Why You Shouldn’t Put ALL Your Money into an Index Fund

Cliff Asness doesn’t have the name recognition of a Warren Buffett or a Carl Icahn. But among “quant” investors, his words carry a lot more weight.

Asness is the billionaire co-founder of AQR Capital Management and a pioneer in liquid alternatives. For all of us looking to build that proverbial better mouse trap, Asness is our guru. My own Peak Profits strategy, which combines value and momentum investing, was inspired by some of Asness’ early work.

Unfortunately, he’s been getting his butt kicked lately. His hedge funds have had a rough 2018, which prompted him to write a really insightful and introspective client letter earlier this month titled “Liquid Alt Ragnarok.”

“This is one of those notes,” Asness starts with his characteristic bluntness. “You know, from an investment manager who has recently been doing crappy.”

Rather make excuses for a lousy quarter (Asness is above that), he uses his bad streak to get back to the basics of why he invests the way he does.

As I mentioned, Asness specializes in liquid alternatives. In plain English, he builds portfolios that aren’t tightly correlated to the S&P 500. They’re designed to generate respectable returns whether the market goes up, down or sideways.

You don’t have to be bearish on stocks to see the value of alts. As Asness explains,

You do not want a liquid alt because you’re bearish on stocks or, more generally, traditional assets. That kind of timing is difficult to do well. Plus, if you’re convinced traditional assets are going to plummet, you want to be short, not “alternative.” In other words, liquid alts are a “diversifier” not a “hedge.”

You should invest [in a liquid alt] because you believe that it has a positive expected return and provides diversification versus everything else you’re doing. It’s the same reason an all-stock investor can build a better portfolio by adding some bonds, and an all-bond investor can build a better portfolio by adding some stocks.

I love this, so you’re going to have to forgive me if I “geek out” a little bit here. My professors pretty well beat this stuff into my head when I was working on my master’s degree at the London School of Economics.

When you invest in multiple strategies that aren’t tightly correlated with each other, your risk and returns are not the average risk and return of the individual strategies. The sum is actually greater than the parts. You get more return for a given level of risk or less risk for a given level of return.

Take a look at the graph. This is a hypothetical scenario, so don’t get fixated on the precise numbers. But know that it really does work like this in the real world.

Strategy A is a relative low risk, low return strategy. Strategy B is higher return, higher risk.

In a world where Strategies A and B are perfectly correlated (they move up and down together), any combination of the two strategies would be a simple average. If A returned 2% with 8% volatility and B returned 16% with 11% volatility, a portfolio invested 50/50 between the two would have returns of 9% with 9.5% volatility. That is what you see with the straight line connecting A and B. Any combination of the two portfolios would fall along that line (assuming perfect correlation).

But if they are not perfectly correlated (they move at least somewhat independently), you get a curve. And the less correlation, the further the curve gets pushed out.

Look at the dot on the curve that shows an expected return of about 8% and risk (or volatility) of 10%. On the straight line, that 8% curve would have volatility of about 14%, not 10%. And accepting 10% volatility would only get you a return of about 4% on the straight line.

This is why you diversify among strategies. Running multiple good strategies at the same time lowers your overall risk and boosts your returns. The key is finding good strategies that are independent. Running the basic strategy five slightly different ways isn’t real diversification, and neither is owning five different index funds in your 401k plan. Diversification is useless if all of your assets end up rising and falling together.

This article first appeared on Sizemore Insights as Why You Shouldn’t Put ALL Your Money into an Index Fund

Best ETFs for 2018: This Isn’t the Year for Emerging Markets (DVYE)

The following is an excerpt from Best ETFs for 2018: This Isn’t the Year for Emerging Markets (DVYE).

Well, I should probably start this by mentioning that I no longer personally own the ETF I recommended in InvestorPlace’s Best ETFs for 2018 contest.

I recently sold my shares of the iShares Emerging Markets Dividend ETF (DVYE). While I still believe that emerging markets are likely to be one of the best-performing asset classes of the next ten years, it’s a minefield in the short-term. As I write this, the shares are down 4% on the year. That’s not a disaster by any stretch, but it is a disappointment.

There are a couple reasons for the recent underperformance in emerging markets. To start, the U.S. market remains the casino of choice for most investors right now. Adding to this is dollar strength. While dollar strength is good for countries that sell manufactured products to the United States, it’s bad for commodities producers, as a more expensive dollar by definition means cheaper commodities.

President Donald Trump’s trade war isn’t helping either. While it’s hard to argue that anyone truly “wins” a trade war, Trump isn’t incorrect when it says that our trading partners need us more than we need them. In a war of attrition like this, you “win” by losing less.

Of course, these conditions are not new, and virtually all of them were in place when I made the initial recommendation of DVYE. None of these factors would be enough for me to punt on emerging markets just yet. No, the problem is a greater risk that has only recently popped up: the twin meltdowns in Argentina and Turkey.

To continue reading, please see Best ETFs for 2018: This Isn’t the Year for Emerging Markets (DVYE).

This article first appeared on Sizemore Insights as Best ETFs for 2018: This Isn’t the Year for Emerging Markets (DVYE)

Best Stocks for 2018: Enterprise Products Is a Keeper

The following is an excerpt from Best Stocks for 2018: Enterprise Products Is a Keeper.

A 14% return is nothing to be ashamed of in a year where the S&P 500 is up only 8%. Yet it looks awfully meager when my competition in the Best Stocks contest is up 144%.

As I write, my submission in InvestorPlace’s Best Stocks for 2018 contest — blue-chip natural gas and natural gas liquids pipeline operator Enterprise Products Partners (EPD)  — is up 14%, including dividends, as of today. Yet Tracey Ryniec’s Etsy (ETSY) is up a whopping 144%. Chipotle Mexican Grill (CMG) and Amazon.com (AMZN) take the second and third slots with returns to date of 71% and 68%, respectively.

So, barring something truly unexpected happening, it’s looking like victory may be out of sight this time around.

Can’t win ‘em all.

While Enterprise Products may finish the contest as a middling contender, I still consider it one of the absolute best stocks to own over the next two to three years. Growth stocks have dominated value stocks  since 2009, but that trend will not last forever. Value and income stocks will enjoy a nice run of outperformance — and when they do, Enterprise Products will be a major beneficiary.

To continue reading, please see Best Stocks for 2018: Enterprise Products Is a Keeper.

This article first appeared on Sizemore Insights as Best Stocks for 2018: Enterprise Products Is a Keeper

A Stealthy Way to Max Out Your 401(k) for the Year

Our fearless leaders in congress don’t always get it right. If fact, I’d go so far as to say they generally make a royal mess of things.

But when they created the 401k plan in 1978, they created the single best tax shelter and asset protection tool in U.S. history. And importantly, they made it available to ordinary Americans and not only the superrich. It’s no exaggeration to say that the humble 401k offers better tax savings and lawsuit protection than even the most complex (and expensive) offshore trust scheme.

In 2018, you can defer a maximum of $18,500 of your income ($24,500 if you are 50 or older) and stuff it into your 401k account, not including any employer matching. Depending on how generous your employer is, matching and profit sharing can add thousands of additional dollars to your account every year.

Let’s play with the numbers. If you and your spouse are in the 24% tax bracket (combined annual income of $165,000 to $315,000), contributing the full $18,500 apiece amounts to $8,880 in tax savings. That’s real money, and it adds up fast.

You should make every reasonable effort to max out your 401k every year. But if the shekels are tight and you’re having a hard time making ends meet on a reduced paycheck, I have a little trick for you.

Dollars are Fungible

The thing you should always remember is that your cash is fungible. A dollar in your left pocket is no different than a dollar in your right pocket. With this in mind, you can “convert” taxable savings sitting in your bank account to tax-deferred savings in your 401k.

You can’t literally move money from your checking account to max out your 401k, of course, as the funds have to come out of your paycheck. But this comes back to what I said about money being fungible. If you have cash savings sitting in the bank, you can live off of it for a few months while you dump your entire paycheck into the 401k plan. Once your contribution is maxed out for the year, you go back to living off of your paycheck. The net result is that you will have moved your cash savings from a taxable account to a tax-free account.

Unlike IRA contributions, which can be made up until the tax filing deadline in the following year, 401k contributions have to be made during the current calendar year. So, if you want to save money on your 2018 taxes, you need to make the contributions before December 31.

If you have taxable cash on had that you want to “convert” to tax-free 401k money, you still have time to do it this year. But time is getting short, so if you’re going to make a move you should do it now.

This article first appeared on Sizemore Insights as A Stealthy Way to Max Out Your 401(k) for the Year

Today on Straight Talk Money: Elon Musk’s Tesla Turnaround and More

I joined Peggy Tuck today on Straight Talk Money, and at the top of the agenda was Elon Musk and Tesla (TSLA). Tesla reported its worst loss in history, yet shares rallied hard as a more conciliatory Musk promised profits in the quarters ahead.

Musk, by the way, was the inspiration for Robert Downey Jr.’s Iron Man character from the Avengers movies. It’s debatable whether that makes Tesla stock worth buying.

 

In the next segment, we talk about Apple’s (AAPL) epic rise to $1 trillion… and whether it makes sense for billionaires like Amazon’s (AMZN) Jeff Bezos to keep substantially all of their net worth in their own company. My answer might surprise you.

 

In the final segment, we chat about the best places to invest should inflation make a comeback and look at a list of 10 stocks that have recently raised their dividends by at least 10%.

This article first appeared on Sizemore Insights as Today on Straight Talk Money: Elon Musk’s Tesla Turnaround and More

The Top 10 Presidents of All Time (At Least According to the Stock Market)

A more comprehensive version of this article covering all presidents back to 1889 was originally published on Kiplinger’s.

Mount Rushmore features massive 60-foot-tall busts of celebrated presidents George Washington, Thomas Jefferson, Abraham Lincoln and Theodore Roosevelt, each chosen for their respective roles in preserving or expanding the Republic.

But if you were to make a Mount Rushmore for presidents based on stock market performance, none of these men would make the cut. There really was no stock market to speak of during the administrations of Washington, Jefferson and Lincoln, and Teddy Roosevelt ranks as one of the worst-performing presidents of the past 130 years. In his nearly eight years in office, the Dow returned a measly 2.2% per year.

Just for grins, let’s see what a “stock market Mount Rushmore” might look like. And while we’re at it, we’ll rank every president that we can realistically include based on the available data.

Naturally, a few caveats are necessary here. The returns data you see here are price only (not including dividends), so this tends to favor more recent presidents. Over the past half century, dividends have become a smaller portion of total returns due to their unfavorable tax treatment.

Furthermore, the data isn’t adjusted for inflation. This will tend to reward presidents of inflationary times (Richard Nixon, Jimmy Carter, Gerald Ford, etc.) and punish presidents of disinflationary or deflationary times (Franklin Delano Roosevelt, George W. Bush, Barack Obama, etc.)

And finally, presidents from Hoover to the present are ranked using the S&P 500, whereas earlier presidents were ranked using the Dow Industrials due to data availability.

That said, the data should give us a “quick and dirty” estimate of what stock market returns were like in every presidential administration since Benjamin Harrison. (He ranks near the bottom, by the way, with losses of 1.4% per year).

PresidentFirst Day in OfficeLast Day in OfficeStarting S&P 500*Ending S&P 500*Cumulative ReturnDaysCAGR
* Dow Industrials used prior to President Herbert Hoover
^ Data though 7/2/2018
Calvin CoolidgeAugust 3, 1923March 3, 192987.20319.12265.96%203926.14%
Bill ClintonJanuary 20, 1993January 19, 2001433.371342.54209.79%292115.18%
Barack ObamaJanuary 20, 2009January 19, 2017805.222263.69181.13%292113.79%
Donald Trump^January 20, 2017July 2, 20182271.312703.8919.05%52812.81%
William McKinleyMarch 4, 1897September 13, 190130.2849.2762.68%166511.26%
George H.W. BushJanuary 20, 1989January 19, 1993286.63435.1351.81%146011.00%
Dwight EisenhowerJanuary 20, 1953January 19, 196126.1459.77128.65%292110.89%
Gerald FordAugust 9, 1974January 19, 197780.86103.8528.43%89410.76%
Ronald ReaganJanuary 20, 1981January 19, 1989131.65286.91117.93%292110.22%
Harry TrumanApril 12, 1945January 19, 195314.2026.0183.17%28398.09%
Lyndon JohnsonNovember 22, 1963January 19, 196969.61102.0346.57%18857.68%
Warren HardingMarch 4, 1921August 2, 192375.1188.2017.43%8816.88%
Jimmy CarterJanuary 20, 1977January 19, 1981102.97134.3730.49%14606.88%
John KennedyJanuary 20, 1961November 21, 196359.9671.6219.45%10356.47%
Franklin RooseveltMarch 4, 1933April 12, 19456.8114.05106.31%44226.16%
Woodrow WilsonMarch 4, 1913March 3, 192159.1375.2327.24%29213.06%
Theodore RooseveltSeptember 14, 1901March 3, 190951.2960.5017.95%27272.23%
William Howard TaftMarch 4, 1909March 3, 191359.9259.58-0.56%1460-0.14%
Benjamin HarrisonMarch 4, 1889March 3, 189340.0737.82-5.61%1460-1.43%
Richard NixonJanuary 20, 1969August 8, 1974101.6981.57-19.78%2026-3.89%
Grover ClevelandMarch 4, 1893March 3, 189737.7530.86-18.25%1460-4.91%
George W. BushJanuary 20, 2001January 19, 20091342.90850.12-36.702921-5.55%
Herbert HooverMarch 4, 1929March 3, 193325.495.84-77.08%1460-30.82%

At the very top of the list is Calvin Coolidge, the man who presided over the boom years of the Roaring Twenties. Coolidge, a hero among small-government conservatives for his modest, hands-off approach to government, famously said “After all, the chief business of the American people is business. They are profoundly concerned with producing, buying, selling, investing and prospering in the world.”

It was true then, and it’s just as true today.

In Coolidge’s five and a half years in office, the Dow soared an incredible 266%, translating to compound annualized gains of 26.1% per year.

Of course, the cynic might point out that Coolidge was also extraordinarily lucky to have taken office just as the 1920s were starting to roar… and to have retired just as the whole thing was starting to fall apart. His successor Hoover was left to deal with the consequences of the 1929 crash and the Great Depression that followed.

The second head on Rushmore would be that of Bill Clinton. Clinton, like Coolidge, presided over one of the largest booms in American history, the 1990s “dot com” boom. And Clinton, particularly during the final six years of his presidency, was considered one of the more business-friendly presidents by modern standards.

The S&P 500 soared 210% over Clinton’s eight years, working out to annualized returns of 15.2%.

Not far behind Clinton is Barack Obama, who can boast cumulative returns of 181.1% and annualized returns of 13.8%. President Obama had the good fortune of taking office right as the worst bear market since the Great Depression was nearing its end. That’s fantastic timing. All the same, 181% cumulative returns aren’t too shabby.

Interestingly, the infamous “Trump rally” places Donald Trump as the fourth head on Mount Rushmore with annualized returns thus far of 12.8% It’s still early, of course, as President Trump is not even two years into his presidency. And given the already lofty valuations in place when he took office, it’s questionable whether the market can continue to generate these kinds of returns throughout his presidency. But he’s certainly off to a strong start.

After Trump, the next four presidents – William McKinley, George H.W Bush, Dwight Eisenhower and Gerald Ford – are clumped into a tight band, each enjoying market returns of between 10.8% and 11.3%. And the top 10 is rounded out by Ronald Reagan and Harry Truman, with annualized returns of 10.2% and 8.1%, respectively.

We’ve covered the winners. Now let’s look at the losers; the “Mount Rushmore of Stock Market Shame,” if you will.

Herbert Hoover occupies the bottom rung with a truly abysmal 77.1% cumulative loss and 30.8% annualized compound loss. In case you need a history refresher, Hoover took office just months before the 1929 crash that ushered in the worst bear market in U.S. history.

Don’t feel too sorry for Hoover, however. 1,028 economists signed a letter warning him not to sign the Smoot Hawley Tariffs into law… yet he did it anyway. This helped to turn what might have been a garden variety recession into the Great Depression. That’s on you, Hoover.

In second place is George W. Bush, with annualized losses of 5.6%. Poor W had the misfortune of taking office just as the dot com boom of the 1990s went bust and shortly before the September 11, 2001 terror attacks helped to push the economy deeper into recession. And if that weren’t bad enough, the 2008 mortgage and banking crisis happened at the tail end of his presidency.

Sandwiched between two of the worst bear markets in U.S. history, poor W never had a chance.

Rounding out the Mount Rushmore of Stock Market Shame are Grover Cleveland and Richard Nixon with annualized losses of 4.9% and 3.9%, respectively.

Nixon’s presidency was marred by scandal and by the devaluation of the dollar, neither of which was good for market returns.

Poor Cleveland, on the other hand, was just unlucky. By any historical account, he was a responsible president who ran an honest and fiscally sound administration. But then the Panic of 1893 hit the banking system and led to a deep depression. The fallout was so bad that it actually led to a grassroots revolt and to a total realignment of the Democratic Party. After Cleveland fell from grace, the mantle of leadership shifted to Progressives Woodrow Wilson and William Jennings Bryan, and the rest is history.

To see the full rankings of all presidents since 1889, see The Best and Worst Presidents (According to the Stock Market)

 

This article first appeared on Sizemore Insights as The Top 10 Presidents of All Time (At Least According to the Stock Market)

Dividend Growth Portfolio 2nd Quarter 2018 Letter to Investors

At the halfway point, 2018 is shaping up to be a good year for us. The first quarter was rough. In addition to the correction that dinged virtually all long-only portfolio managers, rising bond yields punished some of our more rate-sensitive positions, particularly REITs and MLPs. Though as yield fears subsided in the second quarter, the Dividend Growth portfolio recouped nearly all of its losses and entered the third quarter with strong momentum.

Through June 30, the portfolio returned 0.39% before management fees and -0.36 after all fees and expenses. Encouragingly, the returns for the second quarter were 7.92% gross of management fees and 7.17% net of all fees and expenses. [Returns figures compiled by Interactive Brokers and represent the real returns of a portfolio managed with firm capital. Returns realized by individual investor may vary based on account size and other factors. Past performance is no guarantee of future results.]

By comparison, through June 30, the S&P 500 index was up 1.67% through June 30 and up 2.93% in the second quarter.

So, while 2018 got off to a rough start, our portfolio has significant momentum behind it as we enter the second half. Our positions in energy — most notably midstream oil and gas pipelines — in real estate and in private equity managers have been the strongest contributors to returns. Our positions in European and emerging market equities have been the biggest drag on returns.

As a portfolio with a strong income mandate, the Dividend Growth portfolio is naturally going to have more interest-rate sensitivity than a broad market index such as the S&P 500. When yields are rising – as they were in the first quarter – this presents a risk. But when yields are stable or falling – as they were in the second quarter – it presents an opportunity.

The question we now face is this: What are interest rates likely to do in the second half of the year?

Ultimately, I expect that the path taken by interest rates will depend on two factors: inflation expectations and fears stemming from the nascent trade war.

I’ll address inflation expectations first. The unemployment rate has been hovering around the 4% mark for all of 2018. Traditionally, many economists have considered a 5% unemployment rate to be “full employment,” as there will always be some segment of the population that is either between jobs or not reasonably employable. Also, there are new would-be workers that come out of the woodwork (students, stay-at-home mothers, bored retirees, etc.) when the labor market gets sufficiently tight as it is today.

At 4%, we are significantly below “full employment,” which has led many economists to expect an uptick in inflation. Thus far, however, inflation has remained muted. PCE inflation (the rate used by the Federal Reserve in its decision making) has been running near or slightly above the Fed’s targeted 2% rate over the past six months, but it is not trending higher, or at least not yet.

If you’ve followed my research for any length of time, you know my view of inflation and the tools used to measure it. I don’t believe it is realistic to expect inflation at the levels seen in previous expansions due the demographic changes affecting the country. America’s Baby Boomers as a generation are well past the peak spending years of the early 50s. In fact, the front end of the generation is already several years into retirement.

The Boomers have been the economic engine of this country for over 40 years. As they retire, the borrow and spend less, taking aggregate demand out of the economy.

This isn’t purely academic. It’s been happening in Japan for over 20 years. Japan’s reported unemployment rate, at 2.8%, is even lower than ours. And Japan’s deficit spending and central bank stimulus absolutely dwarf those of America if you adjust for the relative sizes of the two economies. Yet Japan hasn’t had significant, sustained inflation since the early 1990s… when Bill Clinton was still the governor of Arkansas.

At the same time, automation technology and artificial intelligence is already eliminating jobs. Walk into a McDonalds today. You can order at a kiosk and never actually speak to a human employee.

At the higher end, Goldman Sachs reported a year ago that half of its investment banking tasks could viably be automated away.

While there are clearly exceptions in certain high-skilled jobs, the fact is that labor gets replaced by cheap technology as soon as it gets too expensive. It’s hard to imagine sustained inflation in this kind of environment.

Of course, this doesn’t mean that Mr. Market won’t decide to fret about it in the second half and send yields higher again. But I would consider any short-term weakness on higher bond yields to be a buying opportunity.

This leaves the fear of an economic slowdown. Right now, the economic numbers look healthy and there is no immediate sign of recession on the horizon. But unemployment tends to reach its lowest points near the end of the expansion. Furthermore, the Fed is aggressively raising rates, which is flattening the yield curve. A flat or inverted yield curve is a sign of economic distress and usually precedes a recession.

United States Treasury Yield Curve

Does any of this mean a recession is “due” tomorrow? No, of course not. But it does suggest that we are late in the economic cycle, at a point when value sectors and higher-yielding sectors tend to outperform.

So, while I may make a few minor portfolio adjustments in the third quarter, I believe we are very well positioned at the half.

Looking forward to a strong finish to 2018,

Charles Lewis Sizemore, CFA

 

3 Things You Should Always Ask a Financial Adviser

The following first appeared on Kiplinger’s as 3 Things You Should Always Ask a Financial Adviser.

Your choice of financial adviser might be the single most important decision you ever make, short of your spouse or maybe your doctor.

While you might not be putting your life in his or her hands, per se, you’re certainly putting your financial future at risk. A good adviser can help you protect the savings you’ve spent a lifetime building, and – with good planning and maybe a little luck from a healthy stock market – grow it into a proper nest egg.

But how do you choose?

Let’s take a look at some traits you’ll want to look for, as well as three questions you’ll want to ask any prospective candidate.
What you want in a financial adviser

An older adviser with a little gray in their hair might instinctively seem safer, but ideally you don’t want an adviser that will kick the bucket before you do. However, going with a younger adviser introduces greater uncertainty as they will generally have a shorter track record.

Likewise, educational pedigree matters … but not as much as you might think. You can assume that an adviser with an Ivy League degree is highly intelligent and motivated, and those are qualities you want to see. But these same characteristics can make for lousy investment returns if they mean the adviser is overconfident. Investing is a game in which discipline, patience and humility generally matter more than raw brains and ambition.

As Warren Buffett famously said, “Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ.”

Yes, you want your adviser to be smart. But don’t be overly swayed by fancy degrees.

To finish reading the article, please see 3 Things You Should Always Ask a Financial Adviser.

This article first appeared on Sizemore Insights as 3 Things You Should Always Ask a Financial Adviser

Is Value Dead?

Value investing has historically been a winning strategy… but it’s been a rough couple of years.

So… is value dead? Should we all just buy the S&P 500 and be done?

The rumors of value’s death have been greatly exaggerated. Larry Swedroe wrote am excellent piece on the subject this month, Don’t Give Up On the Value Factor, and I’m going to publish a few excerpts below.

As the director of research for Buckingham Strategic Wealth and The BAM Alliance, I’ve been getting lots of questions about whether the value premium still exists. Today I’ll share my thoughts on that issue. I’ll begin by explaining why I have been receiving such inquiries.

Recency bias – the tendency to give too much weight to recent experience and ignore long-term historical evidence – underlies many common investor mistakes. It’s particularly dangerous because it causes investors to buy after periods of strong performance (when valuations are high and expected returns low) and sell after periods of poor performance (when valuations are low and expected returns high).

A great example of the recency problem involves the performance of value stocks (another good example would be the performance of emerging market stocks). Using factor data from Dimensional Fund Advisors (DFA), for the 10 years from 2007 through 2017, the value premium (the annual average difference in returns between value stocks and growth stocks) was -2.3%. Value stocks’ cumulative underperformance for the period was 23%. Results of this sort often lead to selling.

Charles here. Other than perhaps overconfidence, recency bias is probably the most dangerous cognitive bias for the vast majority of investors. Investors look at the recent past and draw the conclusion that this is “normal” and representative of what they should expect going forward. This is why otherwise sane people do crazy things like buy tech stocks in 1998, Florida homes in 2005 or Bitcoin in late 2017.

Investors who know their financial history understand that this type of what we might call “regime change” is to be expected. In fact, even though the value premium has been quite large and persistent over the long term, it’s been highly volatile. According to DFA data, the annual standard deviation of the premium, at 12.9%, is 2.6-times the size of the 4.8% annual premium itself (for the period 1927 through 2017).

As further evidence, the value premium has been negative in 37% of years since 1926. Even over five- and 10-year periods, it has been negative 22% and 14% of the time, respectively. Thus, periods of underperformance, such as the one we’ve seen recently, should not come as any surprise. Rather, they should be anticipated, because periods of underperformance occur in every risky asset class and factor. The only thing we don’t know is when they will pop up.

 

 

Well said.

After a period like the past ten years, it’s easy to draw the conclusion that value is dead. But investors drew the same conclusion in 1999… and they were dead wrong.

As a case in point, see Julian Robertson’s last letter to investors.

 

 

This article first appeared on Sizemore Insights as Is Value Dead?

Today on Straight Talk Money: All About Warren Buffett

I joined Peggy Tuck this morning on Straight Talk Money. Given that Berkshire Hathaway just had its annual meeting, we have Buffett on the brain. We discuss the Warren Buffett’s career and a few things you might not know about the Oracle.

Part 1:

Part 2:

Part 3:

Part 4:

This article first appeared on Sizemore Insights as Today on Straight Talk Money: All About Warren Buffett