#59: Radio Show: The Death of Value Investing


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Jun 28 2017 67 mins   14
Episode 59 is a radio show format. This week we're diving into some of the recent market stories which Meb has found most interesting. We also bring back some listener Q&A. We start with a Tweet from Cliff Asness, in which he rebuffs a Bloomberg article titled, "The Death of Value Investing."� The article states that value isn't working. Sticking to that approach has resulted in a cumulative loss of 15 percent over the past decade, according to a Goldman Sachs Group Inc. report. During roughly the same period, the S&P 500 Index has almost doubled." So is value investing dead? Meb gives us his thoughts. We discuss its underperformance, mean reversion, and factor-crowding. Next up is a New York Times article referencing a recent stance-reversal from Burt Malkiel, a passive investing legend. He's now saying he recognizes where active investing can exploit certain market inefficiencies. The same article has some great quotes from Rob Arnott on the topic of factor investing, and the danger in tons of quants all looking at the same data and trading on it. Meb gives us his thoughts on factor timing and rotation, using trend with factors, and the behavioral challenges involved in both. Another Arnott quote steers the conversation toward backtesting - the pitfalls to avoid when backtesting, so you don't create a strategy that looks brilliant in hindsight, but is hideous going forward. Next up are some listener questions: I still can't wrap my head around how to use commodities in a portfolio. The Ivy Portfolio promotes putting 20% in a broad commodity index, but in the podcast, I've heard you discuss the financialization of commodities futures leading to loss of roll yield. So what's the answer here? Include commodities as an inflation hedge but be prepared to pay the price of long term drag? Or forget about commodities and just focus on stocks/bonds/real estate? Please explain the difference between the unadvised practice of performance chasing and the highly encouraged practice of momentum investing. I would like to know your thoughts on implementing lifecycle glidepaths for an individual or clients' portfolio. Your quant-style approach looks at risk a lot different than most, but I do see value in reducing portfolio risk as you come closer to withdrawing the money - the question is which risk, or what approach do you use to reduce the risk? Regarding your trinity style approach, does that mean reducing from a Trinity 5 to a Trinity 3 (for example) a couple years prior to retirement? There's plenty more - including our new partnership with Riskalyze, which enables advisors to allocate client assets into Trinity portfolios. But the more interesting story is how Meb gave his wife food-poisoning the other night. How'd he do it? Find out in Episode 59. �