Advanced Investing

I’ll admit it. When I list all the ways investors have no control over portfolio performance, it does not make me the life of the party. I’m more the party pooper, telling investors they shouldn’t chase after hot holdings, dump declining ones, or jump in and out of the market based on whims and emotions.

I think we all know that its a good idea to have a mix of bonds and stocks in an investment portfolio. The bonds dampen down the portfolio volatility, and act as a hedge when equities tank.

I think that the term “factor investing” has been diluted by the onslaught of new, poor quality, factor-based products in the investment product market place.

Have you ever noticed? What’s clear to an “insider” isn’t always so obvious to everyone else. Doctors, lawyers, engineers … investment advisors. I’m afraid we’ve all been guilty of tossing around too many technical terms without defining them first.

Rob Arnott, the founder of Research Affiliates, was on the Masters in Business podcast a while back. He said something that, to me, was fascinating. He criticized Dimensional Fund Advisors for starting with market cap weights to build their products.

Everyone likes to believe they’re smart consumers. That’s probably why the term “smart beta,” also known as “factor investing,” is so hot right now. “Stupid beta” probably wouldn’t attract many takers. So what is factor investing, and are you smart to use it? That’s what today’s post and related video are all about.

The fixed income component of the Dimensional Fund Advisors global portfolios has been low to-date in 2018, and also for the past 12 months. It is down 0.51% year-to-date at July 2018, and down 0.27% for the 12 months ending July 2018.

We may have just witnessed the longest bull market in US market history. There is some disagreement on the definition of a bull market, but no matter how it is defined it is clear that the S&P 500 has been rising without too much interruption for a long time.

Value stocks in the US have not fared well for the last decade. The value premium, or the performance difference between value and growth stocks, has been about 3.5% in the US going back to 1928. More recently the value premium has been negative for 7 out of the past 10 years in the US. We are currently living through 1 of 13 10-year periods going back to 1928 where value has underperformed growth.

On episode 18 of the podcast, I’m joined by The Globe and Mail’s Rob Carrick, who I think is the top personal finance journalist in Canada. When I made my living as a financial writer, it was always difficult to stay relevant to investors.