#23 - Gregg Fisher - "Sometimes the Best Investment Strategy Isn't the Right Investment Strategy"

53 minutes

If you’re a factor-investor, Episode 23 is for you. In fact, about 10 years ago, Gregg actually trademarked the term “multi-factor” in the use of mutual funds. Meb asks Greg which factors they use. It turns out “price-to-anything” isn’t bad. The conversation gravitates toward the behavioral side of investing, leading Gregg to an interesting comment: “Sometimes the best investment strategy isn’t the right investment strategy.” He goes on to illustrate by saying how if we bought nothing but small cap value stocks and held them for the next 50 years, we’d look back and realize that such a strategy would have been one of the most successful ones anyone could have chosen. The problem is the volatility of that strategy is off the charts, so most investors can’t see it through. In many ways, the experience of investing is as important to us as the outcome. Meb agrees, referencing a recent article detailing how Harvard’s endowment has posted a small loss over the last two years and some folks at Harvard are finding this totally unacceptable. But that’s to be expected with factor investing. As Gregg says, the whole concept of factor investing is to be different than the average investor. Next, Meb asks how to put together value and momentum. Turns out, there are lots of ways to slice this. Greg tells us to start with diversification, then differentiate across risk factors, tilting toward those factors that are well-rewarded for taking the risk. The guys then touch on factor investing in real estate, followed by top-down investing (Gregg doesn’t really adhere to top-down), then they move on to losses. We all know this intuitively, but huge losses can scar people – even to the point they never come back. So one of the keys to avoiding this is diversification. This bleeds into the topic of written investment plans. Gregg agrees that nearly no one has a written plan (though it would be great if they did). There’s far more, including currency hedging and smart beta factors. The episode winds down as Meb asks what advice Gregg might have for young investors who have only been exposed to the past 7 years of bull market. What’s Greg’s answer? Find out on Episode 23.

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