (directly)? How much do advisers who blog get, directly (from advertisements or whatever)? How much do you think the royalty income is on books written by financial advisers?

I'd venture, between nothing and a pittance, in comparison with the time those folks spend doing it.

For some types of exposure, advisers likely pay (not GET paid). i.e. Weekend local financial talk shows on AM radio or local TV.

Advisers in general (and not Swedroe specifically) struggle for exposure and clients. Firm and adviser income is, I think, generally linked MUCH more strongly to AUM than real outperformance versus benchmarks.

Keep in mind that Swedroe's potential market is not just St. Louis area folks, but national, through both clients who may work directly with his firm despite being non-local, and through his firm's BAM Alliance.

Swedroe gets to post here for free, on perhaps the most popular financial forum for US passive investors. And he gets lots of praise, little criticism. I have, IIRC, been cautioned by mods at least once for what I thought was relatively mild criticism, and I may be cautioned again for this post.

Anecdote - About 6-8 years ago, the one and only meeting to date that I'm aware of the St. Louis area Bogleheads occurred at Swedroe's firm, in a large room. I attended, as did perhaps 60 other people. Swedroe gave a presentation. He's a pretty good presenter, IMO. I even remember one of the jokes he told. It was not a hard-sell, and I don't recall him handing out business cards at the end or the like. But it was, to this person who has been soft-sold before, a fairly clear soft-sell, and I'd be surprised if the large attendance there did not result in some solid prospects for him/his firm.

Now, none of that is to say he can't or shouldn't participate in a forum like this. For that matter, I sometimes wish we had a few more solid insurance guys, Ed Jones reps and the like, even if I wouldn't agree with everything they'd say. And furthermore, I suspect that participation by Swedroe on this forum is at least partially driven by his personal interest and enjoyment in the topics. But plenty of non-advisers post here to greater extent that Swedroe, often with far less praise. I'd like people to keep in mind that Swedroe's assertions are not magical truths, and that, while readers should be skeptical of just about everything they read on these forums, by any poster (including me), they should perhaps reserve a little extra skepticism for posts from those with significant conflicts of interest.

And on-point with the factor discussion in particular, evaluate claims about the past robustly - not only what went well, but what perhaps did not go well...
Doubtless, the types of things you discuss above add to Buckingham's presence and goodwill to the wider community. The books, articles, blogs, posts are ways for not only Larry but for his firm to build his brand and his firm's brand. That is a valuable thing. But that is capitalism. In a similar way, I keep track of former colleagues from previous employers, in large part because I genuinely like and care about them but there is also a motivation of building my network. Never know when you need to tap the network for help in getting your new job. So we both have altruistic and more selfish motivations in our personal relationships. But really Larry has a deep sense of wanting to give back into the wider community.

Rick Ferri sold his firm, Portfolio Solutions, and retired. Now that the non-compete clause in his contract to sell his firm has expired, Rick let word out here that he was starting his career up again and with it a new firm. He is doing podcasts and posting those on the forum. Again, Rick has pretty altruistic reasons for doing this but you know it builds contacts and goodwill. He gets referrals from forum members for one thing, folks that worked with Rick in the past and liked his work.

It just seems to me that if you do good for others that in some way that will benefit you in rather unexpected ways. Sort of what goes around comes around. Shoot, maybe somebody will like what I write here enough that I might get offered a job. You might say that I am building a brand around here. So far, no job offers from Cliff Asness, Buckingham, or the Wall Street Journal. I mildly criticized Rick a while back ago, so no job offers from him. But that isn't why I post here.

By the way, I poked fun at Cliff Asness mentioning that he resembled Rob Reiner a bit. Get out of my chair, meathead! He read it, and commented with good humor. Probably no job offers from AQR. Come to think of it, I have crossed swords with Larry so somehow I don't think Buckingham will come calling. Well, there is still the Wall Street Journal. Haven't poked fun at them yet, so there is hope!
Last edited by nedsaid on Wed Jul 17, 2019 6:38 pm, edited 1 time in total.
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Re: Why factor investing isn't working

Post by nedsaid »

psteinx wrote: Wed Jul 17, 2019 5:49 pm
nedsaid wrote: Wed Jul 17, 2019 4:54 pm Also no good investment approach works all of the time and you need the conviction to stick to your plan when things look bad.
I think this idea is sometimes oversold. Sometimes it's expressed along the lines of "don't follow investment strategy X unless you'll stick with if for years" (and X is sometimes SV tilting).

There are costs to switching investment strategies. Sometimes tax costs. Sometimes transaction costs. Sometimes mental anguish. Sometimes time and effort. Sometimes ???.

So you shouldn't switch willy-nilly. But in general, you should try to be invested in whatever is the best strategy for the future, at assorted time horizons (1 day/week/month/year/decade/lifetime). And if, based on improved understanding, you now think that new strategy Y is better than old strategy X, net of switching costs, then you should generally switch.
There are limits to anything I suppose, even rules of thumb or nuggets of wisdom. If your method of investing was placing bets at the race track, my advice would probably not be to stick with betting on the horses. If a 3 fund Taylor Larimore strategy is superior to the racetrack, by all means switch strategies.

Another reason for switching strategies is if you got talked into something but never deep down believed in it. If you are factor tilting because an advisor talked you into it but if you really are an efficient markets fanatic underneath, you probably should switch to a 3 Index fund strategy. Your strategy and your essential core beliefs need to be in alignment. One reason that I believe in the Investment Policy Statement, it force you to put such things down on paper. It is an exercise in knowing thyself.
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Re: Why factor investing isn't working

Post by psteinx »

nedsaid wrote: Wed Jul 17, 2019 6:23 pm
psteinx wrote: Wed Jul 17, 2019 5:32 pm
nedsaid wrote: Wed Jul 17, 2019 4:33 pm psteinx, as far as I know, there are two or three people who have said that they are Buckingham clients, which is Larry's firm. I think Larry has sold some books as a result of posting here but I doubt that amounts to very much money for him. He gets additional hits on his articles posted online. Don't think he is here trying to get business [snip]
Doubtless, the types of things you discuss above add to Buckingham's presence and goodwill to the wider community. The books, articles, blogs, posts are ways for not only Larry but for his firm to build his brand and his firm's brand. That is a valuable thing. But that is capitalism.[snip]
But the goalposts seem to have moved a bit from the first quoted part to the second.

Again, I don't know the details of Swedroe/Buckingham's business model. But I don't like the blanket belief that some have that he's only doing this to help others and has minimal if any ulterior motives.

Anyways, we can discuss factor investing without diving too deep into such matters. And Swedroe has the same right to participate in the conversation as Ferri, me, you, and all the others.

Logical claims can be evaluated on their merits. Empirical facts and claims can also be considered.

But I'm more reluctant to accept "guru" claims - claims on authority, not only from the two named sources, but many other gurus whose names and claims are bandied about, here and elsewhere. They're not always and ever worthless, but should be considered in light of the source and the source's knowledge, wisdom, and motivations.
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Re: Why factor investing isn't working

Post by rascott »

psteinx wrote: Wed Jul 17, 2019 7:01 pm
nedsaid wrote: Wed Jul 17, 2019 6:23 pm
psteinx wrote: Wed Jul 17, 2019 5:32 pm
nedsaid wrote: Wed Jul 17, 2019 4:33 pm psteinx, as far as I know, there are two or three people who have said that they are Buckingham clients, which is Larry's firm. I think Larry has sold some books as a result of posting here but I doubt that amounts to very much money for him. He gets additional hits on his articles posted online. Don't think he is here trying to get business [snip]
Doubtless, the types of things you discuss above add to Buckingham's presence and goodwill to the wider community. The books, articles, blogs, posts are ways for not only Larry but for his firm to build his brand and his firm's brand. That is a valuable thing. But that is capitalism.[snip]
But the goalposts seem to have moved a bit from the first quoted part to the second.

Again, I don't know the details of Swedroe/Buckingham's business model. But I don't like the blanket belief that some have that he's only doing this to help others and has minimal if any ulterior motives.

Anyways, we can discuss factor investing without diving too deep into such matters. And Swedroe has the same right to participate in the conversation as Ferri, me, you, and all the others.

Logical claims can be evaluated on their merits. Empirical facts and claims can also be considered.

But I'm more reluctant to accept "guru" claims - claims on authority, not only from the two named sources, but many other gurus whose names and claims are bandied about, here and elsewhere. They're not always and ever worthless, but should be considered in light of the source and the source's knowledge, wisdom, and motivations.
Paul Merriman got me interested in factors. If there is some nefarious motive that guy has, he's done an amazing job of hiding it.
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Re: Why factor investing isn't working

Post by nedsaid »

psteinx wrote: Wed Jul 17, 2019 7:01 pm
nedsaid wrote: Wed Jul 17, 2019 6:23 pm
psteinx wrote: Wed Jul 17, 2019 5:32 pm
nedsaid wrote: Wed Jul 17, 2019 4:33 pm psteinx, as far as I know, there are two or three people who have said that they are Buckingham clients, which is Larry's firm. I think Larry has sold some books as a result of posting here but I doubt that amounts to very much money for him. He gets additional hits on his articles posted online. Don't think he is here trying to get business [snip]
Doubtless, the types of things you discuss above add to Buckingham's presence and goodwill to the wider community. The books, articles, blogs, posts are ways for not only Larry but for his firm to build his brand and his firm's brand. That is a valuable thing. But that is capitalism.[snip]
But the goalposts seem to have moved a bit from the first quoted part to the second.

Again, I don't know the details of Swedroe/Buckingham's business model. But I don't like the blanket belief that some have that he's only doing this to help others and has minimal if any ulterior motives.

Anyways, we can discuss factor investing without diving too deep into such matters. And Swedroe has the same right to participate in the conversation as Ferri, me, you, and all the others.

Logical claims can be evaluated on their merits. Empirical facts and claims can also be considered.

But I'm more reluctant to accept "guru" claims - claims on authority, not only from the two named sources, but many other gurus whose names and claims are bandied about, here and elsewhere. They're not always and ever worthless, but should be considered in light of the source and the source's knowledge, wisdom, and motivations.
I was responding as the conversation progressed, not moving the goalposts really. I think one other area that Larry benefits from is getting feedback from his articles and books. This helps to refine his thinking and also know what current concerns that individual investors have. As far as Larry's guru status, I don't invest like him, for example I don't invest in Liquid Alts or in his Alternative Interval Funds. I also don't believe in the extreme tilts. This is a pretty tough crowd here, Larry gets respect but his ideas have been challenged here, believe me.
A fool and his money are good for business.
Dead Man Walking
Posts: 1041
Joined: Wed Nov 07, 2007 6:51 pm

Re: Why factor investing isn't working

Post by Dead Man Walking »

This thread has been a real hoot. I knew very little about factor investing when I began reading this thread. After reading it, I realize that I am not alone in my lack of knowledge. I’m not convinced that the experts really know what is going on in the realm of factors. Time will tell.

DMW
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